In the aftermath of the 2008 financial crisis, western governments, panicked by significant budget deficits and looking for a solution they could sell to the public, promoted austerity as the solution. The majority of these have done away with what is now widely accepted to have been a misguided policy, having suffered stunted growth as a result. Britain, however, still appears wedded to it as an economic plan.
The result of the decision to plow ahead has had implications across the UK’s public sector, but nowhere are budget limitations more challenging than in the National Health Service (NHS). NHS finance leaders have a difficult job, essentially having to deal with an entire country of stakeholders who want to see a return on their investment. Austerity has seen that investment slashed, but with little reduction in public expectations for the service it provides, because, on the whole, the services they provide are essential. People don’t go to hospital for fun.
The NHS is having to cater for an aging population, a demoralized workforce, and increased public scrutiny and expectations. In London, Barts Health NHS Trust - the biggest trust in the UK with 2.5 million people - is on course to be a record £134.9m shy of balancing its books when the NHS financial year ends on 31 March. Its overspend is 69% bigger than the trust’s £79.6m overspend in 2014-15. More than half of NHS trust finance directors surveyed in the King's Fund's latest quarterly monitoring report warned that the quality of care in their area had dropped in the past year, and more than two thirds of NHS trusts and nine out of 10 acute hospitals are predicting they will end the 2015/16 financial year in deficit.
According to Jim Mackey, chief executive designate of NHS Improvement, there was a ‘really serious deterioration’ in the NHS’s finances last year. By the end of the second quarter, the service had racked up a £1.6bn deficit, and Mackey said a lot of energy was being consumed in trying to manage this. Finance leaders are having to innovate and evolve using every tool, every new technology, and become more nimble and more responsive to customer demands at the same time.
The role of the CFO in the public sector is similar that of their private sector counterparts in many ways, but they are faced with a political pressure that greatly hampers their ability to do their job. Politicians often want to be seen to be doing something immediately, and when the Conservative/Liberal Democrat Coalition first took power in the UK back in 2010 promising to reduce the deficit with cuts, they had to get to work right away, apparently giving little thought to the long term consequences. NHS CFOs were initially helped by a public sector pay freeze, but this has led to a demotivated workforce in a field where you really want staff to be happy. Nobody wants an unhappy surgeon sticking a knife into them. It has also led to staff shortages in necessary roles, which have had to be filled by agency staff, who are infinitely more expensive. Decisions were also made to end NHS-wide contracts in order to get them off the books. These were, because of their scale, often hugely discounted. This meant that individual trusts and hospitals had to sort out deals themselves, so they got the same product, only they had to pay far more for it, as was the case with Microsoft’s provision of its operating systems.
This sort of short term thinking is common in politics, and NHS finance leaders are left to pick up the pieces. They have to find innovative ways to make ends meet, but also be prepared for whatever rash promises politicians might make to get themselves elected. Solutions to these problems are, however, thin on the ground.