Policy paper

DHSC's written evidence to the Senior Salaries Review Body (SSRB) 2021 to 2022

Published 7 May 2021

This was published under the 2019 to 2022 Johnson Conservative government

Applies to England

Executive summary

The intention of our evidence is to provide information on the government’s approach to the pay and reward of NHS very senior managers (VSMs) in NHS provider trusts and clinical commissioning groups (CCGs) and executive and senior managers (ESMs) within the Department of Health and Social Care’s (DHSC) arm’s length bodies (ALBs). Together with the evidence provided by NHS England and Improvement (NHSEI) this should allow the SSRB to make observations on the level of senior manager pay. We are not seeking pay recommendations for 2021 to 2022.

In making their observations we expect the SSRB to consider the pay and reward of other staff within the NHS, including those employed on Agenda for Change (AfC) terms and the different medical contracts along with considerations on the state of recruitment, retention, motivation and affordability for the NHS. It will be important for any future SSRB recommendations in this area to align with the overall NHS workforce strategy as set out in the NHS People Plan.

The NHS reward package is about much more than basic pay and includes benefits that go well beyond the statutory minimum, for instance, generous holiday allowance and access to a gold standard pension scheme. While headline pay is important, it is the total reward package that should be looked at along with the commitment to develop a supportive leadership environment when considering what is needed to help attract and keep the talented leaders the health and care system needs.

The COVID-19 pandemic has posed an unprecedented challenge to the UK economy, labour market and fiscal position and any observations on senior health manager pay levels should be made with this context in mind.

1. NHS senior pay strategy

Ensuring that the NHS has access to leaders who have the skills, experience, values and behaviours to lead the commissioning and delivery of high-quality, affordable care is a fundamental aspect of the department’s overarching strategic programme for the health and care system. The department works with system partners to ensure there is a highly engaged and motivated workforce delivering NHS services to patients.

Senior leadership and the NHS People Plan

We strongly believe that recruitment and retention is not just about pay, it is about creating a culture and environment in the NHS where staff want to work.

NHSEI’s Long Term Plan for the NHS, published on 7 January 2019, provides the context for how the NHS will develop and deliver senior leadership including taking action to support diversity and a culture of respect and fair treatment. It sets out the ambition to better support and develop the leaders of the NHS to ensure they have both the time and space to make a difference and outlines the determination to nurture the next generation of leaders by more systematically identifying, developing and supporting those with the capability and ambition to reach the most senior levels of the service.

The ‘We are the NHS: People Plan 2020 to 2021 – action for us all’ was published in July 2020 in response to the COVID-19 pandemic and sets out how the NHS aims to improve its leadership culture and support current leaders to exhibit compassionate, inclusive leadership.

An effective approach to talent management is key. Identifying, assessing, developing and deploying individuals with the capacity and capability to make a difference in the most senior positions is vital. Leaders must be supported to take on the most difficult roles. NHSEI have completed the engagement exercise commissioned by government in response to Tom Kark QC’s review of the Fit and Proper Persons Test and are working with the DHSC to finalise a response to the review’s recommendations.

The best healthcare systems have strong clinical leadership at their heart and we need to encourage clinicians into leadership positions. NHSEI is working with the Faculty of Medical Leadership and Management to expand the number of placements available for talented clinical leaders each year. These roles will be based in systems and will focus on improvement projects across clinical pathways.

To help the NHS attract and retain staff, it is vital an inclusive and compassionate culture is created. Organisations and employers are taking the following actions to support leaders to build compassionate and inclusive cultures:

The NHS will intensify efforts to ensure teams and organisations, particularly the senior leadership of the NHS, reflect the diversity of the communities that they serve.

Refreshed support for leaders will be provided in response to the current operating environment, including expert-led seminars on health inequalities and racial injustice.

An updated talent management process to make sure there is greater prioritisation and consistency of diversity of talent being considered for director, executive senior manager, chair and board roles.

All central NHS leadership programmes will be available in digital form and accessible to all, updated by the principle of inclusion.

NHSEI will launch a new leadership observatory which will highlight areas of best practice globally, commission research and translate learning into advice and support for leaders.

Leadership challenges apply just as much to DHSC ALBs, which have an equally important role to play in fostering a new leadership culture. NHSEI now have a single operating model, which is designed to support far more consistent and proportionate assurance and oversight.

