Commentary on Sections New Schedule 1A, Part 3 Section 27 - Financial arrangements for clinical commissioning groups
365.This section sets out the financial arrangements for CCGs, inserting new sections 223G to 223K into the NHS Act. The Secretary of State and the Department’s Accounting Officer will remain accountable to Parliament for the Parliamentary Estimates of spending and to the Treasury for the Department of Health’s Departmental Expenditure Limit (DEL), the annual spending limit for a government department arising from its agreed, long term financial settlement with HM Treasury. The Department will allocate resources for NHS commissioning to the NHS Commissioning Board and the NHS Commissioning Board has statutory duties to ensure that the commissioning sector as a whole lives within its spending and resource limits. The NHS Commissioning Board will in turn allocate resources to CCGs and CCGs will have a duty to live within their own spending and resource limits.
366.Means of meeting expenditure of clinical commissioning groups out of public funds. New section 223G sets out the NHS Commissioning Board’s duties to make annual financial allotments to CCGs and, over the course of the relevant financial year, allows CCGs to draw down funding from this allotment to meet the CCG’s expenditure. Subsection (1) sets out the latter duty. The funds that a CCG can draw down to meet its expenditure must not exceed the allotted amount. For these purposes, the funds that it draws down will be net of designated elements of pharmaceutical expenditure, which are paid by the NHS Commissioning Board, but which are treated as paid by the CCG (see section 51 and Schedule 3 to the Act).
367.Subsection (2) provides that, in determining a CCG’s annual allotment, the NHS Commissioning Board may take into account the expenditure of the CCG during any previous financial year. This enables the NHS Commissioning Board to reduce a CCG’s allotment to reflect any over-spends against its allotment in previous years, or conversely to increase that allotment to reflect any under-spends, provided that the NHS Commissioning Board keeps within its overall expenditure limit. Subsection (2) also enables the NHS Commissioning Board to take into account any amount that it proposes to hold as a contingency fund.
368.Subsection (3) provides for the NHS Commissioning Board to notify a CCG in writing of its annual financial allotment.
369.Subsection (4) allows the NHS Commissioning Board to make an in-year adjustment to a CCG’s allotment, provided that it acts reasonably in line with general administrative law controls and subsection (5) provides that, where the NHS Commissioning Board allots an amount to a CCG or makes a new allotment, it must notify the Secretary of State.
370.Subsection (6) provides that the NHS Commissioning Board may direct that sums paid to a CCG as part of an increase in a CCG’s allotment are spent in a certain way. The direction would apply only to the amount by which the allotment has increased, rather than the total allotment. The power might be used when, for instance, additional funds have been made available to make a specific service or therapy more widely available.
371.The NHS Commissioning Board may also give directions to a CCG in respect of charges and other sums related to the valuation and disposal of assets, which are payable to the NHS Commissioning Board. This would allow for monies from the sale of assets to be clawed back and therefore prevent CCGs from selling assets and using the proceeds inappropriately, for example by using the proceeds to fund a deficit. In practice, the monies would not be directly paid back to the NHS Commissioning Board, but the Board would deduct these amounts from the amount of capital funding provided.
372.Financial duties of clinical commissioning groups: expenditure. Section 223H sets out the duty for CCGs to break even on their commissioning budget, in other words to ensure that their cash expenditure in a financial year does not exceed the allotment given to them by the NHS Commissioning Board together with any other sums received by the CCG by other means. The NHS Commissioning Board has powers of direction to determine whether specified sums count for these purposes as being received by a CCG (in other words whether or not this income is treated as increasing the amount that a CCG can spend in a financial year) and whether specified expenditure made by a CCG, or sums received by a CCG from its allotment but not yet spent, must be treated for these purposes as counting towards its expenditure.
373.New section 223H also specifies that the Secretary of State may make directions requiring CCGs to use banking facilities specified in those directions for the purposes specified in those directions. It is an HM Treasury requirement that all NHS money is held in Government Banking Service (GBS) accounts. However, under this Act, the Secretary of State does not have general powers of direction over CCGs. The Government needs to ensure that firstly, all allocations to CCGs are held by CCGs in a GBS account, and secondly, that this is the account in which CCGs keep their allocation and that the monies allocated to CCGs stay in GBS accounts until paid out (although there may be circumstances in which other commercial accounts may be held). This money is held in the GBS to offset the national debt.
