NHS cash crunch to hit after election

The next government will be under immediate pressure to inject more money into the National Health Service to avoid a crisis, according to an analysis by the FT that reveals hospitals have plunged far more deeply into the red than has been officially acknowledged.

The NHS will not publish its final accounts for 2014-15 until after the UK general election in May, timing that should have spared ministers further damaging headlines over the service's finances before polling day.

However, using the most recently available financial reports, the FT has been able to uncover the true scale of the service's financial problems.

NHS hospitals and other providers finished 2014-15 with hidden deficits approaching £1.6bn and face a further £2.3bn black hole this financial year, the analysis reveals.

George Osborne, chancellor, announced a further £2bn for the NHS for 2015-16 in last year's Autumn Statement. But NHS hospitals argue that less than half of that is "new money" while the remainder is earmarked for spending on services outside hospitals.

The Liberal Democrats have promised to meet the stated funding requirements of Simon Stevens, NHS head, for an extra £8bn a year by 2020; the Conservatives have promised at least that sum. Labour, which has attacked the Tories for failing to say exactly how it would find the extra funding, has so far promised £2.5bn a year extra, funded in part by a mansion tax on homes worth more than £2m.

However, the depth of the financial difficulties now facing providers of healthcare suggest that more cash will need to be put into the service within months, placing even more strain on other Whitehall departments as they compete for cash in the coming spending round.

Opinion polls have shown the state of the NHS is now a pivotal issue in one of the most closely fought elections for decades, underlining the potential political significance of the FT's findings.

They come as Sir David Nicholson, head of the NHS until a year ago, warned in an interview for the BBC that the scale of the financial problems in the service would become "crystal clear" by the autumn.

The reports scrutinised by the FT show that NHS providers had already run up deficits of £788m by December 2014, which they were forecasting would grow to £823m by the end of the financial year in March.

But those figures do not include the £750m these organisations had received in emergency financial support from the Department of Health by December. Those crisis loans must be repaid and are not available on a recurrent basis.

When added to the £823m NHS trusts are expecting to report in their final accounts for 2014-15, they mean that NHS hospitals and other providers, such as those running teams of community nurses, ended their most recent financial year almost £1.6bn in the red.

By December 2014 more than two out of three NHS hospitals were reporting deficits in their accounts - although even more will have underlying deficits masked by emergency loans.

NHS managers say the financial year that started on April 1 will be even worse. The payment system, under which they are reimbursed for treating patients, imposes a 3.5 per cent efficiency target on top of a 4 per cent target imposed last year. These targets in effect make year-on-year cuts to the price paid to hospitals for each patient treated.

After years of attempting to meet savings targets, hospitals are now struggling to find new ways to save money. The NHS economic regulator Monitor reports that in 2014-15 the actual level of efficiency achieved was nearer 2.5 per cent.

The 1 per cent gap between the level of efficiency hospitals appear able to achieve, and the 3.5 per cent efficiencies built into their payments for 2015-6, is the equivalent of £700m.

That sum will be added to the underlying £1.6bn black hole in NHS provider books at the start of this financial year, risking a potential deficit in 2015-16 of around £2.3bn.

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