The interim People Plan sets out that we must do more to foster systems-based, cross-sector, multi-professional leadership. The implementation of new service models requires greater system collaboration, which in turn brings new and different leadership challenges.

NHSEI have undertaken work to develop a new ‘NHS Leadership Compact’. This represents the foundation of a new approach to senior leadership and will establish the cultural values and leadership behaviours we expect from NHS leaders together with the support and development leaders should expect in return. The ‘Leadership Compact’ principles and commitments will allow leaders to lead to the best of their ability, while supporting cultural change across the NHS and will be reflected in the accountability of the NHS through an updated NHS Oversight Framework and Care Quality Commission (CQC) Well-Led Framework.

Senior NHS leaders, whether they lead a primary care network, trust, clinical commissioning group, integrated care system or national organisation are asked to commit to the values and behaviours described in the compact and take sustained action to begin embedding them in everyday practice.

Find out more about the NHS People Plan.

NHS senior leaders have played a vital role helping the NHS be in a position to respond to the unprecedented challenges posed by COVID-19 and this reflects the important role they play more generally, ensuring the NHS is able to respond to ever growing demand and provide the world class care we all know and expect. As such, it is important that pay and total reward is at a level that adequately attracts and retains the talented individuals we need for these roles.

Expansion of the SSRB’s terms of reference to include all NHS senior managers

The SSRB commented within its 2020 report that it would welcome the opportunity to support the Secretary of State for Health and Social Care to develop the approach to senior manager pay and reward and to do so it would welcome the expansion of its terms of reference to include all senior managers working across the NHS.

This follows a successful scoping exercise led by DHSC working in partnership with the SSRB and other NHS partners to assess the feasibility of expanding the SSRB’s terms of reference and enable them to make pay recommendations in future years.

As such, the SSRB’s terms of reference have been amended to include all senior managers across the NHS and for this year we welcome the SSRB’s observations on the existing level of senior manager pay.

For pay uplifts in 2021 to 2022 the Chancellor of the Exchequer announced at the Spending Review that pay rises in the public sector will have to be restrained in order to protect jobs and ensure fairness.

The expansion of the SSRB’s terms of reference is in keeping with the department’s wider approach to pay in the NHS and brings NHS senior managers in line with all other NHS staff who are also within the remit of independent Pay Review Bodies – either the NHS Pay Review Body (NHSPRB) or the Review Body on Doctors’ and Dentists’ Remuneration (DDRB).

Background to the SSRB’s relationship with senior managers in health and care

Between 2008 and 2017 the SSRB made recommendations to government on the pay of a defined group of very senior managers in the health sector. This did not include those in foundation trusts (FTs) and CCGs or NHS trusts other than a few community and ambulance trusts which had not yet achieved FT status.

With the Health and Social Care Act changes in 2012 this group became an increasingly diminishing remit group, ultimately comprising ESMs in the department’s ALBs.

The recommended annual pay uplift for VSMs in NHS providers followed the SSRB’s recommendations for the NHS organisations that were within its remit prior to the 2012 Health and Social Care Act changes. These included strategic health authorities (SHAs), special health authorities (SpHAs), primary care NHS trusts (PCTs) and ambulance NHS trusts.

From 2013, the SSRB continued to cover SpHAs and ambulance NHS trusts and added the department’s other ALBs – both existing and newly established executive non-departmental public bodies (ENDPBs) such as NHS England (NHSE). SHAs and PCTs were abolished and CCGs were established.

Annual pay uplift recommendations for VSMs in trusts continued to be informed by the SSRB’s recommendations for VSMs in ambulance NHS trusts and the cohort of managers known as ESMs in the department’s ALBs. ESMs include an ALB’s executive board members, and in the larger ALBs further layers of senior managers.

Many staff, including senior managers, working in the abolished organisations transferred to the new ones. In particular, PCT staff transferred to CCGs and SHA staff to NHSE and the NHS Trust Development Authority (NHS TDA) which subsequently became known as NHS Improvement when it and Monitor (the FT financial regulator) joined to work as a single organisation but without formally merging.

In its 2017 report, the SSRB identified that its then remit group (ESMs in ALBs and senior managers in some ambulance and community trusts) formed only a small proportion of senior health service managers mostly employed in various ALBs which have different functions and priorities. The SSRB stated that managers move between organisations covered by the SSRB and those in the wider health service and this makes it difficult for the relevant parties to assemble proper evidence on questions such as recruitment and retention, career progression, feeder groups and morale. It identified the need for a coherent approach and proposed 2 options either removing the group from its remit completely or expanding its remit to consider the pay of all senior managers across the NHS.

