NHS Expenditure (Hansard, 31 July 1997)

§ Mr. Jack
To ask the Secretary of State for Health, pursuant to his answer of 16 July,Official Report, column 212, if he will make a statement on the term adverse operating variance. [11925]
617W

§ Mr. Milburn
In line with generally accepted accounting practice, a National Health Service trust makes a charge against its income and expenditure account for the depreciation of its assets.
The prices a trust charges to its purchasers includes the depreciation charge, but changes in the value of a trust's assets may occur too late for the resulting change in depreciation to be reflected in the prices charged to purchasers.
Increases in depreciation will result in an increase in expenditure which is not matched by an increase in income from the trust's purchasers. In these circumstances, the trust may show a deficit in the income and expenditure account. This is not within the control of the trust's management; nor is it an indicator of financial problems. The operating variance is used to calculate the underlying financial position of the trust by adjusting its income and expenditure account for changes in depreciation caused by late changes in the trust's assets.
Where the variance is adverse, the underlying position will be investigated further.

§ Mr. Jack
To ask the Secretary of State for Health if he will list the criteria that each NHS executive regional office uses to determine which health trusts and authorities are judged to have serious financial problems. [7759]

§ Mr. Milburn
[pursuant to his reply, 16 July 1997, c. 212]: I am now able to provide additional information. The full reply is as follows:
The National Health Service Executive assesses the seriousness of financial problems by initially looking at the scale of the financial problem reported—that is, over £1 million deficit or, if lower, a deficit of 1 per cent. of turnover in health authorities; and adverse operating variance of either £0.5 million or, if lower, of 0.5 per cent. of turnover in trusts. The NHS executive will supplement this with an assessment of additional factors such as the robustness of recovery plans.