A funding shortfall, a “dysfunctional” capital funding scheme and raids on capital budgets have left the NHS in “critical condition”, according to a landmark review that has laid bare the Treasury’s role in the “dire” state of the health service.
The “dysfunctional” state of the NHS capital regime was laid bare in Lord Ara Darzi’s review, which found the health service is suffering from a £37bn shortfall of capital investment.
The nine-week rapid review, which sets out themes that will inform a 10-year plan for the health service, says the NHS is in “critical condition”, with poor productivity and staff morale contributing to growing waiting lists, along with declining health across the nation.
Austerity in funding and capital starvation is one of four “heavily inter-related” factors that the review says have contributed to the “dire state of the NHS”, along with the Covid pandemic; lack of patient voice and staff engagement; and management structures and systems.
The dysfunctional capital funding system highlighted in Darzi’s report has left “much of the NHS estate crumbling, notably in primary care”, with a maintenance backlog of £11.6bn in 2022.
The £37bn shortfall – “what would have been invested if the NHS had matched peer countries’ levels of capital investment in the 2010s” – could have prevented this backlog, modernised technology and equipment, and paid for the facilities promised in the New Hospital Programme that have yet to materialise, the report says. The sum would have been enough to rebuild or refurbish every GP practice in the country, it adds.
“Instead, we have crumbling buildings, mental health patients being accommodated in Victoria-era cells infested with vermin with 17 men sharing two showers, and parts of the NHS operating in decrepit portacabins,” said the review, which notes that 20% of the primary care estate predates the founding of the health service in 1948.
And even where they have sufficient capital funding, NHS trusts are unable to use it where it is needed because of Treasury rules and a need to make up revenue deficits, Darzi said.
The independent peer’s review found £4.3bn was raided from capital budgets between 2014-15 and 2018-19 to cover in-year deficits “that were themselves caused by unrealistically low spending settlements”.
Meanwhile, NHS trusts’ ability to make capital investments are hamstrung by capital expenditure limits set by the Treasury that cannot be exceeded, “even if the funds to make such investments are available”.
These problems are compounded by a capital approvals process that is “so byzantine that it is hard to find an NHS senior manager who understands it”, the report adds.
“The result is that the NHS routinely underspends its capital allocation, despite it being insufficient to begin with,” it says.
Underspends have regularly been used to plug deficits in day-to-day expenditure, by moving chunks of cash earmarked for capital spending to trusts’ revenue budgets. Between 2014-15 and 2018-19, £4.3bn was transferred from capital to revenue, according to the review, which says the Department of Health and Social Care and the Treasury “have effectively used the NHS capital budget as an informal reserve to protect against NHS deficits”.
“This is obviously dysfunctional and stores up problems for the future,” it says.
Shortage of capital 'desperate'
The dysfunctional capital funding system highlighted in Darzi’s report has left “much of the NHS estate crumbling, notably in primary care”.
The £11.6bn maintenance backlog in 2022 – the most recent year for which data was available – included £2.6bn of “high-risk” backlog maintenance, as well as £3.9m marked as “significant”.
The “desperate shortage of capital” also “prevents hospitals being productive”, he said.
Services were disrupted at 13 hospitals a day in 2022-23 owing to problems related to the maintenance backlog, according to the report.
Meanwhile, a lack of capital means there are "too many outdated scanners, too little automation, and parts of the NHS are yet to enter the digital era".
The NHS is still "in the foothills of digital transformation" while other sectors have been "radically reshaped by digital technologies".
"The last decade was a missed opportunity to prepare the NHS for the future and to embrace the technologies that would enable a shift in the model from ‘diagnose and treat’ to ‘predict and prevent’," Darzi wrote, pointing to a shift he called for in a 2008 review of the NHS, High Quality Care for All.
Areas where a lack of capital investment has significantly impacted patient care include facilities where patients have been detained under the Mental Health Act – despite the NHS having a “special responsibility” to patients being treated this way.
Darzi said that while he saw some “high-quality, modern facilities that are world-leading”, he was “appalled to uncover that mental health patients continue to be accommodated in rooms that were constructed for a Victorian asylum”. In one ward, patients’ rooms were 7’ x 8’6” with a fixed bunk that measured 6’6” by 3’, occupying more than a third of the room, he said.
In some facilities Darzi visited, 20 men were expected to share just two showers and laundry facilities often broke down. Patients spoke of “how they struggled to maintain their personal hygiene and dignity” and “infestations of mice and cockroaches which no amount of pest control had managed to eradicate from the decrepit estate”.
“Under the current capital rules, even if the trust concerned raised the capital from disposals of other assets, they would not have the discretion to spend it on replacing or rebuilding the unit,” Darzi said.
According to a submission to the review from the Royal College of Psychiatrists, more than a third of single rooms across mental health and learning-disability sites in 2022-23 lacked ensuite facilities, amounting to more than 6,600 patient rooms.
“Many patients stay in these facilities for months at a time, and some for many years. If the measure of a society’s humanity is how it treats its most vulnerable, then we are falling far short,” the review says.
Darzi said that in light of this, he was “particularly concerned to discover” that the Treasury had overruled NHS England in a review of the New Hospital Programme, which led to three out of five of the mental health schemes in the programme being removed.
'Widely recognised as dysfunctional'
The NHS capital regime is “widely recognised to be dysfunctional”, the review notes – pointing to the Hewitt Review into integrated care systems, published last year, as the most recent call for it to be overhauled.
Patricia Hewitt, a former health secretary, said the regime should be reviewed “to address the inflexibility in use of capital and the layering of different capital allocations and approvals processes”.
In its response to Hewitt’s report, DHSC said it agreed with “the need for a review” of the NHS capital regime particularly in areas not covered in detail by the last such review in 2021. It said such an exercise should tackle areas including “setting an overall strategic direction for NHS capital, considering how the current capital regime operates for primary care, clarifying the position on new private finance and improving the data held and management of the NHS estate”.
In the June 2023 response, DHSC said it would set out next steps “in due course”.
'A bleak picture'
Matthew Taylor, chief executive of the NHS Confederation, said the report "paints a bleak picture of the state of an NHS which, despite working harder than ever before, has been struggling in the face of rising demand, a decade of underinvestment and the impact of the pandemic".
"NHS leaders will recognise Lord Darzi’s diagnosis of the NHS’ problems and will work with the government to help address them," he said.
"The review has rightly identified many of the root causes, not least how we invest much less in our buildings, technology and equipment than many comparable countries."
Responding to Darzi's report, Keir Starmer said people "have every right to be angry" about the findings of the report.
"It’s not just because the NHS is so personal to all of us – it’s because some of these failings are life and death," the prime minister said.
He blamed many of the failings identified by Darzi on a "scorched earth approach to health reform" by previous administrations.