Following the SSRB’s 2017 recommendations, ESMs were removed from the SSRB’s remit while the department undertook a scoping exercise to explore extending the remit to include NHS VSMs.

Upon the completion of this scoping exercise, the department and the SSRB are in agreement to expand the SSRB’s terms of reference to include all senior managers across the NHS.

2. NHS very senior managers (VSMs)

A very senior manager (VSM) is defined as someone who holds an executive position on the board of an NHS trust or NHS foundation trust or someone who, although not a board member, holds a senior position typically reporting directly to the chief executive. The chief officer, finance officer, chief nurse and similar senior staff employed by CCGs are also VSMs. VSMs are employed on locally agreed contracts not subject to national collective bargaining for pay frameworks or other terms, although many generic terms such as annual leave and redundancy are linked to AfC terms. Medical directors are typically employed on consultant contracts, whose pay framework and other terms are subject to national collective bargaining.

We estimate there are around 2,788 (headcount) VSMs working across both trusts and CCGs. This is broken down in table 2.1 below.

Table 2.1: number of VSMs

Organisation type	Headcount	FTE
Trusts and FTs	2,049	1,972
CCGs	739	456

Scrutiny of VSM pay

It is right that senior manager pay is properly scrutinised to ensure value for money, transparency and consistency.

VSM appointments are however, not ‘ministerial appointments’ and are therefore not subject to the approvals process set by HM Treasury. This means NHS providers are free to appoint who they deem appropriate without ministerial opinion. However, in 2015 the previous Secretary of State chose to apply the same pay threshold as HMT when setting out his policy on taking forward senior pay in the NHS.

In his letter on 2 June 2015 to Chairs of all NHS trusts, FTs and CCGs, the then Secretary of State set out a number of measures intended to ensure senior pay within the NHS was properly scrutinised and promote consistency. These measures included:

• a requirement for all proposed VSM pay at or above £142,500 (raised to £150,000 in January 2018) in NHS trusts to be subject to ministerial approval (or ministerial comment in FTs and CCGs) before appointments are made

• a cap on the daily rates paid to off-payroll VSMs

• the development of a national VSM pay framework with benchmarked rates for executive roles together with a more effective approach to transparency and disclosure for VSM pay

• clamping down on ‘retire and return’ so that VSMs do not gain financially by returning to the same job after drawing down pension benefits

The then Secretary of State also urged Chairs to ensure that the new redundancy terms agreed for AfC staff (with a maximum payment of £160,000) should be applied to all VSMs wherever possible.

As such, from April 2016, all proposals in NHS trusts for VSM pay at or above £142,500 (raised to £150,000 in January 2018) required sign-off from both DHSC ministers and the Chief Secretary to the Treasury. This policy was adjusted from April 2017, with the Chief Secretary now requiring bi-annual reports from DHSC on the pay decisions taken regarding new VSM appointments in trusts, FTs and CCGs above the threshold, to evidence that appropriate scrutiny is being applied to these high pay cases.

DHSC has committed to introduce a national pay framework for VSMs in the NHS. Work continues in partnership with NHSEI, building on the existing guidance with the ambition to include all VSMs, not just those in trusts and with salaries of £150,000 and above. The Framework will be expected to take into account the recommendations of the Kark Review, including that all directors should meet specified standards of competence to sit on the board of any health providing organisation.

The current system benchmarks pay against the relevant range based on trust type and size. Pay proposals must be no higher than the median for each relevant range unless there is scope for a challenged trust premium in which case pay can be set at the upper quartile or the median plus 10 per cent, whichever is the greatest. This applies for appointments to trusts NHSI have deemed challenged and is usually trusts with a SOF (Single Oversight Framework) rating of 4 and/or a CQC rating of ‘requires improvement’.

The framework aims to reduce excessive pay above the upper quartile of the relevant range and remove outlying salaries. In doing so, it aims to bring all pay closer to the median for the relevant range, in effect, establishing a ‘going rate’ for the job.

A key element of this framework is that where pay is above the lower quartile, the department expects to see an element of re-earnable pay to be included. Linking an element of pay to performance aims to encourage accountability and address taxpayers’ concerns that highly paid managers should not be rewarded for poor performance and/or behaviours. Including an option to award a corresponding amount to senior leaders who exceed objectives, gives employers the flexibility to reward high performers and should help reduce the number of pay rise proposals (over and above the recommended annual uplift) put to ministers. Performance related pay is included for senior managers employed at the top of AfC. We would welcome the SSRB’s observations on the use of and best practice for performance related pay.

