From stewartb

This is the second article for the TuSC motivated by a view that it’s high time we devoted more resource to exposing the ways and means adopted by Westminster governments over the funding of public services in England. It’s important to highlight the negative knock-on impact on Scotland.

We hear very little from the Scottish news media about financial scrutiny of governments in Westminster. In Scotland we have little or no exposure to investigations by the Public Accounts Committee (PAC) of the House of Commons or those by England’s National Audit Office (NAO).

As a result, we are too often unaware of the financial competence or otherwise of Westminster. And we are too often left unaware of consequences, direct and indirect, for the Scottish Government and for Scotland arising from Westminster’s decision making and its financial conduct.

Scrutiny of Westminster’s capital spending on health

The House of Commons PAC is mounting an investigation into the Tory government’s management of capital expenditure for England’s national heath service.

Source: https://committees.parliament.uk/work/290/capital-expenditure-in-the-nhs/

The PAC’s introduction to the enquiry states:

  • the current system of allocating funds to NHS England for capital is neither strategic or transparent
    • multi-year transfers out of the Department of Health and Social Care’s (DHSC) capital budget and into day-to-day operational budgets is pushing the current capital regime to the limit of its effectiveness.

The PAC notes that: “from 2014-15 the Department for Health and Social Care (DHSC) transferred funds from its capital to its revenue budget, with £1bn switched in 2017-18: effectively foregoing longer-term investments in buildings and assets to support day-to-day spending on current health and care services.”

It adds that although the DHSC plans to end this practice in 2019-20 of favouring the short over the longterm: “there is no discernible strategy yet in place to ensure that organisations will have sufficient access to capital to deliver the transformed services set out in the NHS Long Term Plan, published in January 2019.

The PAC refers to a recent report into capital expenditure for NHS England by the NAO published in February 2020 entitled ‘Capital expenditure in the NHS’,

Source: https://www.nao.org.uk/wp-content/uploads/2020/02/Review-of-capital-expenditure-in-the-NHS.pdf

This NAO reached some damning conclusions:

  • NHS England’s estate: parts do not meet the demands of a modern health service;  14% of the NHS estate predates the formation of the NHS (1948) – in other words, this is a public service in urgent need of capital investment
    • estate maintenance: growth in backlog maintenance bringing increased risk of harm to patients; estimated backlog of work to restore buildings to an appropriate standard (physical condition, compliance with fire safety and health & safety) was c. £6.5 billion in October, 2019
    • ‘high-risk’ maintenance items: the backlog currently stands at £1.1 billion, and grew by 139% between 2014-15 and 2018-19.

The NAO finds that NHS England service providers’ own assessment of their need for capital funding has been, on average, £1.1 billion higher than their spending limit in each year from 2016-17 to 2018-19.

Despite this damning indictment of the state of NHS England’s infrastructure, the NAO reports that in the five years from 2014-15 to 2018-19 the Tory government transferred £4.3 billion from capital to revenue spending.  In this way the DHSC: “was able to prioritise support for day-to-day spending on current services at the cost of foregoing longer-term investment in buildings and other long-term assets”.  The NAO records that in March 2019 the DHSC was unable to give a definitive measure of the impact on patients’ services of repeatedly making these transfers

But what the NAO exposes about the Tory’s record does not stop there. It also states:

  • underspend of capital budgets: despite evidence of need and service providers’ demands, capital investment budgets have not been fully used. Between 2010-11 and 2012-13, there was an average underspend of £677 million (12%) against the capital spending limit. In 2017-18, £360 million (6%) was unspent.

Interestingly on health system preparedness and resilience, the NAO notes: “These underspends have occurred at a time when the UK has had lower levels of medical equipment per population than other countries, for example, 26th out of the EU28 countries for magnetic resonance imaging (MRI), and 27th out of the EU28 for computed tomography (CT) scanners”.

The NAO report provides striking international comparisons (see graph below).

The state of NHS England’s finances

The NAO provides insights into the impact of the way that the Tories have reformed the national health service in England – arguably making it a more fragmented ‘system’ – and how they have arranged its financing:  

  • SURPLUSES, DEFICITS AND BORROWINGS: some NHS providers are in surplus whilst others (46% in 2018-19) are in deficit – the latter have had to borrow to fund capital plans
    • MISMATCH WITH URGENT NEED: the current capital regime operated by the Tory government means that the availability of cash, and ability to spend capital without DHSC approval (i.e. restricted to trusts delivering surpluses plus ‘foundation’ trusts), does not necessarily match where there are the most urgent capital needs. Cash shortages adversely affect the ability of NHS providers to invest in new capital assets
    • SELLING OFF ASSETS TO FUND CURRENT NEEDS: NHS providers can sell assets such as land to finance capital investment, and the profits made can fund day-to-day spending. NHS providers have increasingly sold their assets in order to fund day-to-day activities:
      • proceeds from asset sales rose by 99% (from £222 million to £441 million) between 2016-17 and 2018-19. The proportion of profit made on these sales also increased and this has meant that not all of the asset proceeds have been available to reinvest into capital.
    • IN DEBT TO GOVERNMENT: another source of funding available to NHS providers is loans from the government. In 2018-19, the total outstanding debt from interim loans reached £10.9 billion.

Hiding the crisis – avoiding responsibility for proper financing

This direct quote from the NAO report is telling:

‘HM Treasury guidance clearly states, “Departments may not switch provision from capital budgets to resource budgets; such switches would mean that money that had been earmarked for investment was used for current spending”.’

However, at various times and in various ways, Treasury restraints on transfers from capital to revenue spend for England’s health service have been overcome or removed. The graph below (candidly, a remarkable graph exposing Tory financial management practices) from the NAO report sets out the scale and persistent nature of: (i) the capital underspend against budgets; and then (ii) the scale of the transfer from capital to revenue funding.

This ‘robbing (long term) Peter to pay (short term) Paul’ was an avoidance of responsibility by Westminster Tories to address what England’s national health service urgently required – substantial additional revenue AND capital funding for a critical public service in dire straits.

Why does this matter to Scotland?

The Westminster Tories have chosen to under-resource the NHS in England overall and also plundered the capital budget to overcome a shortfall in its provision of revenue funding. In this way it avoided providing all the extra funding it is clear that NHS England has desperately needed both for day-to-day activities AND for longer term investment.

Substantial underfunding of England’s NHS over a prolonged period adversely impacts the allocation of funds for Scotland’s public services via the Block Grant and other Barnett Consequentials.

This is an illustration of Westminster Tory’s financial management practices harming the financial ability of Scotland to meet our own challenges, including over health, whilst within this Union.  

Is this a unique case?

It’s worth noting the NAO’s acknowledgement that the process of switching from capital to revenue budgets is not unique to the Department of Health & Social Care. So:

  • how do we find out the scale of this practice across Westminster government’s functions?
    • how do we find out the scale of this practice specifically across Westminster government functions that are devolved?
    • how to we know the extent to which these transfers are in essence moving funds from capital to current spend in order to mitigate – or cover up for – the impact of sustained, damaging under-funding of key public services?
    • how do we determine the scale of the adverse knock-on effects of this financial management practice by England’s government on Scotland’s Block Grant and Barnett Consequentials?

In short – not easily! However, it’s an important factor in fully understanding the impact on Scotland’s public finances of this Union.