Introduction

The Health and Care Act 2022 includes a new discretionary power allowing NHS England to make an order imposing a limit on the capital expenditure of an NHS foundation trust.

As part of the Act, NHS England must publish statutory guidance about the circumstances in which we are likely to make an order and the method we would use to determine the limit; this document provides that guidance.

Background

Parliament and HM Treasury set the Department of Health and Social Care (DHSC) capital departmental expenditure limit (CDEL) each year. DHSC is obliged to not spend, or allow to be spent across their accounting group, more than this limit via Managing Public Money (MPM) guidance. This applies to all capital (operational and national).

Under existing foundation trust licence conditions there is no power to restrict overall capital expenditure. Foundation trusts have freedom to determine their levels of capital spend each year independently; their freedom to invest is constrained only by their ability to finance projects.

This creates a risk that DHSC will overspend against CDEL, or that capital is poorly prioritised across the NHS as a whole, leading to poorer value for money and negative impacts on capital availability for NHS trusts.

Prior to the introduction of the current capital regime, the risk of breaching CDEL due to unconstrained spending by foundation trusts was actively managed by DHSC constraining capital spend across the budget areas where there is greater control. This approach can have adverse consequences for the health system, including:

• creating uncertainty about whether certain investments can proceed until late in the financial year, with implications for the timely and cost-efficient delivery of projects;
• limiting the ability of DHSC to provide capital financing to organisations in financial distress to address urgent and emergency capital priorities, and;
• an increased risk that overall capital is not prioritised effectively, leading to poorer value for money across the NHS as a whole.

This risk of solvent foundation trusts spending more capital annually than is budgeted for centrally has grown with recent increases in the availability of finance to them due to:

• increased cash reserves as a result of the recent revenue regime, and;
• the willingness of private and other public sector organisations to lend to NHS foundation trusts at attractive interest rates.

Use of the new discretionary power

To address these risks, the following paragraphs set out our policy intention for how the new power will be used. The power, as specified in the Health and Care Act, will be used as a last resort where a foundation trust is actively pursuing capital expenditure that is not affordable within integrated care system (ICS) capital envelopes or allocated capital through national programmes, thereby creating a risk of DHSC breaching its CDEL limit. 

It is expected that system, regional and national mechanisms should mitigate this risk. However, this discretionary power is intended to complement how the capital regime operates to support system working, and will only be exercised where all other options have been exhausted.

Foundation trusts will be notified of their notional capital resource limits through the monthly Provider Finance Return. This notional capital limit will be used by NHS England in its assessment as to whether a formal limit should be imposed by use of the power.

The following scenarios illustrate circumstances that will result in an NHS England review of a foundation trust’s actions with a view to imposing a capital limit, this is not an exhaustive list:

• a foundation trust submits a capital plan that is not aligned with and/or exceeds the level of capital notionally allocated to the organisation through the ICS process of prioritising capital envelopes (as expressed in the monthly Provider Finance Returns);
• data submitted through the monthly reporting process indicates the year-to-date expenditure or forecast outturn capital expenditure by a foundation trust is above the affordable plan;
• capital spending on unplanned projects in-year is without prior notification and discussion with NHS England.

An order under the Act may be made at any time during or before the financial year to which it relates.

The power will be applied to individual, named foundation trusts and separately to each organisation if there were a requirement to impose limits on multiple organisations at the same time.

The limit would remain in place for a single financial year and that a limit would only be revised in year if additional national programme capital were awarded.

To identify whether there is a requirement to impose a capital limit on spending by foundation trusts, NHS England will consider the following sources of evidence (note this list is not exhaustive):

• capital plans submitted prior to the start of the financial year;
• information from ICS leads and NHS England regional bodies about relevant actions and decisions to date by the organisation in question;
• monthly reporting data about levels of capital spend by the organisation in question and other members of its ICS;
• information received via any other route identifying potential actions by the named foundation trust that create a risk for an ICS in managing its capital envelope (or to DHSC in managing its CDEL).

As soon as NHS England identify a foundation trust whose actions create a risk to its ICS managing spend within its capital envelope and/or DHSC’s management of CDEL, we would notify the trust board – via a formal letter to the trust chief executive officer and the chief finance officer – that we are considering using our power to impose a limit under section 42B of the National Health Service Act 2006.

The trust will have ten working days to respond to that letter.

If after review, investigation and dialogue with the trust, we decide to impose a capital limit on the foundation trust in question, we would then confirm that decision to the trust, make and publish the order imposing the limit, and publish (on our website) a report which includes:

• the reasons for imposing the limit;
• the representations made by the trust, and;
• the amount of the limit on the trust’s capital expenditure.

It is advantageous to the system to resolve any disputes promptly, so as to reduce uncertainly for other providers and ensure that ICS priorities can be delivered.

Ultimately, an overspend by a foundation trust means that other providers would need to cut their capital expenditure (and/or risk a reduction to their envelopes in future years) to stay within envelopes.

Queries

Queries on this guidance should be sent to: england.capitalcashqueries@nhs.net