Updated: NHS capital funding – a new approach for 2020-21 – plus provisions for COVID-19

Documents released by NHS England/NHS Improvement over the Easter break set out the new approach to capital funding in more detail, in line with the ambitions of the NHS Long Term Plan and involving allocation of a capital envelope for each STP/ICS. This suite of documents also included guidance on submitting and approving capital expenditure related to COVID-19. From mid-May, the COVID-19 guidance has been updated as the NHS moves into its second phase response.

Overview

The new approach is intended to support the overall move to a position in which ICSs are developed to cover the country by April 2021.

The stated aims of the new approach to capital funding are:

• greater clarity and confidence on the level of capital resource available;
• support for system working and capital priorities discussions; and
• enabling faster access to national capital funding for critical safety issues. 

The NHS provider capital allocation is split into three categories:

• System level - £3.7 billion – covering day-to-day operational investments.
• Nationally allocated - £1.5 billion – covering nationally strategic projects either already announced or in development/construction.
• Other national - £0.8 billion – including national technology capital provided by NHSX and which may be added into either of the other allocations during the course of the financial year.

COVID-19 provision

New capital approach

In terms of the new capital approach generally, the following points are made to account for the current emergency: 

1. Organisations will not be expected to resubmit plans while the COVID-19 response is underway, however, as indicated below, each STP/ICS will still be expected to spend within their allocation. 
2. Capital requirements agreed as COVID-19 costs to be funded on top of the STP/ICS allocations.

Access to capital for COVID-19 response

The previous guidance for NHS trusts, foundation trusts and CCGs on submitting COVID-19 capital expenditure claims has been replaced by a new guidance released on 19 May 2020. This guidance removes the differentiation between spending below and above £250,000 which had allowed spending below £250,000 to be incurred without advance approval. With effect from 19 May 2020, all COVID-19 capital expenditure requiring national PDC funding (regardless of the amount) will require pre-approval at national level. For 2019/20 all claims must be capable of being charged to that year’s accounts with cash reimbursed in 2020/21. NHS trusts will have their capital expenditure limits adjusted to reflect claims. 

For 2020/21 NHS trusts and foundation trusts will no longer follow a different process dependent on the value of the claim/bid. Instead, a single revised template bid form must be completed regardless of the sum requested, and all bids will require national pre-approval following agreement of the regional director of finance in the context of second phase regional capacity planning. Turnaround time for bids has been revised back up to seven calendar days, although in exceptional, urgent cases, a response will be possible within 48 hours.   

The CCG submission process for COVID-19 capital did not previously include any differentiation dependent on the level of spending. However, the national team turnaround time for bids was reduced to 48 hours. This now also reverts to a turnaround time of seven calendar days, with only urgent, exceptional cases being looked at within 48 hours. Appendix 2 of the updated guidance includes information on how claims for COVID-19 capital expenditure will be now be assessed by the national team. Information now required to be submitted includes:

• how the bid is aligned to and delivers against phase 2 regional COVID-19 capacity plans;
• precise detail of how the capacity will support those plans;
• how plans will be procured and operationalised;
• details of any risks and issues to be managed; and
• how any workforce implications are being addressed.

The previous financial frequently asked questions document has continued to be updated into May.

System-level allocation

Providers are still legally responsible for maintaining estates and establishing / delivering organisational level capital investment plans. However, system level allocation replaces the previous approach in which day to day operational investments were either self-financed by organisations in the STP/ICS or financed via emergency loans from the Department of Health and Social Care (DHSC).

Instead, the relevant STP/ICS will account for ensuring capital spending within their system stays within budget. Any emergency capital will need to be consistent and prioritised within the system. 

Primary care and learning disabilities business as usual capital is also allocated at system level, although initially it will be ring-fenced. The documents released indicate that it will be possible to move capital between primary care and providers where to do so:

• would maximise efficiency; and
• is consistent with system transformation plans/the objectives for which funding is provided.

Providers will be expected to self-finance the majority of system-level expense via depreciation or other locally held cash. However, if this is not possible, and an emergency capital investment has been prioritised within the system, there is a new emergency capital loans approach via application to NHSE/I and the DHSC with finance provided as public dividend capital. 

In terms of how allocations to systems are made, the methodology is to be kept under review annually, and NHSE/I indicate that they hope to be able to set allocations over a multi-year period in the future. 

Reporting/monitoring

While it is accepted that during the COVID-19 response, organisations will not be able to resubmit plans, each STP/ICS is still expected to spend within their allocation in 2020/21 and their performance in doing so will be monitored.

Providers and systems are expected to provide regular realistic central forecasts for annual capital expenditure and should do so on a more robust basis than previously. They will be required to agree local actions to deal with potential overspends and be supported in doing so by local teams. 

There is a warning that local overspends will have wider consequences for systems generally as they will reduce budget available to other STPs/ICSs, and that spending beyond the capital allocation will be taken into account for future years.

Disposals/surplus land

In a move away from previous years’ approaches, during the 2020/21 financial year, systems will be able to invest capital proceeds in line with the system estates strategy set for the year of disposal and two subsequent years. These amounts will be in addition to the system-level allocation.

‘Significant’ disposals resulting in large capital proceeds will be managed on a case-by-case basis and require discussion with NHSE/I and DHSC. 

If we can be of any assistance in guiding you through this difficult and unprecedented period of uncertainty please contact us to discuss further.

For further updates and other articles discussing the impact of the coronavirus please view our coronavirus hub.

This article was updated on 02 June 2020.