Magazine article Public Finance

Rab Is Distorting NHS Spending Figures

Magazine article Public Finance

Rab Is Distorting NHS Spending Figures

Article excerpt

Resource accounting and budgeting exaggerated the NHS's net overspend last year by £117m, according to Department of Health finance director Richard Douglas.

But calculations confirmed by the DoH and other sources show that while Rab made last year's overspending look worse, it also disguised similar amounts of overspending over the past five years, as resources were inflated in each of those years through the previous year's underspending.

If the same transparency were afforded for previous years, the NHS would have overspent by between £225m and £395m each year since 2001/02.

A DoH spokesman told Public Finance that Rab 'carry-forward' rules meant that both under- and overspending were carried forward to the next year's revenue allocation.

'The [Rab] carry-forward is simply to reflect levels of over- and under-spending in the previous year,' he says. 'If a [Strategic Health Authority] underspends one year, the funding is added to the amount of resources available to them in the following year. Similarly, if a SHA overspends in one year, it is taken from their funding in the following year.'

The DoH's latest estimate for the 2005/06 net overspend is £512m, compared with £216m for the same NHS organisations in 2004/05. But Richard Douglas argues in his report, NHS financial performance 2005/06, that a fair, 'like-for-like comparison' must take account of the fact that Rab rules meant that the NHS started the year off with £117m deducted from its formal parliamentary revenue allocation, to cover an early estimate of the previous year's overspend.

On this basis, the in-year deficit is £395m; a deterioration [since 2004/05] of £179m,' argues Douglas.

Commenting on the issue, John Appleby, chief economist at the King's Fund, told PF: 'Unravelling the historical impact of accounting rules such as Rab on the NHS deficit is important in understanding not only the true size of the problem but in providing clues as to how to solve it.'

The implication is that, although the total NHS overspend for 2005/06 was £512m, only £395m of that was mismanaged, 'overtraded' or otherwise spent by NHS trusts: the remaining £117m was never even allocated and went instead to paying off the previous year's debt.

But for the four years before 2005/06, the Rab carry-over rules meant that the NHS's resources were boosted by reported underspends in the previous year.

The DoH told PF that 'around £77m' was added to the NHS's allocation for 2004/05 to reflect the previous year's underspend of £73m. The audited overspend for that year was £251m. But that included the extra £77m the NHS received above its formal allocation. …

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