Tight budgets and tough choices: the reality of an NHS living within its financial means

2nd June 2025

Th Kings fund published a report authored by Danielle Jeffries and Charlotte Wickens on 18 May 2025.

The NHS has faced financial pressure for more than a decade, but the signals of financial distress across the NHS have grown in recent years, and the current financial pressure on the NHS appears to be different. This matters because financial pressure can have a direct impact on patients and their care.

Recent financial figures demonstrate this growing pressure. Since 2022/23, NHS spending has fallen slightly in real terms, while cost pressures have risen. Between 2022/23 to 2023/24, deficits across NHS systems doubled, going from £517 million to £1.4 billion. Furthermore, in 2023/24, £900 million of capital funds for buildings and kit were reallocated to support spending for day-to-day running, even though the maintenance backlog now stands at £13.8 billion. This is despite the priority given to NHS budgets in recent fiscal events such as the 2024 Autumn Budget, which saw a £22.6 billion cash injection for the NHS in the context of broadly flat spending on other public sectors.

The increasingly systemic financial issue in the NHS comes against the backdrop of a government-wide drive for increased productivity and fresh scrutiny of budgets to achieve ‘real-terms cash-releasing savings' and prevent providers needing last-minute bailouts from the government. A large proportion of the public agree that money could be spent more efficiently in the NHS, and according to the National Audit Office, NHS organisations have made significant progress in their efficiency plans. However, local NHS leaders are becoming increasingly vocal about the pressures they are facing. The anticipated savings from merging NHS England into the Department of Health and Social Care and cuts to integrated care boards' (ICBs) running costs have gained national headlines, but there are smaller decisions and trade-offs happening every day that are less visible yet add up to a shift in how and what the NHS provides to people.

We wanted to explore the decisions leaders are making locally to mitigate financial pressures, and the impact these tough decisions will have on patients. In this long read, we focus on NHS trusts as they have responsibility for the majority of spending in the NHS. We draw on analysis of secondary data sources, such as NHS England and the Department of Health and Social Care accounts, and six anonymous semi-structured interviews with chief executives and chief finance officers from a range of NHS trusts. The interviews took place between March and April 2025.

We make the case for a more open, intentional approach to how the NHS can live within its means, and clarity about how this will impact the public it serves. This will be important for setting foundations for the reforms outlined in the upcoming NHS 10 Year Plan, which will inevitably have ramifications for the direction and prioritisation of NHS finances.

Why are NHS organisations in financial distress?
For 2024/25, NHS England is estimating a lower than initially expected overspend of £604 million. However, the first cut of spending plans for 2025/26 showed ‘a very significant financial deficit' of £6.6 billion for integrated care systems (ICSs) and trusts and has been described as ‘tougher than previous years'.

This echoes what most of our interviewees said about the financial position of their organisation, which was ‘challenging'. The chief executives and chief finance officers we spoke to reflected that their financial positions were linked to a range of cost pressures. Some pressures are more recent, such as mitigating the impact of industrial action, while others are more longstanding, such as inflation, but the confluence and cumulative impact of these pressures has been significant.

Staffing costs
Staff costs have always been a key driver of NHS spending, equating to 49% of day-to-day spending, but new pressure around staff costs have recently emerged. Industrial action throughout 2023/24 resulted in direct costs for NHS bodies, for example from cancelled activity, and the government provided £1.7 billion in additional funding to mitigate this. Although these disputes were settled, this also brought unplanned costs, with NHS England estimating that any additional 0.5% pay increase across NHS staff increases costs by around £0.7 billion. NHS England has budgeted a 2.8% increase in pay for staff in 2025/26, but many of the leaders we spoke to said that any settlement higher than this would be unfunded and the money to cover this would need to be found nationally by the Department of Health and Social Care or individual organisations.

