Commentary on Sections Financial arrangements: England and Wales Sections 7, 8 and 9: funding of Strategic Health Authorities, Health Authorities, Primary Care Trusts and Local Health Boards
58.The statutory provision dealing with the public funding of HAs is section 97 of the 1977 Act.  HAs are paid money in each year by the Secretary of State under sections 97(1) and (3).  Section 97(1) concerns the remuneration of persons providing services under Part 2 of the 1977 Act (for example, general medical practitioners).  Unless such remuneration is excepted from section 97(1) it is not cash limited.  The Secretary of State is under a duty to pay each HA the cost of such remuneration and cannot impose a ceiling on such expenditure (defined as “general Part 2 expenditure” in paragraph 1 of Schedule 12A to the 1977 Act.)  Section 97(3) provides that the Secretary of State must pay to each HA money not exceeding the amount allotted to it by the Secretary of State.  This amount is allotted towards meeting an HA’s “main expenditure” (defined in paragraph 2 of Schedule 12A to the 1977 Act.)  In the case of an HA this includes all expenditure attributable to the performance of their functions in relation to the provision of hospital-based and community health services, all their administrative costs, the costs of drugs attributed to them by the Secretary of State and certain other expenditure.  The amount allotted constitutes a limit on the cash, which may be spent by the HA.
59.The Health Act inserts new provisions into the 1977 Act which provide for the establishment and operation of PCTs.  Under section 97C, each year the HA must pay each of its PCTs (a) the cost of general Part 2 expenditure incurred by the trust (defined in paragraph 4 of Schedule 12A to the 1977 Act) and (b) money not exceeding the amount allotted by the Authority for that year towards meeting the trust’s main expenditure (defined in paragraph 5 of Schedule 12A to the 1977 Act). Provisions associated with PCTs have not been commenced in Wales.
60.The Government Resources and Accounts Act 2000 inserted two new sections into the 1977 Act (sections 97AA and 97E).  These new sections provide for the setting of resource limits for every HA and PCT in addition to cash limits.  Section 97AA concerns resource limits for HAs; section 97E concerns resource limits for PCTs.  Section 97AA(2) provides for general Part 2 expenditure to be excluded from the resource limit.
61.The HSC Act inserts four new subsections into the 1977 Act (sections 97(3AA), 97AA(2A), 97C(1A) and 97E(2A)).  These subsections provide that in determining amounts to be allotted towards main expenditure, the Secretary of State may take into account the level of a HA’s general Part 2 expenditure; and HAs may take into account the level of their PCTs’ general Part 2 expenditure.
62.An element of performance funding was introduced by the Health Act.  Subsections (3C) to (3F) of section 97 of the 1977 Act, inserted by section 8 of the Health Act and amended by section 2 of the HSC Act, provide for the Secretary of State to increase the allotments made to a HA if they have, over a period notified to the HA, satisfied objectives notified as objectives to be met by the HA, or performed well against criteria notified to them as criteria relevant to their satisfactory performance of functions.  The additional sums may be subject to conditions.  If those conditions are not met the Secretary of State may reduce the HA’s allotment, in the current year or following years.