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NHS management costs after Shifting the Balance of Power

  • Last modified date:
    8 February 2007

A significant change in the NHS Management Costs regime, with the emphasis on devolving freedom and responsibility to the frontline.

Management Cost Policy

1. 2002-03 marks a significant change in the NHS Management Costs regime, following the Shifting the Balance of Power with the emphasis on devolving freedom and responsibility to the frontline.

2. From 2002-03 PCTs and some NHS Trusts will be given the freedom to set their own management costs, after consultation with clinicians. For these organisations there will be no national in year monitoring or target setting.

3. Organisations outside of these freedoms will have to ensure that their management costs investment decisions don't increase above the target set within the NHS Plan i.e. less than the annual rate of increase in NHS expenditure.

Primary Care Trusts (PCTs)

4. Alan Milburn announced on 30 April at a conference of PCT Chief Executives that there would be no targets set for PCT Management Costs. This means that PCTs will be able to set their own management costs limits - they will however be required to agree the level and investment in management costs with their Professional Executive Committee (PEC).

5. PCTs will be required to include information on management costs in their annual accounts and patient prospectus.

6. SHAs will benchmark PCT management costs and can examine in greater detail PCTs whose management costs are significantly higher than average and whose performance in other areas is weak.

7. The definition of PCT Management costs is fundamentally the same as in previous years. Detailed guidance is available for the PCT management cost definition available by clicking on the link below.

NHS Trusts



8. The new freedoms apply to three-star NHS Trusts only. They will also be required to consult clinicians, through Operational/Clinical Boards (or their equivalents) on their level of management costs investments. They will be required to include information on management costs in their annual accounts.

The figures used for weighted population should be those found in the 2003/04 to 2005/06 PCT revenue resource limits explosition book at:

9. This freedom is not available to zero, one and two-star NHS Trusts. Management cost investment decisions should not exceed the NHS Plan target i.e. less than the annual rate of increase in NHS Expenditure:

  • 6.1% for 2002/03 compared to the previous year
  • 7.2% for 2003/04 compared to the previous year

10. SHAs will benchmark NHS Trust management costs and examine in greater detail NHS Trusts whose management costs are significantly higher than average and with lower star ratings. Three-star NHS Trusts and NHS Foundation Trusts will not be performance managed on their management costs.

11. In addition, PCTs (as commissioners) will take a view on the total costs of the Trust in relation to the services it provides. In so doing, they will be able to use the Reference Costs information and the national tariff to benchmark the cost of service provision.

12. The definition of NHS Trust Management costs is fundamentally the same as in previous years. Detailed guidance is available for the NHS Trust management cost definition available by clicking on the link below.

Health Authorities (HAs) and Strategic Health Authorities (SHAs)

13. Health Authorities are in a slightly different position. From October 2002, they became Strategic Health Authorities with functions delegated direct to PCTs from Secretary of State. They have, however, been operating in a shadow Strategic Health Authority capacity since April 2002. They should therefore use the definition for Strategic Health Authorities and apply it across the whole of 2002/03.

14. From 2003-04 SHA management costs will be their allocation from the SHA running costs central budget. Where SHAs receive other monies (e.g. from the Multi Professional Education & Training budget where they will act as bankers for Workforce Development Confederations), this is exempt from management costs.

15. The definition of SHA Management costs is new. Detailed guidance is available for the NHS Trust management cost definition available by clicking onthe link below.

Care Trusts

16. Care Trusts should follow either the PCT or NHS Trust management costs model dependent on which model they have been established under. The Department will be establishing a working group to look closely at how to bring the social services overhead that transferred into the Care Trust into the NHS Management Costs Regime.

Department of Health's Role

17. The Department of Health will collect the figures in the accounts and report to Secretary of State on management costs expenditure, the trend and includes explanations for significant increases by individual organisations.

18. Strategic Health Authorities may occasionally be asked to support the Department of Health in accounting to Parliament, and in analysing trends within management costs. A network will be established to provide local intelligence on management costs pressures and how the process is working.

19. This new Management Costs regime will be reviewed in 2006 and part of that review will compare organisations over time.

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