Increasing cost of delivering care
As with other parts of the economy and wider public services, inflation has increased NHS costs, such as for prescribing medicines, energy and fuel, and the level of inflation experienced by the NHS in recent years has been higher than accounted for in budgets. NHS England estimates that non-pay inflation will have cost an additional £1.4 billion (around 1% of the total budget) above what was budgeted for in 2023/24. Leaders described how inflation and staff costs had had an impact on the actual costs of delivering care, which were often not reflected in the value of contracts. For example, they believed that some of the public health contracts that community trusts hold with local authorities, such as health visiting, were becoming increasingly unsustainable. Leaders also told us that in some cases there has been an increase in acuity, with patients who are sicker and have more complex needs requiring greater levels of care than is reimbursed for, presenting an additional cost pressure. This divergence between income and costs appears to be widespread, with analysis showing that trusts only received 90p for every £1 spent on running services for patients in 2023/241.

People are having conversations about things like do we need to reduce the safe staffing levels on wards, which feels like questions that we wouldn't have asked before.

Post-pandemic environment
Leaders reflected that the increased financial support given to NHS trusts in response to the Covid-19 pandemic led to a reversal of the negative financial positions that had become endemic since 2013/14. Between 2020/21 and 2021/22, NHS trusts collectively generated a surplus, which enabled greater flexibility when it came to balancing budgets across the years and providing additional services, for example running the NHS Covid helpline. However, when the additional funding ended in 2022/23, financial health again began to deteriorate across the system.

Footnote1

The King's Fund analysis of NHS England provider accounts 2023/24. Ratio of income from patient care activities to operating expenses for all NHS trusts in England. Excludes other operating income.

What does the financial context mean for local leaders?
There has been a new and evolving relationship between NHS trusts and the centre over the course of recent months. The chief executives and chief finance officers we spoke to reflected on the strong messages coming from NHS England that organisations will need to live within the budgets they are given, with ‘a step change' expected in financial management and productivity, and that ‘the money is the money' so the NHS must live within its means.

NHS providers are being asked to undertake a 1% reduction in cost base, while increasing their productivity and efficiency by 4%. This is on top of cost-improvement programmes, which were described by leaders as ‘stretching’ for 2024/25, with trusts and ICBs collectively aiming to deliver efficiency savings of 6.7%, or more than £9 billion.

Many of the NHS leaders we spoke to were proud of the progress they had already made to reduce their financial pressures, as they wanted to reduce waste and create better value health care for their patients. However, some also described how the current financial pressure felt different, and that it was impacting themselves, their colleagues and their patients in ways they had not experienced before.

National expectations
Although leaders were often pragmatic about the cost-saving measures they needed to make, there was also a consistent message that expectations of providers are becoming unrealistic. There are indications that the NHS is now in unknown territory when it comes to cost-saving initiatives - the 2025/26 NHS planning guidance asks for ‘unprecedented productivity growth’ and most recent data from the National Audit Office shows that NHS systems are reporting efficiency savings at a higher rate than ever before in its history. Half of these efficiency savings were one-off non-recurring savings, and some leaders felt as though there was little scope to make further improvements.

You're in the top decile for productivity, but you still can't make your books balance. But that's just a disconnect, isn't it? And that shouldn't be the case.

Leaders also believed that sustainable finances required more honest conversations nationally and locally about the cost of delivering some services. They talked about some services, such as patient transport services or innovative new radiotherapy services, being financially unsustainable to run because the cost of delivering the service was more than the income allocated for that service. In the past, these leaders delivered these services because they felt a duty to provide NHS services for the system and for patients and were able to absorb the cost through surplus income generated from other services. However, leaders explained how this was becoming increasingly difficult to do in some cases. Some leaders also wanted a strengthened role for strategic commissioning and a review of the NHS tariff system to address some of these challenges. Since our interviews, NHS England has announced a reset of the funding allocation system to ICBs, which could address concerns in some areas but also cause disruption to some local providers.

Fundamentally, the costs of the service within a time frame are more than the income that's available to service those costs, hence deficits.

Local control
NHS leaders also described feeling a loss of control of both the financial and operational running of their organisations. Some were worried that decisions being made towards the end of the financial year were ‘knee jerk’, driven by needing to deliver savings within short timescales, rather than delivering better outcomes for patients long term.

