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The new policy around NHS management costs

  • Last modified date:
    9 February 2007

Key policy changes and new freedoms.

  • Secretary of State has announced the lifting of the cap on NHS management costs for PCTs, three-star NHS Trusts and, in the future, NHS Foundation Trusts
  • All other NHS Trusts will operate within the constraints of the NHS Plan target
  • Strategic Health Authorities will maintain an overview of issues within their health economy but with a lighter touch than in the previous system
  • Definitions will remain broadly the same
  • All NHS bodies will continue to report their management costs figures in end of year accounts.

New freedoms

PCTs and three-star NHS Trusts (and in the future NHS Foundation Trusts) have had their caps lifted in line with Shifting the Balance of Power principles, devolving responsibility to those respective organisations to set their own management costs limits. These limits will need to be set taking advice from the Professional Executive Committees, Clinical Boards or local equivalents of those organisations, to ensure clinical ownership of any proposed changes.

Three Star Trusts will not be routinely monitored or performance managed on their management costs investments. However, they will need to ensure that investment decisions take account of how they will impact on services agreed with commissioners.

PCTs have had the freedom to take investment decisions on management costs since April 2002. Any increases should have the support of the PEC and be justifiable. SHAs can challenge rises that appear excessive.

Management costs within the local health economy

These freedoms are not available to zero, one and two-star NHS Trusts. 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

Local arrangements to monitor NHS management costs should be 'light-touch' and would not usually feature as part of routine in-year performance management, unless there are particular local issues. SHAs will need to ensure that they maintain an overview across the health economy of the management costs of NHS organisations that they are performance managing.

Management costs will continue to be reported within end of year accounts for all NHS organisations and will be scrutinised for trends by the Department of Health. SHAs may also be asked in-year for help with local trend analysis, and to support DH accounting to Parliament when questioned.

The current management costs definitions for PCTs and NHS Trusts (see the Management Costs Definitions page) will continue broadly as now with a minimum of change.

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