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A “nightmare” – how can we address the financial challenges facing NHS systems?

From the importance of medium term planning in this economically uncertain time to the opportunities for Integrated Care Boards - our strategy team considers the financial challenges facing NHS systems and what health leaders can do to address them.

NHS England’s financial position next year is looking challenging to say the least. Julian Kelly’s (NHSE Chief Financial Officer) carefully worded public Board paper this month laid the position bare – a £6bn to £7bn gap to the last spending review (SR21) – or nearly 5% of overspend.

A “nightmare” – how can we address the financial challenges facing NHS systems?

The drivers of this financial challenge are not a surprise given the UK and the global context:

  • Higher cost inflation; Pay costs have been higher than the ~2-3% planned, with pay increasing for the lowest paid by up to 9.3%, ~4.3% for nurses, and between 2% and 4.5% for doctor. Non-pay costs, originally forecast at ~2% are forecast to be between 10-14% over the next year (Bank of England, Monetary Policy Report Aug 22)
  • Covid-19 costs were assumed to fall dramatically, but more beds are occupied nationally now than in 2020 or 2021. A lot of Covid funding has been embedded in recurrent spend and is now harder to remove.
  • Reduction in social care capacitysignificant workforce shortages with a 52% increase in social care vacancies and 10% posts vacant. This has led to longer stays in hospital due to difficulties in discharging
  • NHS workforce - shortages and higher reliance on agency have had a negative impact on productivity, with higher pay costs


£157bn Total NHS England budget for 2023/24, 3% increase from 2022/23


Implications for health leaders in the NHS

The £6bn-7bn (~5%) financial gap is on top of planned savings next year of £3.6bn (2.9%). This leaves systems looking at financial plans that need to find ~8% efficiencies next year.

Health leaders will have to navigate significant pressure to deliver financial plans that meet the target budget, address performance priorities, and then deliver against these.

They will need put a robust process in place to explore all the options and assess honestly what it would take to meet this challenge next year. Facing a challenge this hard means thinking radically about all options.

Where difficult decisions are taken to reduce spend – a clear and robust decision making process will be needed, with deliver mechanisms to follow up on action. The direction and tone of planning for the system will need to be set early to ensure organisations and departments are aligned.


Why a Medium Term Financial Plan is so important

In the current operational (and political!) environment, planning beyond the immediate is a significant challenge – so systems will need to balance the national ask for 23/24 planning with the system’s own Medium Term Financial Plan.

An up-to-date Medium Term Financial Plan (MTFP) for systems – with alignment between stakeholders on assumptions is essential. They help systems:

  • Understand their financial system and build a shared narrative of drivers and future
  • Align on cost and income assumptions
  • Surface risk within the system – and plan how to manage this
  • Compare national planning negotiations to a local evidence-based view – and understand key risks and differences
  • Agree strategic programmes and pillars that will feed into the transformation plan

Given the changing national picture – it is highly likely systems will be required to submit medium term plans with revised cost and income assumptions ahead of 23/24.


£2,800 – planned NHS England health spend per capita in 2023/24

How to develop your Medium Term Financial Plan

The medium term financial plan should be created as a system, including clinical and financial voices from organisations. Embedding this principle in the governance for plan development is key to building a shared understanding and buy in to the future direction – and grounding it in the operational realities. Key steps to work through as a system are:

  1. Challenge - What is the size of challenge our system is facing, and where the risk lies? What assumptions do we make on income and costs as a system?
  2. Levers - What levers do we have to manage this challenge and how deliverable are they?
  3. Scenarios – How do levers come together as options and scenarios? What would we do in each?
  4. Impact - What impact might levers have on our services and how would this impact our legal duties?
  5. Decision and communication - How will we take decisions and communicate these?

Levers – what decisions can health systems take?

  • Service efficiency –workforce (temporary, utilisation, absence), service quality and efficiency, clinical support, corporate services, non-NHS income, capacity control
  • System efficiency – integration, discharge and care in community, Long Term Care management
  • Strategic financial priorities unlocked at pace – collaboratives, system service design and change
  • Balance sheet – provisions, gains on disposal of underutilised assets, and land
  • Grip and control – cost constraint across organisations and systems


Implications for Integrated Care Boards (ICBs)

Although the financial planning cycles are well established, the scale of challenge facing NHS services in England is stark – and it will be the first major test of nascent ICBs.

  • How will systems work together on priorities, in and out of hospitals (elective recovery, social and primary care capacity, access to emergency care, discharge) and avoiding blaming?
  • What are ICB’s doing to address social and community care capacity, and what can they learn from each other to try?
  • What is the balance of local decision making and planning vs command and control – and how does this impact the deliverability of plans?
  • In year savings of 8% are unlikely to be politically viable – how will ICBs work with local political leaders to shape plans and influence policy?


The PSC is a specialist public services consultancy, providing strategic financial planning and multidisciplinary support to health systems and providers. With over 15 years experience work working with leaders in healthcare, education, and national government. If you would like to know more about how we help leaders improve public services, get in touch with Samuel Rose (

Author: Samuel Rose, The PSC Strategy Team

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