But you know it's like being on the treadmill and constantly what people are doing is ramping up the speed. So you're staying on the treadmill, but at some point it feels like you go flying off the back of it.

There was also a sense that short termism was resulting in additional funding being found at the last minute while the underlying structural issues leading to deficits remained unresolved. This led to a perceived lack of transparency but also distrust from boards and staff about the cost improvements they were being asked to make. Trusts that have been given extra funding by their ICB or NHS England have a greater level of scrutiny on the day-to-day spending in their organisations, which some felt hindered their organisation’s ability to make changes to improve their financial situation.

Competition between organisations
Different providers started in different financial positions, as shown by the range of deficits across NHS providers in 2023/24. For example, the majority of providers in deficit are usually acute trusts (70% of the providers in deficits in 2023/242), whereas community and specialist trusts are usually in surplus. Leaders described how these differences are creating tensions between organisations as everyone tries to preserve their own financial situation. For example, they said that organisations had become less likely to support each other financially at ICB level or to work co-operatively to solve system-wide problems. There was also a request from leaders for greater transparency and benchmarking to acknowledge the differences in starting positions.

Each organisation is under so much pressure to get the books to balance that we are cost shifting and sometimes worse than that, we are increasing overall cost because we are trying to protect our own organisational budgets.

Footnote2

The King’s Fund analysis of NHS provider accounts for 2023/24.

What decisions are being made?
NHS providers are taking action to address their financial situations. Some actions may help to reduce waste, improve productivity and increase value for money for patients - for example, in response to financial pressure, providers are improving their patient pathways (eg, reducing unnecessary outpatient appointments and improving theatre productivity). Other providers are centralising appropriate services (for example, procurement or AI expertise) across their ICB. Some of the leaders we spoke to saw an opportunity to improve their internal processes - for example, improving their activity coding to ensure their trust was being paid correctly and that its productivity was being accurately measured.

However, trusts are also having to make trade-offs and tough decisions that will have a negative impact on the patients they serve. Leaders described how financial risks are now becoming clinical risks to patient safety - conversations that were previously unheard of.

I think that finance risk is just out there, isn't it? We're managing it collectively or individually. I think the real question is how do we allocate resource effectively in the system to get the best bang for our health buck? ... This isn't a finance thing anymore, this is kind of an existential service issue.

Cuts and consolidation of services
Leaders outlined how they are now at the point of needing to reduce service provision to patients to save money. Some recounted how they were tightening rationing of NHS services based on clinical need.

What they asked us to do was risk stratify the patient cohorts and desist in initially treating anybody who wasn't P1, which is urgent.

Despite already low bed numbers compared with other countries and high bed occupancy, some leaders described how they were considering closing or consolidating beds across hospitals. They explained how they considered the safest options for their populations. In some cases, this included conversations about consolidating stroke or critical care beds.

It's the medical director of the ICB who's running a panel about disinvestment, so if there is any form of reduction in access or reduction in service, there’s a process for managing that safely.

Leaders also gave examples of non-core services they are reducing or cutting completely, such as community phlebotomy or community paediatrics, in order to maintain patient safety and focus on services that most impact clinical outcomes - often emergency or specialist treatments. An example of a non-core service, now seen as a ‘nice to have’, was clinical psychiatry to support people with cancer - a service that is key to patient experience but not considered core to clinical treatment. Some leaders also described how some NHS services are now being delivered by private providers who bid to deliver services at a cheaper rate than the NHS (for example, patient transport services). One leader believed this could leave these services at risk of being cut altogether if the third-party suppliers go bust and NHS providers are not financially able to restart that service.

You cut fat, muscle, bone, and I think we're at the bone point for most services and clinicians.   

