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Last Updated: Tuesday, 6 June 2006, 16:56 GMT 17:56 UK
Q&A: NHS deficits
Money generic
One in four trusts finished 2004-5 in deficit
The NHS is in the grip of a financial crisis.

The BBC News website examines why this is happening at a time when the health service is getting record amounts of money?

What is happening?

Nearly a third of NHS organisations failed to balance their books in 2005-6, leaving the NHS with a deficit of 512m.

It means the total has more than double in the last 12 months, with the worst problems concentrated in the south-east and east of England.

In recent months, thousands of job cuts have been announced as trusts try to stay in the black.

The Liberal Democrats claim the eventual toll could top 20,000.

Health bosses are also taking other measures, including closing wards and delaying operations.

Why is this happening?

It depends who you ask. The opposition parties have blamed mismanagement by government, pointing out pay rises for GPs, hospital consultants and nurses have cost much more than expected.

The King's Fund health think-tank believes there is something in this, claiming 40% of the extra money being pumped in to the NHS is going on wage hikes.

While others have pointed the finger of blame at targets for distorting clinical priorities and forcing managers to plough extra money into areas just to meet centrally-driven goals.

The government defends its record, saying it is increasing the budget by more than 7% a year.

Health Secretary Patricia Hewitt has said the deficits are down to bad management as many trusts have been able to balance the books.

But there is also a train of thought that the NHS needs to cut staff numbers - it is the fourth largest employer in the world with 1.3m staff - and trim down the size of hospitals.

Government reforms place more emphasis on providing services in the community which means hospitals do not need to be so big.

Are the deficits really a lot of money in reality?

Yes and no. The NHS is receiving over 70bn this year so a few hundred million represents much less than 1%.

But the problem is that much of the money is being saved by trimming hospital costs - community care is getting more money in the next few years - at a time when there are huge demands on services because of waiting time targets.

The result is that a budget cut of under 1% feels bigger than it would in many organisations.

The NHS is also aware that its period of record funding increases is coming to an end in 2008 and so has to budget for that.

Has this happened before?

Yes. In the last decade the NHS has yo-yoed between surplus and deficit from year to year.

But the issue never hit the headlines like it has in the past few months.

There are a variety of reasons for this. Clever accounting often covered up the true picture of deficits.

But while the Labour government has undoubtedly brought more transparency to the accounts, it has also ratcheted up expectations.

Ministers have made a lot of political capital out of the record investment being ploughed into the health service.

And so it is no surprise that when things go wrong, it becomes headline news.

Are patients being affected?

Both the government and individual trusts say patient disruption is being kept to a minimum.

Redundancies look like they will be kept down because of mergers of local NHS bodies and natural wastage.

But it is impossible not to cut services without affecting care in the short-term.

Some patients are having to wait for operations when there are doctors and theatres free to carry out surgery.

A few trusts have changed the threshold for treatment, meaning people with mild conditions are no longer entitled to care.

What does the future hold?

Probably more of the same. The government has promised that by the end of 2006-7 the NHS will break even.

Financial hit-squads have already been brought into the trusts with the worst deficit problems and action plans are being drawn up.

But in the short-term ward closures and job cuts are likely to continue, especially in those trusts which are struggling the most.

However, the scaling down of services and resources has also to be seen in the context of health service reforms.

Over the next few years, ministers want to see more care shifted away from hospitals and into the community - a move which will require smaller hospitals and fewer staff.

And this year sees the further rolling out of payment by results, a system whereby hospitals are paid per patient treated, which could deprive some NHS trust of money.

If this was not enough, the health service as a whole will have to make do with smaller annual rises in the budget from 2008 once the record funding programme comes to an end.




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