Background

1. Government has announced pay awards for Agenda for Change (AfC), medical and dental, as well as executive and senior managers (ESM) and very senior managers (VSM) staff groups following recommendations from the respective pay review bodies in May 2025. The pay awards are to be implemented in staff pay from August 2025, including backpay from 1 April 2025. NHS Employers has published a pay advisory notice for AfC staff groups and a pay and conditions circular for medical and dental staff groups to support implementation.

2. The VSM pay framework published in May 2025 states that staff eligibility for VSM pay awards will be linked to organisation performance, as determined by the NHS Performance Assessment Framework. Employers should refer to the VSM pay framework and guidance for further information.

3. This guidance sets out how funding will be issued for the impact of the pay awards and advises how commissioners and providers of NHS-funded services should update contract arrangements where appropriate, in line with the NHS Standard Contract and NHS Payment Scheme (NHSPS).

4. This guidance refers to the apportionment arrangements between integrated care boards (ICBs) and NHS trusts and NHS foundation trusts (‘NHS trusts’), where NHS trusts are apportioned to an ICB for the purposes of financial management and reporting. The basis for these arrangements is set out in the financial apportionment section of the ICB and system finance business rules.

Cash management

5. This guidance sets out the steps that commissioners and providers should take to agree new contract values and payment schedules, so that the cost impact of all pay awards can be appropriately funded within provider payments from August 2025 and thereby minimise the requirement from NHS trusts for additional cash requests.

6. ICBs should engage with the NHS trusts apportioned to their system to identify the total cash requirements relating to the pay awards and backpay due in August 2025. The combined cash requirement for the ICB and NHS trusts should be included in the ICB cashflow forecast (CFF1) submission that is due by 16 July 2025. As part of the CFF1 submission for August drawdown, systems will be required to confirm the cash amounts they are requesting for pay awards, including by giving a breakdown by relevant staff groups in Table 4d in the CFF1.

7. Where the total cash requirements of the system exceed the ICBs available resources, the short-term cash requirements can be managed using the CFF1 submission.

8. Any queries relating to cash support and the CFF1 submission should be directed to nhsenglandcash.management@nhs.net

Allocations and other revenue

Allocations

9. Paragraphs 10-16 set out the adjustments that will be made to NHS commissioner allocations for the impact of the 2025/26 pay awards. Adjustments to published allocations will be actioned through in-year reporting and processed as recurrent baseline adjustments in 2026/27 allocations. The Mental Health Investment Standard (MHIS) values that apply to ICB core programme and ICB delegated specialised allocations will be adjusted to reflect the relevant updates to both sets of allocations.

Services in-scope of the NHS Payment Scheme

10. NHS England will make adjustments to the following allocations in 2025/26 to reflect the updated cost uplift factor (CUF) set out in the payments and contracts section of this guidance (see Table 1).

• ICB core programme allocations (including elective recovery funding) – funding for all services in scope of the NHSPS delivered by both NHS and non-NHS providers, as well as other ICB-funded services impacted by the pay awards, will be adjusted. The adjustment will include an allowance for the impact of medical pay awards on primary care services that are funded from ICB core programme allocations. The additional allocations and adjustments shown in the published 2025/26 ICB core programme allocation schedule will also be adjusted, including (but not limited to) all elective recovery funding, discharge funding and transferred service development funding (SDF), with the exception of the adjustment made for central technology licences. The additional allocations issued during the planning process will also be adjusted where appropriate, including for community diagnostic centre (CDC) funding and activity growth funding for emergency ambulance services.
• ICB delegated specialised services allocations – funding will be adjusted for the updated CUF.
• ICB delegated pharmacy, ophthalmic and dental services (POD) – funding for secondary dental services will be adjusted for the updated CUF. The 2025/26 ICB dental ringfence values will be updated accordingly.
• ICB SDF funding – funding will be adjusted for the updated CUF where appropriate.
• NHS England direct commissioning programme allocations (including elective recovery funding) for retained specialised services, public health, armed forces and health and justice services – funding for all services in scope of the NHSPS delivered by NHS and non-NHS providers will be adjusted for the updated CUF.

Non-recurrent funding for the impact of NHS pay awards on non-NHS income

11. NHS England will issue additional non-recurrent funding to ICBs in 2025/26 to contribute to the impact of the pay awards on the parts of NHS trusts’ cost base that are funded by other non-NHS income. This will not include income from education and training, services commissioned by local authorities and research and development (R&D), for which separate funding arrangements are set out in the other income and expenditure section below.