Cuts to staffing costs
In order to cap staffing costs, providers are freezing recruitment of new staff, reducing overtime payments, and limiting their use of bank and agency staff (cash spend on agency staff is now lower as a percentage of total pay than at any point since 2017). Many organisations are also having to make cuts to staffing - at the start of 2025, NHS England predicted there would need to be an aggregate reduction of 1.2% of whole-time equivalent staff in 2024/25 compared with 2023/24 to meet financial plans. Cuts are currently happening across many providers - recent examples include Portsmouth and the Isle of Wight Trusts, Cambridge University Trust, and South Central Ambulance Trust. At a national level, redundancies across NHS organisations are increasing – the percentage of people leaving NHS trusts because of voluntary or compulsory redundancy almost doubled between 2019/20 and 2023/24.3 Many of the redundancies are corporate or administrative roles, but some providers have also cut frontline roles. Some trusts have warned they may also struggle to fund redundancies.

Underinvestment
While some areas are being cut, other areas are not being invested in. Multiple leaders were concerned about the lack of investment in public health services such as health visitors, school nurses and sexual health. This has been exacerbated by the fact that local authorities, which fund the majority of public health services, are also under financial pressure.

We have embedded smoking and alcohol advisers who support inpatients with making healthier life choices. And I think there's starting to be question marks over if that’s an NHS job. Should I, as an acute trust, be paying for an alcohol nurse who will work with people on our wards?

Many leaders were also concerned about the lack of investment in mental health provision, particularly the impact it was having on patients presenting to acute services because they were unable to access services elsewhere.

Despite digitalisation being one of the government’s three ambitions for the NHS, many leaders were worried there was not the funding, particularly capital funding, to invest in it. This was experienced differently by different types of providers, with community leaders needing to create their own headroom to pursue their digitalisation aims as there was no central funding available to them. Similarly, many different leaders described there being opportunities to provide more innovative care to patients, for example new techniques, medicines and technology, but not having the funding to deliver these services.

Delaying payments
Many local organisations are at risk of running out of cash to pay their bills. For example, in February 2025, Greater Manchester ICB was at risk of running out of cash. In response, some providers are taking the risk of delaying payments. One leader revealed how they have delayed paying invoices to external service providers, which has caused suppliers to threaten to switch off services. Many of the leaders we spoke to raised that they have been at risk of not having the cash to pay their staff. Some were worried they would not be able to pay back the money they owe to the the Department of Health and Social Care or HM Revenue and Customs, which could result in damage to their reputation and may deter patients from using services or staff from seeking employment at the trust. Other providers are delaying capital schemes, despite growing maintenance backlogs for repairs.

How are these decisions having an impact on patient care?
It’s likely that the actions NHS providers are taking to address their financial issues will become increasingly visible to the people using NHS services.

Access to services
Cutting services and staff will have an impact on how easy it is for patients to access NHS services. Some of the leaders we spoke to described how they had recently seen improvements in their waiting time performance (eg, 18-week referral to treatments, four-hour waiting time A&E or ambulance response times), partially due to being able to fund extra resources (for example, paying for bank or overtime staff). However, they were unlikely to see further improvements and could even see deterioration in their waiting times, as there was a feeling that improving waiting times and meeting financial targets were in direct competition.

So you know as the finances have got worse, the performance has deteriorated or maybe it's the other way round, as performance has deteriorated the finances deteriorate, but certainly there is something sort of cyclical feeding off each other. 

Some patients may find it more difficult to access some services at all. Consolidation and closing of services may mean that patients have to travel further to access the services they need, which can be expensive and put people off seeking care. As shown by the examples of cuts to services, some patients won’t receive some services at all because local providers have made the decision to ration access or decommission services altogether.

Patient experience
Leaders also described how the current financial pressures were impacting the experience of their patients. While important for improving efficiency, leaders described how continuous or rapid cost improvement programmes can reduce staff morale, which can have a knock-on effect on patient experience. Some of the most severe staffing cuts are in administrative roles which are important to patient experience, and recent polling shows that two-thirds of people are already experiencing an admin issue when they use NHS services. There have also been cuts to corporate roles, which support the day-to-day running and transformation of patient services. Leaders explained how there was little financial incentive for providers to better integrate services, digitalise or to introduce new innovations in patient care.