The annual pay uplift is separate to the pay setting process (with the exception of where an employer proposes to pay an annual uplift above the recommended amount and the individual is either already being paid £150,000 or more or the proposed uplift will take their pay above that threshold).

The overwhelming majority of provider chief executive and executive pay is in line with NHSEI’s current guidance, and we have seen a reduction in the highest pay levels across the NHS since 2016. For instance, between 2016 and 2019 the upper quartile of VSM salaries across all roles and trust types decreased by 1.8%. This trend is more apparent in the acute trusts which typically have the largest turnovers, where the upper quartile decreased by 4.7%.

VSM pay levels

The SSRB should expect to receive information on the levels of VSM pay and the total remuneration of VSMs from NHSEI. To collect this information for the 2021 to 2022 pay round NHSEI have undertaken a data collection exercise of a representative sample of trusts.

Beyond this data collection exercise, NHSEI publish VSM pay benchmarking data which plots VSM pay across different VSM roles and different types and sizes of trust. This benchmarking data forms part of the current VSM pay guidance where it is expected trusts appoint VSMs at no higher than the median for the benchmarked range.

In addition to information on pay, it is also expected NHSEI will provide the SSRB with information on the recruitment and retention of VSMs along with diversity information as is presented within section 3 on ESMs below.

2020 to 2021 VSM pay recommendation

Since the 2018 to 2019 pay year, the Secretary of State for Health and Social Care has recommended annual pay increases for VSMs in the NHS in line with the increases received by staff at the top of AfC band 9 as part of the multi-year AfC pay and contract reform deal (2018 to 2019 - 2020 to 2021). For 2020 to 2021 Secretary of State recommended a consolidated increase of 1.03% for all VSMs. This is the same percentage uplift applied for staff at the top of AfC band 9.

3. DHSC arm’s length bodies (ALBs) executive and senior managers (ESMs)

An executive and senior manager (ESM) is defined as someone who holds an executive position in one of DHSC’s ALBs or someone who, although not a board member, holds a senior position typically reporting directly to the chief executive.

ALBs range in size, budgetary control and breadth of responsibility but all ALBs have a national role and are key components in the health and social care system. They undertake an extraordinarily wide and diverse range of functions, encompassing highly specialised services on the one hand to responsibilities affecting the entire health and social care system on the other. This level of responsibility is reflected in the size, budgets and complexity of each ALB.

There are about 470 ESMs working in our executive agencies and ALBs.

Data return analysis

As part of the work to develop an evidence base for the SSRB for the 2020 to 2021 pay round and beyond, DHSC issued a data template to our 12 different executive agencies and ALBs for them to return to provide in-depth detail on the ESMs they employ.

The raw data return has been submitted to the SSRB separately.

This analysis provides an overview of the 11 data returns received.

ALBs included

This return consists of 11 different ALBs and 470 ESMs:

• CQC

• Health Education England

• Health Research Authority

• Human Tissue Authority

• National Institute for Health and Care Excellence

• NHS Business Services Authority

• NHS Resolution

• NHS Digital

• NHS Blood and Transplant

• NHSEI

• Public Health England

Pay analysis

Given the specialist nature of the ALBs, there are not necessarily common and comparable roles to be found across all ALBs. The ESM pay framework clusters roles into 4 ESM grades. These 4 ESM grades each have a broad pay band.

This approach seeks to cluster roles at similar levels in the management hierarchy of the larger ALBs while also being able to reflect the responsibilities of executive director and CEO roles of the smaller organisations.

Table 3.1: ESM role grades and pay bands

Role grade	Pay band: minimum	Pay band: operational max	Pay band: exception zone (max)
1	£90,900	£113,625	£131,300
2	£131,301	£146,450	£161,600
3	£161,601	£176,750	£191,900
4	£191,901	£207,050	£222,200

Table 3.2 is a summary of the average basic pay and average total pay for the ESMs. Some ESMs may benefit from additional payments such as car or travel allowances, subsistence and accommodation allowances and on-call allowances along with other payments.

Table 3.2: average basic pay and average total pay for ESMs.