12. The additional non-recurrent funding has been calculated nationally and distributed based on the total pay bill for NHS trusts apportioned to each system. It will therefore be issued on the basis of ICB financial apportionment, where ICBs receive the allocation for all NHS trusts apportioned to the system. This non-recurrent funding will be separately identified in ICB allocations. From 2026/27 onwards, NHS trusts will need to secure recurrent income from the relevant sources to manage the cost impact.

Primary care

13. Adjustments will be made to ICB primary medical care and ICB POD allocations for the impact of any changes to the relevant contracts for general practice as well as primary and community dental services that are agreed following the government’s announcement of the pay awards. NHS England will issue supplementary guidance to ICBs once any contract changes are agreed and allocation adjustments have been made. The 2025/26 ICB dental ringfence values will be updated accordingly where adjustments are made to ICB POD allocations for relevant dental contract changes.

14. Changes to the maximum reimbursement amounts for Additional Roles Reimbursement Staff (ARRS), including ARRS GP roles, following the announcement of the pay awards will be set out in an update to the 2025/26 Network Contract DES specification.

ICB running cost allowance

15. The published 2025/26 ICB running cost allowance (RCA) will be updated to reflect the impact of the 2025/26 pay awards. This does not include allocations for the transfer of budgets to support delegated commissioning responsibilities; ICBs will separately receive additional RCA to fund the impact of pay awards on the recurrent delegation staff transfer funding. ICBs will need to transact any inter-ICB adjustments to appropriately fund the locally agreed operating model for delegated commissioning responsibilities. NHS England requires that ICBs do not exceed the combined RCA.

16. The 2025/26 ICB operating cost envelope will also be increased to reflect the impact of the 2025/26 pay awards, from £18.76 to £19.00 per head of population, to ensure the impact of the pay award does not add to the cost reduction requirement for ICBs. As set out in the draft Model ICB Blueprint, ICBs are required to reduce their operating costs to meet this target by the end of Q3 2025/26 and recurrently into 2026/27. ICBs are encouraged to expedite this reduction as any in-year savings can be used on a non-recurrent basis to address in-year transition pressures or risks to delivery in wider system operational plans.

Other income and expenditure

17. Paragraphs 18-21 set out how the impact of NHS pay awards on other areas of income are expected to be managed. Paragraphs 22-23 set out how the pay award impact will be managed for NHS Blood and Transplant (NHSBT) services that are contracted by providers of NHS services.

Education and training

18. The Department of Health and Social Care (DHSC) will publish the 2025/26 education and training tariff guidance in due course, including the impact of the 2025/26 pay awards. Until published, NHS trusts should continue to make a local assumption on the level of income.

19. The GP trainer grant for clinical and educational supervision of GP trainees has been updated for 2025/26, including for the impact of 2025/26 pay awards. The updated 2025/26 GP trainer grant amount is set at £10,796.91.

Local authority public health grant

20. DHSC is reviewing the impact of NHS pay awards on local authority public health grants (LAPHG), and updated information will be made available in due course. NHS trusts should work with local authorities to agree where changes to contract values may be required following the NHS pay awards, in line with the terms of locally agreed contracts.

Research and development

21. NHS England will not issue additional funding to NHS trusts for the impact of pay awards on R&D. The impact of pay awards on R&D contracts held with the National Institute for Health and Care Research (NIHR) should be discussed and agreed as part of regular contract management discussions with NIHR.

NHS Blood and Transplant

23. NHS Blood and Transplant (NHSBT) have been directly funded by DHSC for the net impact of the NHS pay award above the 2.8% pay planning assumption in 2025/26. NHSBT will therefore continue to charge providers (for Blood and Specialist Services – agreed through the National Commissioning Group) using current charges (with only the 2.8% pay assumption included) for 2025/26. To support understanding of the full recurrent impact of the pay award on NHSBT charges for future years, NHSBT will write to providers setting out the indicative impact on charges for 2025/26.

24. This is an in-year measure only and therefore for 2026/27, the recurrent cost impact of 2025/26 pay awards will be reflected in NHSBT charges to providers. NHS England will reflect this recurrently in 2026/27 commissioner allocations and the CUF.

Payments and contracts

24. NHS England will publish updated 2025/26 prices and low volume activity (LVA) values to reflect the updated CUF in Table 1 below.

