Editor's blog Friday 22 October 2010: The economics of the madhouse - Treasury pinches £5.5 billion accumulated NHS surplus

Good afternoon to you, on a Friday of economic madness.

Health Service Journal's Sally Gainsbury has found out from the Nuffield Trust's chief economist that the NHS underspends in each financial year since 2007-8 are being removed by the Treasury.

The total in question is some £5.5 billion pounds.

Evidently, the good gnomes in HM Treasury want the NHS to be a bit less David Nicholson with its money and a bit more Viv Nicholson.

Spend, spend, spend, chaps! To coin a phrase, 'there is no alternative'. Carry on with this, and there's no way the NHS will make a profit in future.

In context? The sum lost to healthcare is just a shade under 5% of the NHS's revenue budget for 2010-11. It is nearly double the £3 billion calculation Professor Kieran Walshe used for his BMJ article on the cost of NHS reforms.

Why has this happened? Gainsbury states that "the Spending Review announced the abolition of the so-called 'end of year flexibilities' scheme under which accumulated underspends remain ear marked for the department which made them".

She also rightly points out that this creates problems with the accumulated £1 billion surplus across all foundation trusts, noting that "as foundation trust spending counts as NHS spending, every £1 spent by a foundation trust is £1 that cannot be spent by another NHS organisation without the DH busting its budget".

While the DH could, she suggests, attempt to claw back the FT surplus, this would clearly send seriously adverse messages about the point of generating surpluses. The legality of any DH attempt to do this would undoubtedly be contested.

What does this mean going forwards?

Top-slicing for all by the DH looks near-certain, as Nuffield Trust chief economist Anita Charlsworth (ex- of the Treasury, convenietly) told HSJ. (This was, anyway, pretty much guaranteed from Sir David Nicholson's various communications about system management during the change period).

Moreover, the signal now sent to the NHS overall as we go through trannsition is unambiguously, 'generate no surplus'. There will be a lot of bad-quality finaicial-year-end spending in March 2011 as a result of this hopelessly myopic decision. A nice boost to bits of the economy.

This is the economics of the madhouse.

And for a slightly more positive outlook on matters economic, the latest instalment of The Maynard Doctrine finds the good professor hoping the two tribes in hospitals make peace in the face of austerity.