Average basic pay	Average total pay
£125,470	£126,890

Allowances

ESMs may have allowances of different kinds included within their total remuneration package. This year we’ve seen a decline in vehicle allowances from 5% to 0.6%. The most prevalent within the data sample was a responsibility allowance which 1.3% of ESMs had included within their total package. The average allowance amount received was £8,150.

Table 3.3: percentage of ESMs in receipt of allowances and average value

Allowance	% of ESMs	Average allowance value
Additional responsibilities	1.3%	£10,720
Miscellaneous (including RRAs)	2.3%	£7,020
On-call allowance	0.6%	Withheld*
Vehicle allowance	0.6%	Withheld*

* Withheld due to GDPR (sample size represents 5 or less individuals).

Ethnicity breakdown

Table 3.4: ethnicity breakdown of ESMs

Ethnicity	Percentage of sample
White	79%
BAME	8%
Not stated	14%

Gender

Table 3.5: gender breakdown of ESMs

Gender	Proportion
Male	52%
Female	47%
Not stated	1%

Overall males are paid more than females in the ESM sample. The total pay gap has reduced from last year (5.2%) by 2%.

Table 3.6: ESM basic pay by gender and total pay gap

ESM grade	Female average basic pay	Female average total pay	Male average basic pay	Male average total pay	Total pay gap
Total	£123,660	£125,270	£127,980	£129,380	3.2%

2020 to 2021 recommended pay uplift

The remuneration and annual performance related pay of ALB CEOs and their executive directors paid under the terms of the ESM Pay Framework is determined by the DHSC Remuneration Committee. The Committee operates within the parameters set by the Cabinet Office and in light of the government’s response to the Senior Salaries Review Body’s recommendations for any pay round.

For 2020 to 2021 the DHSC Remuneration Committee agreed to the following recommendations for staff covered by the ESM Pay Framework:

• that ALBs implement an award of 1% for their ESMs, with salaries below the respective exception zone maximum
• a ring-fenced pot of up to 1% of the ALBs ESM paybill to address pay progression and pay anomalies, with awards dependent on:
  • demonstration of sustained high performance
  • increased effectiveness and deepened expertise
  • their position in the pay range

Table 3.7: implementation of SSRB recommendation to ESM roles in 2020 to 2021

Was the recommended pay uplift for 2020 to 2021 implemented?	ESM roles
Yes	96%
No	2%
N/A	2%

4. VSM and ESM paybill

The cohort of VSMs under the remit of the SSRB is challenging to identify using national workforce data systems as staff are employed under local terms and conditions rather than under national frameworks and so are not separately identified in the Electronic Staff Record Payroll system.

As there is no single way to identify VSMs, NHS Digital estimate the size of this workforce using other data fields, such as occupation code, job role and actual earnings, to identify the records most likely to be VSMs. We can adopt a similar process to estimate paybill for the group

Based on this method we estimate the total paybill, including employer pension and National Insurance contributions, in 2019 to 2020 was around £430 million including £360 million for those working for NHS trusts and CCGs and £70 million for those working in ALBs and central support organisations. This equates to an average paybill per FTE of around £175,000.

5. NHS pensions

NHS staff receive a number of benefits. The total reward includes the generous NHS pension scheme.

NHS Pension Scheme overview

The NHS Pension Scheme is one of the best pension schemes available. Employers now contribute more towards the cost of the scheme than members, with a current contribution rate of 20.6%, and an additional administration charge of 0.08%. Employee contributions are tiered according to income, with the rate paid by the lowest earners being 5% and the highest 14.5%, for those earning over £111,377.

Eligible members of the NHS workforce will now belong to one of the 2 existing schemes, both of which are defined benefit schemes. The final salary scheme, or legacy scheme, is made up of the 1995 and 2008 sections and is now closed to new members. All new NHS staff will join the 2015 scheme, a career average revalued earnings (CARE) scheme which provides benefits based on average earnings over a member’s career.

The key differences between the 2 schemes, other than the way benefits are calculated, are different normal pension ages and accrual rates, as shown in the Table 5.1 below.

Table 5.1: comparison of scheme, retirement age and accrual rate

Scheme or section	Retirement age	Accrual rate
1995 section	60	1/80th
2008 section	65	1/60th
2015 scheme	State Pension age	1/54th

The 2015 scheme continues to provide a generous pension for NHS staff and remains one of the best schemes available. The scheme is backed by the Exchequer and is revalued in line with price inflation, providing a guaranteed income in retirement.

