NHS Finance Bill - A much needed flexible friend?

On the same day the draft budget for 2014-15 is announced, will the National Health
Service Finance Bill stop local health boards running to the Bank of Mark?
(Pic : Wales Online)

One running theme in Welsh politics is the funding of Local Health Boards (LHBs) and their management of said funds. They got a boost today, and I'll come back to that later this week.

The First Minister said in FMQs last week that the public are satisfied with the NHS. As shown in the recent BBC Wales poll, they certainly are with regard services (doctors & nurses etc.) and expectations. The area where there was clear dissatisfaction (Q4 in the poll) relates to how the Welsh NHS is being run and managed by health boards. Utimately, the buck is supposed to stop with the Welsh Government, but I digress....

At present, LHBs are legally obliged to have a balanced budget at the end of every financial year. As we know, they struggle with that, occasionally (and rather embarrassingly) being bailed out by the Welsh Government due to a mix of cost overruns and external pressures.

In response, Health Minister Mark Drakeford (Lab, Cardiff West) has introduced the NHS Finance Bill in order to change to how LHB budgets are managed. The first debate to approve the general principles of the law is being held in the Senedd as I post this.

The meat of the Bill itself (pdf) is only 2 pages long :

• LHBs will now have a three-year accounting period instead of the current single year period.
• It maintains statutory requirements for LHBs to "balance their books", just over a three-year period instead of at the end of each financial year.
• It repeals section 176 of the NHS (Wales) Act 2006 which prevents LHBs from exceeding their allocated funds in a financial year.

Why is the law necessary?

Three Assembly committees – Finance, Health & Social Services and Public Accounts – all agreed that the Welsh Government should look at legislative measures to improve financial planning and flexibility in the Welsh NHS.

Managing their budgets on a year-by-year basis reduces the amount of financial flexibility LHBs have, as they can't overspend by even the slightest amount without breaching their statutory duties as laid down by the NHS (Wales) Act 2006.

By managing their budgets over a rolling three-year period, it'll allow LHBs to overspend (within reason) without breaching those statutory duties. That's money that can be spent on services, or spent to enable LHBs to break even over a longer period of time - to use the WAGese term "Invest to Save". Though they would have to make up for any overspend in one year with savings in a following year.

The extra flexibility should minimise the risk of significant further LHB "bail outs" by the Welsh Government.

Benefits, Costs & Risks

The in-depth details of the background and key outcomes/proposals of the proposed law are outlined in the explanatory memorandum (pdf).

The obvious benefit is greater flexibility on a year-to-year basis, allowing LHBs to incur larger one-off costs to develop services. That's seen as preferable, by both the Wales Audit Office and LHBs, to the current "short-term thinking" where there's a rush to meet budget deadlines at the end of each and every financial year. This could improve things like workforce planning and enable NHS services to be planned over more realistic and practical timescales.

It's worth pointing out that despite the new flexibility in managing their budgets, it won't change the money available to LHBs. They'll still be obliged to balance the books, just over every three years instead of every year.

There's a risk that should LHBs breach their budget limits under the new arrangements (if the law's passed), then the Welsh Government could breach their own budget limits – set down by HM Treasury – in order to bail LHBs out.

Any breach of the Welsh Government's budget would need to be approved by a National Assembly vote, lead to an application for emergency funds from the UK Consolidated Fund and would need to be explained to HM Treasury - with costs likely to be reclaimed the following year. It would be a PR disaster for the Welsh Government and would likely have serious repercussions, both politically and personally.

So there's still likely to be pressure from Cardiff Bay on LHBs to keep overspends within reason (we're talking single-figure £millions), and that's perfectly sensible. As a result, LHB 3-year financial plans will have to be scrutinised and approved by Welsh Government officials.

In terms of the costs of the new law, it's estimated the Wales Audit Office would require an additional £119,000 per year, while it would cost the Welsh Government just £2,500 to issue new guidance to LHBs.

Because the Bill is so rudimentary, it's being fast-tracked through the Assembly - not as emergency legislation but because there's so little to debate - set to become law in April 2014.