We want to make sure we are at the cutting edge of that for our patients. Great. But there's more resource requirement [to do that].

Reforming care
The government, alongside many NHS leaders and The King’s Fund, is pushing for major reform of the NHS to create a better and more sustainable health care system for patients. Reforms include moving care closer to home, moving from sickness to prevention, and digitalising the NHS. While some leaders saw the current financial situation as a ‘burning platform for change’, others expressed concerns about the possibility of achieving real reform without extra funding. A recurring theme was that the NHS needs to ‘invest to save’. For example, some believe that to shift care into the community, you need to double run services in hospitals and the community, which requires additional funding. Cuts to preventive services, for example reduced public health spending on services such as sexual health services, seem to contradict the ambition to improve the health of the population.

What do we think should happen next?
From the insight gathered in our conversations with chief executives and chief finance officers, alongside our other work, some key themes have emerged about what would help mitigate the impact of the financial pressure on care and patients.

Certainty
The King’s Fund has called for longer-term three to five-year planning and funding cycles so that systems can plan their priorities more cohesively over a longer time period; this was echoed by the leaders we spoke to. Leaders reflected that strategic long-term thinking was difficult to do currently when budgets and priorities are often set incredibly close to the start of the financial year. For example, in some cases a route to sustainable services in a local area would be to reconfigure or consolidate services, as in North London with maternity services or stroke services in Greater Manchester; however, this would take longer than a single year’s planning cycle to implement and require conversations across systems and with patients who might be affected. Greater certainty would support longer-term decision-making to be made on the basis of evidence, value and long-term benefit to patients, not just short-term alleviation of pressure on balance sheets.

Realism
There is also a need for realism about what care the NHS can deliver within its current budget if it is unlikely there will be significant additional funding. Leaders reflected that additional demands are placed on the NHS, often without thinking about what can be stopped as well as started – for example, rethinking existing pathways when new technology is implemented.

In the current financially pressurised environment, and in the context of a service funded by taxation with a decreasing tax base due to demographic change, it will not be possible for the NHS to do absolutely everything that might be asked or expected of it. Trade-offs will need to be made and that will mean some services being deprioritised, with a knock-on effect for patients’ access to care. This means politicians may need to accept the closure of a local service, if that is the right solution for better patient outcomes and safety and to deliver the reform agenda of care closer to home. However, leaders told us that these are often difficult conversations to have, particularly when it comes to closing A&E services. Leaders believe they need national support to make changes so that the NHS lives within its means but also so that patients know what to expect and have those expectations met. The latest British Social Attitudes survey shows that the public’s expectations are far from being met currently, with the highest level of dissatisfaction with the health service since the survey began in 1983. 

We've got to be able to say to our public, if you want this, this is what it's going to cost. Because we are not having that honest conversation.

Conclusion
Despite consistent real-terms funding increases for decades, the NHS is now in one of the most pressurised financial positions in its history. The wider economic climate (including global trade uncertainty, increases in defence spending and cuts to welfare and international aid) suggests that the government is unlikely to announce significant funding growth for the NHS in the near future.

In this context, there has been a national focus on making savings in the NHS budget, which means locally, leaders are making significant efficiency and productivity savings. However, the scale of the financial pressures ahead means leaders have told us that it is no longer possible for them to avoid taking further action and that they are now left with no choice but to cut staff and services, even if it has a knock-on effect on patients.

In the midst of the current financial pressure on the NHS is a government and system that is eager to carry out major reform of the NHS and wider health system. The King’s Fund agrees with the ambition to create a new sustainable health care system that improves people’s health, while also restoring access to services for patients. But this ambition feels very far removed from the reality of having to make cuts. There is a need for realism about what can be achieved in the current financial envelope and clarity from the government about how much the NHS should prioritise funding to deliver reforms versus maintaining the services people are currently using every day.

Read the full report with links to more information HERE

https://www.kingsfund.org.uk/