Updated: Monitor's letter is a reminder of just how high the stakes are

Most are opting to let financial performance deteriorate, while maintaining access and safety. An increasing number are unable to maintain required access levels too.

Growing alarm over this dynamic was captured in the joint communication calling for further efficiencies issued by Monitor and the NHS Trust Development Authority earlier this month.

‘Both regulators have questioned the practicality of demanding reduced deficits while the government refuses to relax targets’

The letter arose from the determination of the Department of Health and NHS England to keep the provider sector deficit at around £1bn as part of the “bargain” they have struck with the Treasury. Pressure has been put on Monitor and the TDA to effectively demand this from providers, with the leadership of both regulators questioning the practicality of this approach while the government refuses to relax performance targets.

The resulting letter is a classic Whitehall compromise; reminding deficit trusts of their duties and asking for the few trusts in surplus to further improve their position. It makes it crystal clear to clinical commissioning groups they will come under increased financial scrutiny, a point driven home by the new special measures guidance for CCGs and NHS England’s robust intervention where groups are deemed unable to manage.

There is a belief at the centre that trusts are being overcautious on staffing levels - and therefore spending more money, especially on agency staff, than they need to. However, without the publication of clear guidance the regulators can only make vague noises about staffing departments in a “proportionate and appropriate way”. Indeed, Monitor later acknowledged trusts would be allowed to breach the agency spending cap if patient safety is threatened.

This admission underlines the relative powerlessness of the centre.

Ministers have privately accepted the NHS will continue to struggle on A&E for the remainder of this year, but are understandably nervous about acknowledging, and therefore implicitly accepting, any underperformance - so allowing savings to be made. The shortage of doctors and, especially, nurses means trying to increase revenue and maintain access through taking on more elective work is either impossible or hugely expensive.

Budget raid

Despite being less than five months into the financial year, the DH has had to resort to raiding its capital budget to shore up the service. This move suggests it may soon have to accept in-year attempts to control the growth in the deficit will not deliver the number promised. The negotiations would then switch to a debate between the Treasury and the DH/NHS England. The Treasury may well argue that, at the start of the five year Parliament, some relaxation in performance is acceptable to recover finances on the basis there is plenty of time for waiting times to improve.

If Jeremy Hunt and Simon Stevens stick to their guns on performance, they may find themselves perched on a metaphorical barbed wire fence as they suggest to Number 11 that, despite previous assurances, an in-year bailout of at least £500m is required.

Little wonder the centre is working hard to re-establish grip. HSJ urged the new government to tackle tariff reform as a priority and that has now begun - though the timing and relative rapidity of the summer consultation to reduce providers’ influence over price setting is hardly likely to improve the already strained relationship between trusts and government. New plans for greater national control over trusts’ capital spending are yet another step towards a centralised approach to managing the delivery of NHS care, and away from the supposed “liberation” of the Lansley reforms.