25. Where 2025/26 contracts have been agreed, commissioners and providers should act now to vary the value of their contracts where necessary, with reference to paragraphs 27-32 below. Where commissioners and providers have yet to agree contracts, they should do so having regard to the updated net CUF in Table 1 as required, as soon as practicably possible. Local NHS leaders will be relied on to work together to resolve any issues relating to contract agreement in a collegiate and timely manner. NHS England regional teams will track local progress and help systems resolve issues where necessary.

26. Commissioner allocations, as outlined above, will be adjusted to fund commissioners for the annualised impact of the change in the net CUF (on services in scope of the NHSPS), including for NHS and non-NHS providers.

Table 1: Updated 2025/26 cost uplift factor (CUF)

Aligned payment and incentive contracts

27. For inter-system contract arrangements between ICBs and NHS trusts that are not apportioned to the same system and have a contract operating on aligned payment and incentive (API) arrangements, ICBs should minimise negotiations and expedite the flow of funding to providers by agreeing an adjustment to the value of the fixed element that reflects the updated net CUF in Table 1. API adjustments require NHS England approval (API rule 3 in section 4 of the NHSPS), and we confirm that all adjustments in accordance with this guidance are approved without the need to submit to NHS England. As the net CUF value is an annualised figure, ICBs should apply the updated net CUF to the total annual fixed element value to ensure that the backpay from 1 April 2025 and forward pay elements for the remainder of 2025/26 are appropriately funded.

28. For intra-system contract arrangements between ICBs and NHS trusts that are apportioned to the same ICB, systems may agree differential adjustments to the fixed element values that distribute the additional pay funding to address pay pressures as they are understood locally, considering sector and trust-specific factors, without approval from NHS England.

29. The variable element of API arrangements between ICBs and NHS trusts should be updated to reflect the updated unit prices, backdated to apply from 1 April 2025 so that NHS trusts are funded for both the backdated and forward pay elements.

Contracts based on NHS Payment Scheme unit prices

30. ICBs and providers should apply the updated unit prices. The updated unit prices should be applied from 1 April 2025, with payments backdated accordingly. Commissioners and providers may need to keep the financial reconciliation process under service condition 36 of the NHS Standard Contract open beyond the date by which all payments for the quarter would normally have been signed off, for Q1 2025/26 at least.

Contracts based on local prices

31. ICBs also have contracts with non-NHS providers that are based on locally agreed prices (see the local payment arrangement rules in section 7 of the NHSPS). The requirement to adjust these contract values in-year for changes to pay costs will depend on the locally agreed terms of the contract. For example, where a contract stipulates that prices are to be adjusted for the impact of new inflationary pressures, such as the announcement of NHS pay awards or a change to the value of the net CUF, then ICBs should vary the value of the contract accordingly.

32. Some non-NHS providers employ some or all staff on AfC terms and conditions and will be directly affected by the AfC pay award. Where this is the case, ICBs may consider whether agreed local prices should be adjusted in-year to reflect the specific impact of the pay awards on the provider.

Low volume activity

33. NHS England has issued updated LVA values in the prices workbook, in line with the updated net CUF in Table 1. ICBs should make all LVA payments to relevant NHS trusts in a timely manner, including where early payments have been made and a further payment is now required for the differential value in the updated LVA values. Where the updated net CUF inflates any 2025/26 LVA values above the £1.5 million threshold referred to in the NHSPS, these will continue to be treated as an LVA arrangement in 2025/26, meaning ICBs and NHS trusts are not required to agree contracts.

Contracts with NHS Wales

34. The approach to funding the NHS pay awards in England is intended to be replicated in Wales to ensure that pay awards in both countries can be funded in cross-border relationships. Where commissioners in Wales use NHS trusts in England to arrange services, payment values should be adjusted to reflect the new net CUF value in Table 1 and the updated unit prices. Similarly, English commissioners using Welsh providers will be expected to fund equivalent uplifts when pay awards are announced in Wales.

Financial reporting

35. The ICB and NHS trust final plans submitted on 30 April 2025 will be used in monthly finance returns. The adjustments to 2025/26 commissioner allocations referenced in the allocations section above will be issued in Month 4. ICBs and NHS trusts should account for the impacts of the pay awards on income and expenditure from their Month 5 (August) financial reporting returns. Where they have yet to agree updated contract values, ICBs and NHS trusts should report fixed and variable payments uplifted for the updated net CUF value in Table 1 to avoid artificial deficits or surpluses in financial reporting. Variances from final plans due to the pay awards will be captured through the in-year reporting process.

Queries

36. Queries related to this guidance which cannot be resolved through local discussion or discussion with the relevant NHS England regional team should be directed to england.finplan@nhs.net.

Publication reference: PRN01990