Health managers lack a sense of balance

By failing to maximise their returns, NHS trusts are missing out on millions of pounds of investment income. Paul Gosling reports

NHS trusts are missing out on millions of pounds of income each year by failing to properly invest their balances, according to MPs and investment advisers. Members of the House of Commons Public Accounts Committee (PAC) last month expressed their concern that trusts might be spending too much on managing their money, while earning too little.

In the 1992-93 financial year, the 156 trusts then established had earned £42m from their investments. This followed instructions from the NHS Management Executive that trusts should look to maximise the use of their balances on the money market.

The PAC, instead of praising the extra income, questioned why more was not being earned. At the same time, MPs asked why figures had been collated on the benefits without calculating the costs.

"We know the aggregate results, so the PAC should also know the aggregate costs of achieving them," says Alan Milburn, MP, a member of the PAC. "The NHS Management Executive has deemed this a great success. I have asked how much it cost to raise that money in terms of staff and new resources and new procedures.

"It may well be that the NHS is a net loser from playing the money markets. It is pretty remiss of the NHS Management Executive to have no idea of the cost. There was evidence in the NAO [National Audit Office] report that some trusts were employing staff explicitly to administer this."

Trusts inspected by the NAO varied significantly in the interest rates they earned, the lowest achieving 4.2 per cent, the highest 5.6 per cent. Those obtaining higher rates were generally likely to deposit money in a wider range of investments. While this resulted in additional staff and administration costs, the NAO indicated that in the trusts examined, costs were more than recovered by extra income.

Wigan and Leigh trust, for example, earned £40,000 a year by adopting a wider investment approach, compared with using a single deposit account. The staff and administrative costs of this were £9,000 a year.

Peter Morley, director of Integer, which advises NHS trusts and local authorities on investments, says it is unlikely that trusts are losing money through their money market activities but agrees that many have not learnt to maximise their returns.

"They are more concerned at controlling risks than seeking a higher rate of return," he says. "We try to wean them off the idea that the best way to avoid risk is to keep their money in a clearing bank. They point out that they are not paying service charges, but they receive a low rate of interest.

"We alert them to the idea that many banks and building societies will bid to use their funds. We provide them with an investment list, with a wide range of banks, including some overseas."

Trusts are not permitted to hold balances in foreign currencies, but they are allowed to use overseas banks. Yet many resist doing this, Mr Morley says.

Integer recommends using brokers to maximise returns. It has also created an investment pool, containing funds from several trusts, enabling them to negotiate higher interest rates. "The major banks and building societies are not interested in bidding for small sums for short periods," Mr Morley says.

Similarly, an external investment manager only becomes viable if a large fund, £10m or more, is established, he says.

Most trust income comes in the middle of the month, and major expenses, such as salaries, are paid out at the end of the month. Trusts are allowed to place that short-term cash with banks, building societies or other public-sector bodies, including local authorities and nationalised industries.

"We have a very small number of trusts among our clients," says Mr Morley. "They don't readily take to the idea that they can improve their return, but they have been criticised for not earning more. Most think the best thing they can do is to keep the money in their clearing bank.

"This is at a very early stage for some of them. Most finance directors think of investment management as a job to be done between 9.30 and 10.30 on a Wednesday morning. People in the public sector see risk control as the most important factor, which is not surprising after the BCCI collapse. And the managers are not paid more if they obtain a higher rate of return.

Mr Morley says that trusts are likely to be able to gain an extra 1 or 2 per cent from better investment management, which would be worth several million pounds annually to the health service as a whole. While Integer, fairly naturally given its operations, advises trusts against employing their own treasury management staff, the NAO report suggests that this is cost-effective.

As well as short-term cash flow, many trusts also have some funds bequeathed to them. NatWest Investments advises several trusts, with portfolios worth from £250,000 to £2m.

Colin Coburn, chief investment manager at NatWest, says: "In most cases, they are governed by Acts of Parliament, and can only use authorised investments. That determines how much we can allocate between equities and non-equities. We can put no more than half into equities. We invest in a combination, in a range of government stocks, UK companies and investment trusts."

Some bequests are intended to benefit patients, others are for the welfare of staff. Advice on the investments varies according to the needs of the trust, when they need income and whether they want to receive the product of the capital or if they are intending to use up the capital itself.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Suggested Topics
News
i100 In this video, the late actor Leonard Nimoy explains how he decided to use the gesture for his character
Arts and Entertainment
Secrets of JK Rowling's Harry Potter workings have been revealed in a new bibliography
arts + ents
News
Down-to-earth: Winstone isn't one for considering his 'legacy'
people
News
news
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: HR Benefits Manager

    £40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

    Recruitment Genius: Office Manager / Financial Services

    £30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

    Jemma Gent: Year End Accountant

    £250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

    Jemma Gent: Management Accountant

    £230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

    Day In a Page

    HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

    Scientists hail daily pill that protects against HIV infection

    Breakthrough in battle against global scourge – but will the NHS pay for it?
    How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

    Time to play God

    Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
    MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

    MacGyver returns, but with a difference

    Handyman hero of classic 1980s TV series to be recast as a woman
    Tunnel renaissance: Why cities are hiding roads down in the ground

    Tunnel renaissance

    Why cities are hiding roads underground
    'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

    Boys to men

    The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
    Crufts 2015: Should foreign dogs be allowed to compete?

    Crufts 2015

    Should foreign dogs be allowed to compete?
    10 best projectors

    How to make your home cinema more cinematic: 10 best projectors

    Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
    Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

    Manchester City vs Barcelona player ratings

    Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
    Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

    Monaco: the making of Wenger

    Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
    Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

    Chris Gayle: The West Indies' enigma

    Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
    In Ukraine a dark world of hybrid warfare and murky loyalties prevails

    In Ukraine a dark world of hybrid warfare

    This war in the shadows has been going on since the fall of Mr Yanukovych
    'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

    Homage or plagiarism?

    'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
    Broadchurch ends as damp squib not even David Tennant can revive

    A damp squib not even David Tennant can revive

    Broadchurch, Series 2 finale, review
    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

    Inside the mansion of Germany's 'Bishop of Bling'

    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower