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
Wednesday 22 February 1995
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; request a free guide on NISAs from Hargreaves Lansdown
Mark Dampier: Don't panic. Canny investors sit tight when the stock market falls
Shareholders can hold a company to account
10 tips for taking out a personal loan
The opera singer, the broadband delay and why customers aren’t divas if they expect a good service
Bank-beating exchange rates on your international payments
- 1 Revolutionary lost Caravaggio painting 'Mary Magdalen in Ecstasy' identified
- 2 McKamey Manor: This 'extreme' haunted house is the stuff of nightmares
- 3 Russell Brand says he will 'probably' give up acting to focus on his revolution
- 4 Watch what happened when food critics were unknowingly served McDonald's
- 5 David Beckham's Haig Club whisky is exactly what’s wrong with the Highlands
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Support for EU membership 'at highest level since 1991' with most Brits wanting to stay 'in'
Thousands with degenerative conditions classified as 'fit to work in future' – despite no possibility of improvement
Attacks on 'Ukip Calypso' show how skewed people’s priorities are
Poppy Appeal 2014: This is why I won't be wearing a red poppy this year
iJobs Money & Business
£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...
£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...
£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...
Day In a Page
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village