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3 April 2020updated 25 Jul 2021 10:33am

What does Matt Hancock’s pledge to write off NHS debt really mean?

The Health Secretary announced that the government would write off £13.4bn of historic NHS debt.

By Anoosh Chakelian

The Health Secretary Matt Hancock announced that he would write off £13.4bn of historic NHS debt. As hospitals grapple with the coronavirus pandemic, he said the measure would “help NHS trusts to deliver what’s needed without worrying about past finances”.

In reality, this measure was being discussed before Covid-19. In an exclusive story in January, the Health Service Journal reported that NHS trusts were set to be relieved from £10bn worth of debt – a proposal that had been under consideration for 20 months amid discussions held by NHS England and NHS Improvement (the non-departmental body overseeing foundation and NHS trusts).

The idea then was to convert debts built up since 2014-15 into an investment (known as “public dividend capital”) via a debt-for-equity swap, where the government would act as a kind of shareholder investing in NHS trusts.

This “transaction” is the same mechanism being brought in now.

The move was not a particular surprise, according to Siva Anandaciva, chief analyst at the King’s Fund health policy think tank. “People [in the health sector] had been calling for it for a while,” he says, describing the debt as “unsustainable” and the decision to erase it “entirely sensible”.

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Another health think tank, the Nuffield Trust, agreed that the announcement wasn’t unexpected and had “been in the pipeline since last summer”.

Anandaciva remembers the “murmurs” advocating such a policy growing into clear calls as long as three years ago. “For at least three years, it was clear they [hospitals] wouldn’t be able to pay it off,” he tells me. “The department was going to have to bail them out constantly – and there are a large number of them, not just a few rogues. It’s a systemic and structural problem.”

The government counts 107 trusts with an average of £100m in revenue debt each.

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As the National Audit Office found in February, financially stretched trusts have increasingly been relying on short-term loans from the Department of Health and Social Care – with debts of £10.9bn building up by March 2019 that were unlikely ever to be collected.

“Hospitals have built up loans they’ll never repay, workforce shortages continue and waiting times are getting longer,” commented the public accounts committee chair Meg Hillier at the time, while calling for a longer-term system for hospital investment.

Although the government’s decision is welcome, the Nuffield Trust doesn’t “expect it will mean a sudden influx of money being freed up”.

“In material terms, the main impact will be after coronavirus,” says Anandaciva. Although it will give hospital managers “one fewer thing to worry about” during the pandemic, it will be more helpful for the NHS in the long term – for example, mergers will be easier if debts don’t have be taken on.

He warns that there will still be hospitals that “won’t be bringing in income to meet their expenditure, and will still have to get loans yet again” from the department, so the debt could start building up once more, and adds that the “public sector balance sheet will need a lot of work over the next few months”.

And some of the hospitals with the largest debts have said they have not yet heard from the department about how the plan will help them.

For example, the North Cumbria Integrated Care Trust (which was the second most-indebted trust with 87.1 per cent debt as a percentage of turnover in August 2019) had not received any information about it at the time of writing, and University Hospitals of Morecambe Bay NHS Foundation Trust (the fourth highest, at 69.5 per cent) had not received any specific information regarding the cancellation of historic debt.

None of the top five most-indebted hospitals responded to requests for comment. They and the rest of England’s hospitals may not feel the benefit of the Health Secretary’s headline news until after the pandemic has passed.