Section six – Investment for the future

Improvements in the financial positions of trusts and commissioners were made possible by focusing additional funding on day-to-day services. Although the total budget for the DHSC rose by 0.6%, the budget for NHS England rose by 2.3%. This meant funding for all other areas of the DHSC budget fell by 9%, or £1.6bn (Table 4). This particularly impacted on long-term investment.

Table 4: DHSC and NHS England budgets, 2015/16 and 2016/17 (cash terms and 2017/18 prices)

Cash

2017/18 prices

2015/16

2016/17

2015/16

2016/17

Real-terms change

Real-terms percentage change

DHSC total budget

£117.2bn

£120.6bn

£122.1bn

£122.8bn

£0.8bn

0.6%

NHS England budget

£100.3bn

£104.8bn

£104.4bn

£106.8bn

£2.4bn

2.3%

DHSC excluding NHS England

£17.0bn

£15.8bn

£17.7bn

£16.1bn

-£1.6bn

-9.0%

Note: The DHSC budget excluding NHS England, includes funding for public health, which fell by 3% in 2016/17 – this drop was a result of a 1% increase in the budget for PHE, but a 4% drop in grants to local authorities. Funding for HEE, which delivers education and training for NHS staff, remained broadly flat (Table 5).

Source: DH Annual report 2016/17, NHS England Annual report 2016/17

The capital budget was 4% lower in 2016/17 than in 2015/16. This budget includes funding for research and development, which also fell by 4%. There was a large fall in funding for informatics – which was 47% lower than in 2015/16 – and less money to cover depreciation, which is used to replace long-term assets, such as buildings and equipment, as they come to the end of their life.

Table 5: Change in spending for aspects of DHSC budget excluding NHS England

2015/16

2016/17

Change

Public Health England

£809m

£819m

1%

Public health grants to local authorities

£3,161m

£3,451m

-4%

Health Education England

£5,070m

£5,072m

0%

Informatics†

£318m

£169m

-47%

Depreciation

£1,161m

£1,022m

-12%

Capital

£4,843m

£4,641m

-4%

Of which research and development

£1,062m

£1,017m

-4%

† – refers to expense component of DHSC informatics spend

Source: Department of Health Annual Report and accounts 2016/17

Capital spending

Investment in capital is essential for maintaining quality of care, achieving future transformation and improving efficiency. This includes a wide variety of items, ranging from buildings and land to machinery and IT, as well as depreciation, private finance initiative (PFI) costs, and research and development.

Prior to 2009/10 there was a 10-year period of significant increases in capital investment as a percentage of the total budget. However, spending on capital has declined in recent years; total capital spending was £1bn lower in 2016/17 than in 2010/11 (Figure 19). Since a rise in spend in 2013/14, capital spending has decreased by an average of 6.7% a year. This means capital spending is now less than 4% of the total spending, compared to approximately 6% in 2009/10. Research and development costs, which make up almost 20% capital spending, have fallen by 4% since 2013/14.

Figure 19: NHS capital spending in England, 2011/12–2016/17 (2017/18 prices)

Figure 19: NHS capital spending in England, 2011/12–2016/17 (2017/18 prices)

Source: Department of Health Annual Report and accounts 2016/17

The fall in capital spending was largely due to repeated transfers from the capital budget to the revenue budget, in order to fund the day-to-day running of NHS trusts. In 2016/17, capital spending was 22% below the original planned level (Figure 20).

Figure 20: Plan and actual NHS capital spending in England, 2013/14–2016/17 (2017/2018 prices)

Figure 20: Plan and actual NHS capital spending in England, 2013/14–2016/17 (2017/2018 prices)

Source: Department of Health Annual Report and accounts 2016/17


An internationally recognised way of tracking capital spending is tracking the spend per head of the workforce. The number of WTE staff employed in the NHS in England increased by 6% between 2013/14 and 2016/17. As a result, capital spending per WTE fell by 23% – an average drop of 9% a year (Figure 21).

Figure 21: NHS capital spending per whole time equivalent staff, 2013/14–2016/17 (2017/18 prices)

Figure 21: NHS capital spending per whole time equivalent staff, 2013/14–2016/17 (2017/18 prices)

Source: Department of Health Annual Report and accounts 2016/17, Health Foundation analysis

Decreasing capital expenditure has both financial and service impacts on providers. Trusts may not be able to purchase new equipment, and they may also face difficulties in making repairs and maintenance to existing facilities.

In 2016/17, there was an estimated maintenance backlog for hospital estates and facilities of £5.6bn, up from £5.2bn in 2015/16. Of this, £2.8bn represents backlog that is high or significant risk, up from £2.4bn in 2015/16. The ‘risk ratings for estates’ refers to risks related to clinical service and safety. High risk is where repairs/replacement must be addressed with urgent priority in order to prevent catastrophic failure, major disruption to clinical services or deficiencies in safety liable to cause serious injury and/or prosecution.

Both high and significant risk maintenance backlogs have been rising since 2012/13, while low risk backlogs have been decreasing. At 2016/17, the cost of high risk maintenance backlog is estimated at £965m. This is lower than the capital to revenue transfer of £1.2bn in 2016/17.

Investment in equipment has seen the biggest decline in spending between 2013/14 and 2016/17, falling by 54% at an average of 23% a year (Figure 22). Investment in new buildings fell by an average of 4.9% a year; investment in improving existing buildings fell by an average of 7.2%, and investment to reduce the backlog fell by 7.6%.

Figure 22: Investment in new equipment, 2013/14–2016/17 (2017/18 prices)

Figure 22: Investment in new equipment, 2013/14–2016/17 (2017/18 prices)

Source: Estates return information collection (ERIC), 2013/14–2016/17.

The DHSC’s total budget includes a ring-fenced portion of depreciation. Depreciation occurs from using the asset, leading to wear and tear which reduces its value. Apart from land, most of the assets (such as buildings and equipment) held by the DHSC are depreciated. These assets are depreciated on a straight-line basis over their estimated remaining useful lives. As a portion of funding for depreciation is ring-fenced, funding saved from these depreciation changes cannot be used for other non-ring-fenced expenditure.

Spending on depreciation by the DHSC was much lower in 2016/17 than in previous years. In 2016/17, depreciation was planned to be 28% higher than actual depreciation in 2015/16, but this was underspent by £447m. Outturn spending on depreciation was therefore 14% lower than in 2015/16.

The Naylor review highlighted the importance of capital investment to the productivity, transformation and long-term sustainability of the NHS.


**** The figure for grants to local authorities was restated for 2015/16 to account for the transfer of services for 0–5 year-olds from the NHS to local authorities: www.gov.uk/government/uploads/system/uploads/attachment_data/file/499614/PH_allocations_and_conditions_2016-17_A.pdf

†††† The DHSC TDEL contains a ring-fenced portion of depreciation, which was approximately £1bn in 2016/17.

‡‡‡‡ These figures refer to ring-fenced depreciation by DHSC.

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