Health service debt will rise despite ministers' promises, warns watchdog

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Spending watchdogs have warned that the financial crisis in the NHS may deepen despite a pledge by ministers to eliminate deficits by March.

A critical joint report by the National Audit Office (NAO) and Audit Commission said that further government reforms, such as an extension of payment by results, and a new wave of mergers among trusts could add to the problems in the coming year.

It expressed concern at the debt level of a number of NHS trusts and warned that redundancy and severance payments could add to short-term costs as health trusts shed jobs. More than 9,000 posts have been axed in recent months.

Sir John Bourn, head of the NAO, said: "Many NHS bodies are managing their finances well, but it is worrying that a significant number are in deficit. All parts of the NHS and staff throughout the organisation must act together and take responsibility for improving financial management."

The two watchdogs also put a question mark over the £512m unaudited deficit for 2005-06 announced yesterday by the Health Secretary, Patricia Hewitt, pointing out that the final figure could turn out to be higher.

Ms Hewitt told the Commons that NHS overspending had fallen by £110m in the past six months, so the figure was lower than predicted. She said seven out of 10 hospitals and other NHS bodies were operating within budget, two out of 10 had "relatively small" overspends and one in 10 accounted for more than two-thirds of overspending. She was determined to see the NHS in the black by the end of the financial year. Asked if she would resign if her pledge were not met, she said she would be "accountable" to Parliament and the public.

The Health Secretary said "difficult decisions" would have to be made and some trusts might have to put off some improvements and reduce their workforce. "But there will not be the wholescale redundancies across the NHS that some commentators have forecast," she said.

Andrew Lansley, the shadow Health Secretary, accused Ms Hewitt of living in a "parallel universe." He said: "This is a government that has let the NHS down. Policy failures and mismanagement have left the NHS in serious deficit."

Steve Webb, health spokesman for the Liberal Democrats, said: "It takes a special sort of mismanagement to spend record billions on the NHS and still have hospitals cutting front-line staff in financial rescue packages. The Government sets NHS pay centrally, sets NHS targets centrally and sets the cost of an operation centrally. Then, when the sums don't add up, they say it is the fault of local management. The warnings overshadowed an upbeat progress report about the NHS by Sir Ian Carruthers, the acting chief executive. He said that extra money pumped into the service was already making "big differences", citing a 25 per cent reduction in those waiting for in-patient treatment since 2000, with an average wait of seven weeks and a 20 per cent fall in cancelled operations.

The King's Fund think-tank warned that yesterday's figures masked the scale of the problem. Niall Dickson, the chief executive, said: "The gross deficit has increased throughout the NHS to £1.27bn and has been reduced to a net of £512m only by using increased surpluses from other parts of the service.

"In fact, more NHS organisations are in deficit than predicted, while the net deficits for primary care trusts and hospitals are worse than last year. The health service faces significant challenges over the next year and the issues are for both local management and the Government to sort out. Short-term fixes will not help the service in the long-term and are likely to only lead to further rounds of job losses and service cuts."

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