Since the implementation of the NHS Finances (Wales) Act in 2014, the Welsh Government has increased planned health spending, but has continued to rely on additional funding to address in-year pressures and priorities.

The way in which the Welsh Government oversees and holds NHS bodies to account for the quality of their planning is generally sound. There are signs of a greater focus on the longer term, as intended by the Act. Nevertheless, at the end of 2016-17 four of the seven health boards failed to meet their duties under the Act. This is the conclusion of the Auditor General’s latest report about the implementation of the NHS Finances (Wales) Act 2014.

In the three year period since the Act came into force, the Welsh Government has increased health spending in real terms by an average of 2.9% each year a real terms rise from £6.2 billion in 2013-14 to £6.7 billion in 2016-17. Some of this additional funding has been allocated in a planned way through the budget ahead of the start of the financial year.

However, the Welsh Government has also continued to allocate in-year funding. This in-year allocation includes funding for specific priorities, such as new drugs, as well as funding to cover forecast or actual overspends at NHS bodies. The additional funding is in part intended to enable NHS bodies to avoid having to take short-term financial decisions that could impact on the quality of care.

The report also concludes that the Welsh Government’s planning guidance is generally clear. The Welsh Government has developed a good process for reviewing the quality of NHS bodies’ plans, and has revised and strengthened its approach to linking these plans to the planning of capital projects.

The report finds that the Welsh Government has been resolute in only approving plans it has confidence in. In some cases that has meant approving financial plans that were not fully balanced at the start of the financial year but where the Welsh Government had confidence in the NHS body’s track record and mitigating plans. 

The report finds that there are signs of the intended shift to the longer term thinking and planning across NHS Wales. Nonetheless, patterns of spending and savings continue to have a strong annual focus on the position at the end of the financial year.

Despite the Act, the in-year financial position necessarily remains an important focus of Welsh Government monitoring. No NHS body has yet made planned use of the financial flexibility under the Act.

At the end of March 2017, three out of the seven Health Boards and all three NHS trust met the twin statutory duties of breaking even over the previous three years and having a three-year plan that is approved by Welsh Ministers. The contributing factors in the four health boards not meeting their duties include:

• over optimistic saving plans, and not identifying sufficient sources of savings and failing to deliver identified savings;
• clinical and services plans not being in place, to support changes in services;
• workforce pressures, which has resulted in reliance on costly locum and agency staff;
• concerns over performance of certain services, which have required additional investment; and
• concerns about capacity to deliver strategic changes.

The report makes two recommendations covering the Welsh Government guidance and progress monitoring and updating the formula that underpins the allocation of funding to health boards. It also identifies two priority areas where the Auditor General considers that the Welsh Government needs to make progress – tackling the reliance on in year funding and providing a clearer direction on strategic change, particularly to regional and national services.

Auditor General, Huw Vaughan-Thomas said today:

“The NHS Finances Act 2014 provides NHS Wales with a framework to better plan services and finances over the medium term, linked to their broader strategic plans. Although there are positive signs of progress since the introduction of the Act, there remains much to do. Some of Wales’ largest health boards do not have approved plans and have not met their duty to break even over three years. These bodies now face a challenge to meet their duties under the Act in the coming years.”