NHS benefits from £ 13.4 billion debt write-off
- More than 100 NHS hospitals are being cleared of historical debt so they can invest in maintaining vital services and longer term infrastructure improvements
- Comes with a new NHS funding model to ensure the NHS has the funding and support it needs to respond to the coronavirus pandemic (COVID-19)
Starting April 1, a wider package of NHS reforms announced today by the Minister of Health will cut over £ 13 billion in NHS debt.
The changes will provide much-needed financial support during this unprecedented virus pandemic and lay a solid foundation for the longer term commitments made last year to help the NHS become more financially sustainable.
This is part of a package of major reforms to the NHS financial system developed in collaboration between the Health and Welfare Departments and NHS England, starting from the beginning of the new fiscal year.
This package will be launched in combination with a simpler internal payment system to help NHS trusts deal with the coronavirus (COVID-19) response agreed with NHS England last week.
This significant change means that hospitals will be given all the funds they need to carry out their emergency response procedures, although many hospitals are canceling or restricting their usual services such as elective surgery or outpatient clinics due to the virus.
Health Secretary Matt Hancock said:
In dealing with this crisis, no one in our healthcare system should be distracted by the past finances of their hospital.
Today’s debt write-off of $ 13.4 billion
I remain committed to providing the NHS with everything it needs to fight the coronavirus and the changes to the funding model will give the NHS immediate financial security to plan and implement its contingency measures.
While many NHS trusts manage solid finances, some borrowed under the existing rules to fill financial gaps in their daily (revenue) or capital (infrastructure) budget.
107 trusts have an average of £ 100m in sales debt, with the 2 highest debt trusts totaling over £ 1bn.
NHS chief Sir Simon Stevens said:
We have advocated and supported this pragmatic move that will put NHS hospitals, mental health services and community services in a stronger position – not only to respond to the immediate challenges of the global coronavirus pandemic, but also to far-reaching challenges in the years to come Achieve improvements set out in our NHS Long Term Plan.
Should hospitals need extra money under the new rules laid down in a letter to all NHS trusts, equity is provided instead of borrowing from the government and paying back a loan.
The letters also include details of each local area’s capital budget for 2020/21, giving the NHS security for the new fiscal year and allowing investments in key longer-term infrastructure upgrades as soon as possible.
These budgets come on top of the capital facility the government launched in February to ensure the NHS has access to any additional capital investment it needs to respond to the COVID-19 outbreak.
Debt write-off: breakdown by region
Notes for editors
- The liability to be amortized as of March 31, 2020 consists of a combination of interim income liabilities, which include working capital loans and interim capital liabilities. The final major amount is subject to vendor validation and audits but is £ 13.4 billion
- These loans will be frozen from April 1st when the interest is removed and the loan amount and interest outstanding are cleared from the balance sheets after a transaction in the 2020/21 period
- Debt is effectively written off by converting the loans into equity (public dividend capital). Adjustments will be made to ensure that providers’ excess / deficit positions are not affected by debt write-offs. The previous system was that trusts owed the value of the loan plus interest
- The loans granted in the past as “normal business operations” are retained. These loans were taken out at the provider’s choice, confirmed as affordable and continue to work effectively
- The debt effectively written off is a transaction within the DHSC Group. This means that there are no additional credit or tax costs for the treasury