Exclusive: Half of land proceeds go into revenue, despite reinvestment pledge

NHS provider accounts show that £206m (50.3 per cent) of the £409m raised from land sales in 2017-18 helped prop up the Department of Health and Social Care’s revenue budget, rather than topping up its capital account.

It comes after a period in which capital budgets have been repeatedly cut and raided, which has resulted in a spiralling backlog of overdue maintenance work. Local health leaders have also been frustrated by the delays they have faced in getting new infrastructure projects signed off.

An increasingly used accounting “wheeze” around land valuations – encouraged by NHS Improvement and within DHSC rules – appears to have resulted in a higher proportion of land sale proceeds being diverted into revenue budgets. (See box below)

In 2015-16, around £65m (20 per cent) of the £314m raised from land sales went into the revenue budget, according to accounts data published by NHSI. In 2016-17, £80m (36 per cent) of £222m went into revenue.

Sally Gainsbury, senior policy analyst at the Nuffield Trust, told HSJ the accounting treatment was, in effect, creating another capital to revenue transfer. She added: “This is not what the general public believed would happen when NHS assets were sold. In their eyes, the money would be there ready to invest in new facilities.

“It shows just how dependent the revenue performance is on these big one-off accounting measures, but it’s happening because trusts continue to be set impossible control total targets.”

In its response to Sir Robert Naylor’s review of NHS estates, the DHSC said trusts would be penalised if they failed to maximise their disposal of surplus assets. It also said providers would be allowed to keep the proceeds from sales “on condition that they are reinvested in the NHS estate to deliver local priorities and sustainability and transformation partnership strategies”.

The accounts show that dozens of trusts have kept the proceeds, but the benefit has been scored against their revenue performance as opposed to boosting capital budgets.

For trusts in deficit, the cash will typically have been spent on the day to day running of services. For trusts in surplus, the cash proceeds will be held in reserve with the potential to be spent on infrastructure projects.

But because the benefit has been accounted for within the revenue budget at a national level, there is no increase to the capital budget. Therefore, although some trusts will have cash available to spend, their freedom to do so will be constrained by the national capital spending limit (as all capital spending by trusts scores within this).

Actual NHS capital spending has remained relatively flat in cash terms since 2010 (averaging around £5bn), with budgets being repeatedly raided to cover overspending in revenue budgets. The DHSC said spending is due to rise as capital to revenue transfers are phased out. Future budgets are due to be set out in the 2019 spending review.

A spokesman added: “We work closely with NHSI to monitor and manage the in-year capital expenditure across NHS providers, and we expect all trusts to follow our accounting guidance to ensure that their assets are valued fairly.”

Saffron Cordery, deputy chief executive at NHS Providers, said: “It’s disappointing to see growing amounts of capital raised from the sale of trust assets diverted to revenue budgets, despite assurances these self-raised funds would be reinvested in facilities.

“It is unsustainable to continue to prop up day to day spending for the NHS through land sales and one-off accountancy measures. We will need the forthcoming review of NHS capital spending to reverse this trend and provide adequate and long-term investment to ensure trusts can meet growing demand and the future needs of patients.”

Why the proceeds are going into revenue budgets

Under government accounting rules, the benefit from a land sale is split between the capital and revenue account depending on the amount of “profit” reported in the deal.

The profit is the difference between the asset’s actual sale price and the value of the asset stated within the organisation’s balance sheet.

As previously reported by HSJ, dozens of trusts have deployed a “legitimate (accounting) wheeze” in recent years – under instruction from NHSI – resulting in large downward revaluations of their assets.

As well as other benefits, the revaluations increase the profit element within a subsequent land sale, thereby boosting a trust’s performance within its revenue budget and against its “control total”.

The revaluations are within accounting guidelines issued by the DHSC, although the Chartered Institute of Public Finance and Accountancy has said this demonstrates that public bodies “should not set their own accounting rules”.

CIPFA says accounting standards for other parts of the public sector, such as local government and policing, are set independently (by CIPFA) and provide a “far more robust framework”.

In one land deal, the Royal Free London Foundation Trust booked a £47m profit after selling land to its charity arm for £50m. This followed a downward revaluation which had the effect of boosting the profit element by £13m. The trust said it followed DHSC guidance and the revaluation was part of a routine annual review, rather than an attempt to secure the revenue benefit.

University College London Hospitals FT posted a £30m profit on its land sales, including the £80m sale of Eastman Dental Hospital. The trust said it followed DHSC guidance.