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Last Updated: Wednesday, 6 June 2007, 11:05 GMT 12:05 UK
Q&A: NHS finances
The NHS has registered a surplus for the last financial year, although many individual NHS trusts remain in debt.

The issue has been at the very top of the health agenda this year, with many trusts cutting jobs in order to get their finances back on track.

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The NHS finished 2006-7 in surplus

Why has there been such a big focus on NHS finances?

Deficits in the NHS have dominated the headlines for nearly two years.

Failing to balance the books is nothing new, over the last 10 years it has happened several times.

But what has made it such an issue recently is that the deficit for 2005-06 - over 500m - represented a significant plunge into the red at a time when the NHS had been receiving record budget increases.

It seemed inconceivable to many that the health service could be struggling to break even when it was receiving over 7% a year extra in real terms.

The problem had led many hospitals to cut jobs and delay operations.

Last year, following publication of the 2005-6 accounts, Health Secretary Patricia Hewitt staked her job on the health service breaking even.

Since then there has been an intense focus on whether the NHS would achieve the target.

So will the surplus answer the critics?

In a word, no. While the unaudited figures for 2006-7 show the NHS has finished the year in surplus to the tune of 510m, the way that has been achieved has been criticised.

On top of the job losses and impact on services, NHS number crunchers have been busy ensuring there was slack in the system to cover NHS trusts which did run up debts.

A closer examination of the finances reveals that many hospitals and primary care trusts, which are in charge of paying for local services such as GP care and hospitals, are still individually in deficit.

Some 22% of trusts finished the year in deficit, compared to 33% the year before.

And a group of 17 NHS trusts have been labelled "financially challenged" with ministers admitting they will need intensive help this year to move out of the red.

How has the NHS achieved balance then?

NHS chiefs have done two things. Firstly regional health bosses working for the 10 strategic health authorities, which oversee the local NHS, have made savings to central budgets.

This has led to public health and training budgets being raided to build up a contingency fund of 450m.

This was handed back to the NHS in March to plug the deficits run up by some hospitals and trusts.

On top of this, the government also held back some of the money primary care trusts were due - they handle three quarters of the NHS budget.

In total, nearly 2bn of the 5.4bn due to the NHS was not passed on.

This has gone on paying off old debts and covering those racked up this year. Although several hundred million pounds was handed back to trusts before the year end.

Critics have argued this money should have been spent on paying for extra services rather than covering debts.

What caused these financial difficulties?

A multitude of answers have been put forward.

NHS managers and the government have been accused of financial mismanagement by watchdogs including the Audit Commission and National Audit Office.

Pay rises for GPs and consultants have cost more than expected. In the last financial year nearly half of the extra money went on salaries.

And academics - and those doctors and ministers brave enough - have argued too much care is being provided in hospitals.

Better treatment means many conditions, such as diabetes and heart disease, can be effectively managed by community services, which are much cheaper to provide.

Moves are being made to reduce the number of hospital services, but these are proving deeply unpopular with local communities.


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