374.Financial duties of clinical commissioning groups: use of resources. Section 223I sets out the duty for CCGs to ensure that their use of resources in a financial year does not exceed an amount specified by the NHS Commissioning Board. The NHS Commissioning Board will specify in directions a limit on capital resource use and a limit on revenue resource use. The NHS Commissioning Board can vary those limits in-year, provided that it acts reasonably in line with general administrative law principles. A CCG’s use of resources will differ from its cash expenditure during a financial year. For instance, insofar as resources are consumed (e.g. a service is received) in a different year from that in which the payment for that service is made or insofar as there is a change in the value of assets belonging to the CCG, such as through depreciation. Any Secretary of State’s directions under section 223D as to the descriptions and uses of resources, which must or must not be taken into account, apply for the purposes of these limits. In addition, the NHS Commissioning Board may give directions determining to which CCG a use of resources applies, when examining whether a CCG has lived within its resource limit. Where the NHS Commissioning Board gives directions to CCGs under this section, it must notify the Secretary of State.
375.The resource-use limits include not only CCGs’ expenditure in the form of cash spending (that is, the cash spending that should be accounted for in that financial year, in line with resource accounting standards), but also consumption of other resources and the reduction in value of assets belonging to the CCG. For example, the reduction in value of a photocopier across the year, or the distribution of leaflets previously kept in storage would be counted as part of the CCG’s resource-use limit. This system of setting not only a cash limit on the CCG expenditure, but also a limit on use of resources reflects the system for controlling government resources under the Government Resources and Accounts Act 2000.
376.Financial duties of clinical commissioning groups: additional controls on resource use. Section 223J gives the NHS Commissioning Board a power to direct the maximum amounts of resources a CCG may use in respect of particular matters specified in the direction or prescribed matters relating to administration. Such administration costs will, for instance, include the cost of employing or engaging staff to carry out commissioning functions or the cost of paying for an external organisation to provide commissioning support. The NHS Commissioning Board can vary any of these specified amounts and can determine by directions. the uses of capital and revenue resources that must or must not be taken into account for the purposes of any of these limits. In addition, any Secretary of State directions under section 223D of the NHS Act (inserted by section 24 of the Act), as to the description of resources which must or must not be treated as capital or revenue resources, apply for the purposes of these limits. Similarly, if the Secretary of State specifies in directions under section 223D(5) that a particular use of resources must not be taken into account, that use must not be taken into account for the purposes of the resource limits of CCGs.
377.The NHS Commissioning Board may not give directions to specify limits on the use of capital resources on specified matters, or the use of revenue resources on specified matters, unless the Secretary of State has given directions to the NHS Commissioning Board on those matters under section 223E(1) or 223E(2) of the NHS Act (inserted by section 24 of the Act).. Similarly, it may not give specify a limit the use of revenue resources for matters relating to administration, unless the Secretary of State has given a direction to the NHS Commissioning Board in relation to those matters under section 223E(3)(a) of the NHS Act.
378.Payments in respect of quality. New section 223K gives the NHS Commissioning Board the power to make a payment to a CCG after the end of the financial year.
379.In determining whether to make a payment and, if so, the amount, the NHS Commissioning Board must assess at least one of the following:
	quality of relevant services provided during the financial year;
	improvement in quality of relevant services provided during the financial year compared to previous financial years;
	the outcomes identified during the financial year as having been achieved from the provision at any time of relevant services; and
	improvements in outcomes, identified during the financial year as having been achieved from the provision at any time of relevant services when compared to outcomes identified in previous financial years.
380.In this way, it can both reward the performance delivered by a CCG and any improvements in performance. The NHS Commissioning Board may also take into account any relevant inequalities identified during that year and any reduction in inequalities identified during that year in comparison with relevant inequalities identified over previous financial years. Regulations may specify principles or other matters that the NHS Commissioning Board must or may take into account in assessing these factors. Further regulations may prescribe the circumstances in which the NHS Commissioning Board may decide to reduce a payment or not to make one.
381.Regulations may also prescribe how any payment made to a CCG in respect of quality may be spent, including its distribution amongst the CCG’s members.
382.Each CCG must publish an explanation of how it has spent any payment made under this section.