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Last Updated: Tuesday, 6 June 2006, 23:14 GMT 00:14 UK
Why are NHS deficits making the headlines?
By Nick Triggle
Health reporter, BBC News

The NHS is facing mounting deficits.

But this is not the first time the problem has occurred. So why is it hitting the headlines this year?

Deficits are not a new phenomenon

As far as the health service goes, the deficit has been the number one story in town.

Newspapers have been full of stories of job cuts, ward closures and operation delays as hospitals struggle to balance the books.

Judging by the outcry, it would be easy to assume this is the first time the NHS has had problems staying in the black.

But assuming the latest figures for 2005-6 show the health service is in deficit, it will be the sixth time in the last decade that a deficit has been run up.

In the last year of the Major administration, the health service ran up a 460m deficit, which represented 1.4% of the budget that year.


To put that into context, if the latest figure stays under 600m it will be nearly half the 1996-7 figure as a proportion of the budget.

So why the controversy now?

It seems there are a number of reasons why NHS finances have become such a political hot potato.

When Tony Blair came to power, he made the NHS one of his top priorities, warning the electorate they had 24 hours to save the health service on the eve of his 1997 election victory.

1996-7 - 460m deficit
1997-8 - 121m deficit
1998-9 - 18m deficit
1999-2000 - 129m deficit
2000-1 - 112m surplus
2001-2 - 71m surplus
2002-3 - 96m surplus
2003-4 - 73m surplus
2004-5 - 221m deficit

And coupled with the record levels of funding the NHS has been receiving since 2002, the expectations of the public have been raised.

Chris Ham, professor of health policy at Birmingham University, said: "It is hard for people to understand why, at a time when so much money is being ploughed into the NHS, that it is struggling with money.

"The public thought the health service was a priority for the government, and while there are reasons for the deficits, it makes it uncomfortable for ministers."

But the way finances are handled has also changed. In the past trusts - or health authorities as they were known then - would share deficits and surpluses around.

For example, if a trust was 5m in surplus, while its neighbour was 5m in deficit, the figures would simply cancel each other out.


This was known as brokerage, but Labour have looked to stamp out the practice, demanding trusts balance their books on their own each year. Sharing of surpluses and deficits still does go on in some places, but in a much more transparent and acknowledged way.

The effect of this is ward closures and job losses - both of which make headline news.

John Appleby, chief economist at the King's Fund health think-tank, said: "Money was shifted around and it was hard to see who was in surplus and who was in deficit.

"There also used to be shifting around of money from capital budgets. Instead, of getting the roof done this year, it was put off until the following so services could be provided.

"This is not done that much.

"It was also easier for hospitals to manage deficits. If a hospital was struggling it could close a ward and stop operating.

"That is not so easy when they have to meet targets. It is tough for the NHS now."

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