Analysis: Welsh health boards facing financial challenge

Major changes will be announced by health boards later this summer

There are few fiercer political battlegrounds in Wales than health funding. Not surprising, given that it makes up more than 40% of all devolved spending, or more than £5bn a year.

Warnings of a cash squeeze in the NHS have been growing for many years, with pressures on services and waiting list targets combined with a sprawling, inefficient estate of buildings and huge costs for locum doctors in rural areas.

Major plans to reconfigure the way healthcare is delivered will be unveiled this summer by the seven Local Health Boards - but they'll take some years to come to fruition - and in the meantime, the financial situation, as has been pointed out by the Auditor General today, is becoming acute.

Last year, on top of their allocations from the Welsh government at the start of the financial year, health boards received an additional £133m in October, designed to keep them afloat to the end of the financial year.

Despite this, four out of the seven health boards needed an emergency last minute cash advance, amounting to £24m, to avoid breaching their legally-binding breakeven targets.

The Welsh Government say this is merely "flexibility".

But the Audit Office says it is unsustainable for boards to be starting one financial year already carrying deficits from the previous one, given the scale of the challenge they face.

And what a challenge. Looking at the financial projections of the health boards, six out of the seven have put on record the financial gap they face between now and next April. The total is around £230m.

That figure would be frightening enough - but it's actually worse than it appears - and here's why.

Last year, the government kept back cash from the initial allocations to the LHBs and gave it to them as extra funding in October - the £133m allocation referred to earlier.

They say that £103m of that was recurrent, that is, that the boards will get it again <italic>this</italic> year.

'Very serious difficulty'

But they've confirmed that instead of being held back, it is already factored into the LHB budgets as of the start of this financial year.

Most of the rest of the £133m is also already allocated in a special funding deal for Hywel Dda LHB.

What does that mean?

It means that the boards are already saying they think they are £230m short of what they need this year, even after taking into account the extra funding from the Welsh government.

It also means there's going to be precious little in the Welsh government's reserves should the boards fail to make savings of nearly a quarter of a billion pounds between now and next April.

If LHBs have made ends meet by muddling through and make do and mend over the last few years - this challenge is far beyond what could possibly be achieved by that.

If the health minister sticks to her no bailout pledge this year then the boards are likely to find themselves in very serious difficulty indeed.