NHS finances are heading down a perilous route
5 min read
The NHS ended 2025/26 within its overall budget – the first time in 10 years that it has done so without extra funding from the Treasury.
But behind that headline, individual NHS trusts and local commissioners overspent by £563m, even with temporary financial support to help them balance their books. Now that support is being reduced, individual trusts face tougher financial requirements.
The additional £190m announced for the NHS at the Autumn Budget falls far short of what is needed to cover inflationary pressures alone. Can the NHS make its finances sustainable while delivering the improvements patients need?
A tougher test this year
NHS England has pushed trusts hard to make savings over the past two years. Nearly 80 per cent of organisations delivered their financial plans in 2025/26, up from 70 per cent the year before. This year, every trust will be required to break even on its own rather than rely on surpluses from elsewhere in its local system. Some trusts might still need temporary financial support to do so, but that support is being phased out and is due to end by 2028/29.
NHS England’s chief executive, Sir Jim Mackey, sees financial discipline as a spur to improvement: in his experience, he told NHS leaders in June, the NHS has "performed better and got better results when things are quite tight".
The Department of Health and Social Care's (DHSC) overall day-to-day budget (which includes some non-NHS functions such as public health and research) now stands at £212.5bn for 2026/27. This is £1.1bn more in cash terms than planned at the Spring Statement, though only £190m of this is additional funding provided by the Autumn Budget, aimed at winter pressures.
While this increase is welcome, our analysis suggests £1.6bn would be needed across the full DHSC budget to cover inflationary pressures alone. This means the settlement is potentially some £0.5bn short and leaves no cushion in what NHS leaders expect to be a very difficult year.
In an NHS Alliance survey, 97 per cent of trust and integrated care board leaders said the financial challenge for 2026/27 would be at least as great as for 2025/26, and 86 per cent said their cost improvement plans (the savings each organisation must find) would be harder to deliver.
Two risks stand out. First, some savings achieved in the past year may prove temporary, as essential posts need filling and postponed maintenance cannot wait forever. Second, other savings may be more sustainable but cannot be repeated at the same scale every year. For example, having almost halved agency spending last year, trusts now have far less left to cut. Both risks are compounded by shrinking deficit support, high inflation and ongoing industrial action.
Can productivity bridge the gap?
A key part of meeting this challenge is productivity. NHS trust productivity grew by 3.5 per cent in 2025/26, well above the 2 per cent target. But as our NHS Productivity Commission has highlighted, this productivity growth relied heavily on holding down input costs (such as for staff time and equipment): trusts delivered more care with no overall increase in the resources they used. This will become even more challenging over the long term, as demand for care continues to rise. Already, provisional NHS England data show productivity growing at a slower rate of 1.7 per cent in April–June 2026, below the 2 per cent target.
Productivity remains a major focus for both the NHS and the government. The Budget reinforced this with the announcement of a new independent review of NHS productivity and AI, to be led by Mark Bailie and due to report in early 2027. It will explore how technology could improve care and boost productivity, and will inform the next Spending Review.
But decisions elsewhere in the Budget may actually make productivity gains harder to achieve. Sustaining productivity growth requires investment in infrastructure, equipment and technology as well as the right people and skills, but the total DHSC capital budget has now been cut by 1.8 per cent through 2029/30.
The Spending Review previously set aside up to £10bn in total for NHS technology and transformation through 2028/29, but much of it is earmarked for national programmes such as the NHS App and a single patient record. It remains unclear how trusts will fund the staff time and transition costs needed to turn that investment into lasting gains while also breaking even.
What’s at stake
Financial pressures risk slowing progress on waiting times and access to care. Urgent and emergency care is under severe strain even before winter: in September, more than 50,000 patients waited over 12 hours in A&E after a decision to admit them.
Tight finances also make it harder to tackle longstanding problems with patient flow, such as delayed discharges. These delays are a prominent example of what the Strategy Unit describes as ‘failure demand’, the extra work created when services fail to meet people’s needs the first time.
With little additional money in the Budget, the test now is whether trusts can balance their books without cutting the capacity, staff and investment needed to improve care. On current evidence, the road ahead looks perilous.
Eric Yang is a senior economist at the Health Foundation think tank
