NHS finance - Local Health Board funding

Public funding of Local Health Boards

Following the NHS Wales reorganisation in 2009, seven (LHBs) are responsible for providing an integrated Welsh health service.  They commission and provide health services in Wales.

The Welsh Ministers fund the seven LHBs in Wales pursuant to section 174 of the National Health Service (Wales) Act 2006 (NHSWA 2006).

Section 174(1) provides that the Welsh Ministers must, in respect of each financial year, pay to each LHB sums equal to its general ophthalmic services expenditure (i.e. LHB expenditure on the payment of remuneration to persons providing general ophthalmic services, subject to specific exceptions set out in paragraph 1(1)(b) of Schedule 8) of NHSWA 2006, and sums not exceeding the amount allotted by the Welsh Ministers to the LHB for that year towards meeting the LHB’s ‘main expenditure’ in that year.

Main expenditure is defined in paragraph 2 of Schedule 8 in relation to a LHB as:

• expenditure of the LHB attributable to the reimbursement in that year of expenses of persons providing general ophthalmic services which are designated expenses in connection with the provision of those services, and
• any other expenditure of the LHB attributable to the performance of its functions in that year (other than general ophthalmic services expenditure).

In determining the amount to be allotted in any year, section 174(2) of NHSWA 2006 provides that the Welsh Ministers may take into account the LHB’s general ophthalmic services expenditure, and expenditure which would have been the LHB’s general ophthalmic services expenditure but for an order made under section 180(2) to provide for special arrangements as to payments of remuneration, during any period the Welsh Ministers consider appropriate.

Where the Welsh Ministers have made an initial determination of the amount to be allotted for any year to a LHB, they may increase or reduce an allotment previously made.

Section 174(3) of NHSWA 2006 provides that where the Welsh Ministers have made an initial determination of the amount to be allotted for any year to a LHB, they may increase that amount by a further sum if it appears to them that over a period notified to the LHB:

• it satisfied any objectives notified to it as objectives to be met in performing its functions, or
• it performed well against any criteria notified to it as criteria relevant to the satisfactory performance of its functions (whether or not the method of measuring its performance against those criteria was also notified to it).

Section 174(5) provides that in making any such increase, the Welsh Ministers may (whether by directions under section 174(10) or otherwise) impose any conditions they consider appropriate on the application or retention by the LHB of the sum in question.

Section 174(7) applies where the Welsh Ministers have increased the amount to be allotted for any year to a LHB, has notified the LHB of the allotment, and it subsequently appears to them that the LHB has failed (wholly or in part) to satisfy any conditions imposed in making that increase. In such cases the Welsh Ministers may reduce the allotment made to the LHB for that year, or when the Welsh Ministers have made an initial determination of the amount to be allotted for any subsequent year to the LHB, that amount may be reduced. The amounts may be reduced by an amount not exceeding the initial increase in the allotment.

Section 174(10) provides that the Welsh Ministers may give directions to a LHB with respect to the application of sums paid to it under section 174, or the payment of sums by it to them in respect of charges or other sums referable to the valuation or disposal of assets.

Section 174(11) provides that sums falling to be paid to LHBs are payable subject to such conditions as to records, certificates or otherwise as the Welsh Ministers may determine.
The Welsh Ministers also have ‘common law type’ powers section 58A of the Government of Wales Act (GOWA) which include functions relating to expenditure or other financial matters. The ‘well-being’ powers in section 60 of GOWA (relating to the economic, social or environmental well-being of Wales) also overlap with the common law type powers conferred by section 58A.

The financial duty of Local Health Boards

Section 175 of NHSWA 2006, as amended by the National Health Service Finance (Wales) Act 2014, imposes a financial duty on each Local Health Board (LHB).

Under section 175(1) of NHSWA 2006, an LHB must perform its functions so as to secure that, in each three year accounting period, its expenditure (not including its general ophthalmic services expenditure) does not exceed the aggregate of:

• the amount allotted for that year under section 174(1)(b),
• any sums received in that year under any provision of NHSWA 2006, and
• any sums received in that year otherwise than under NHSWA 2006 for the purpose of enabling it to defray any such expenditure.

Sections 175(2) and (2A) of NHSWA 2006 provide for the Welsh Ministers to direct LHBs to prepare plans which set out how they will comply with their financial duty whilst also providing health services. Such plans must be submitted to, and approved by, the Welsh Ministers.

Section 175(3) sets out the factors that must be disregarded for the purposes of the financial duty in and section 175(4) provides that sums which, in the hands of a LHB, cease to be trust funds and become applicable by the LHB otherwise than as trustee must be treated, on their becoming so applicable, as having been received by the LHB otherwise than as trustee.

Section 175(6) vests direction making powers in the Welsh Ministers to determine whether certain sums or expenditure should be treated as received by a LHB or expended by it as the case may be for the purposes of its financial duty. The directions may also provide when sums received, but not spent, must be treated as part of the LHBs’ expenditure and also to which financial year’s expenditure they should be attributed.

Finally, section 175(6A) requires the Welsh Ministers, in relation to each three year accounting period, to report to the Senedd each LHB's compliance with its financial duties.