It is currently difficult to show the size of an average VSM pension accrued in the scheme, as we do not hold data on local employment arrangements. Table 5.2 shows the annual pension that would be accrued by a VSM should they join the 2015 NHS Pension Scheme from 1 April 2021 at pensionable pay levels of £100,000, £125,000 and £150,000. Salary and CPI increases are assumed to be 2% p.a. in each future year.

Table 5.2: pensions accrual by salary and years of service

Salary	5 years’ service	10 years’ service	15 years’ service
£100,000	£10,684	£24,487	£42,110
£125,000	£13,355	£30,608	£52,637
£150,000	£16,026	£36,730	£63,165

A judgment by the Court of Appeal in the cases of McCloud and Sargeant found that the transitional protection arrangements that were awarded to members of the final salary schemes gave rise to unlawful discrimination. These arrangements allowed members closer to retirement age to remain in their legacy scheme and not move to the 2015 Scheme. Whilst the judgement was found against the Judges’ and Firefighters’ pension schemes, the government announced on 15 July 2019 that it accepts the judgment applies to other public service schemes, including the NHS, and will remedy the discrimination in all schemes.

In light of the judgment, work to remedy the discrimination is currently underway. This will unwind the transitional protections which allowed some members to remain in the legacy schemes. Between 16 July and 11 October 2020, the government consulted on 2 possible options to remove this discrimination. All responses are now being considered, and the government will publish its response in due course. After the remedy period ends, all those who continue in service will do so as members of their respective reformed scheme. For NHS staff, this is the 2015 Scheme.

The McCloud remedy is likely to impact on high earners within the NHS who have previously been subject to pension tax, as returning to the legacy schemes for the remedy period is likely to reduce their tax burden. More information about pension tax is provided in the pension flexibility section below.

Scheme membership for managers

The department continues to monitor scheme membership rates through the Electronic Staff Record (ESR). Table 5.3 shows the total number of NHS Pension Scheme members by staff group and AfC band at July 2020. It also compares the change in membership rates from October 2011 to July 2020, July 2019 to July 2020 and April 2020 to July 2020. Membership among managers remains high. 89% of managers are members of the scheme, a decrease of 0.1% from the previous quarter, 0.5% from the previous year, and 2.7% from October 2011. Scheme membership among managers is similar to wider scheme membership levels, with typically 9 in 10 NHS staff participating in the scheme.

Table 5.3: NHSPS membership at July 2020

Category	FTE (Jul 20)	Headcount (Jul 20)	% with pension contributions Jul 2020	% points change Apr 2020 and Jul 2020	% points change Jul 2019 and Jul 2020	% points change Oct 2011 and Jul 2020
All	1,169,045	N/A	89%	0.0%	-0.6%	4.8%
Doctor	120,607	128,307	88%	-0.1%	-1.1%	-3.4%
Qualified nursing, midwifery & health visiting staff	323,885	26,718	90%	-0.2%	-1.1%	2.5%
Qualified scientific, therapeutic and technical staff	148,319	169,674	92%	-0.1%	-0.5%	1.8%
Qualified ambulance staff	17,019	18,103	92%	0.0%	-1.5%	-2.9%
Support to clinical staff	372,987	429,301	89%	0.3%	-0.1%	9.8%
Central functions and hotel, property and estates	151,590	175,710	86%	0.1%	-0.4%	9.0%
Managers	21,588	22,534	89%	-0.1%	-0.5%	-2.7%
All non-medical	1,048,438	1,191,625	90%	0.0%	-0.6%	5.6%
AfC Band 1	7,226	NHS Digital Does Not Publish Headcount by AfC Band	77%	-0.3%	-3.4%	14.0%
AfC Band 2	175,953	As above	88%	-0.1%	-0.5%	12.0%
AfC Band 3	151,260	As above	90%	0.4%	0.1%	9.1%
AfC Band 4	105,801	As above	90%	0.5%	0.1%	6.4%
AfC Band 5	207,499	As above	88%	-0.2%	-1.1%	2.6%
AfC Band 6	195,371	As above	91%	-0.1%	-1.0%	1.6%
AfC Band 7	117,240	As above	92%	-0.1%	-0.7%	-0.3%
AfC Band 8a	43,435	As above	92%	-0.1%	-0.6%	-1.5%
AfC Band 8b	16,847	As above	93%	0.0%	-0.4%	-2.1%
AfC Band 8c	8,421	As above	93%	0.0%	-0.7%	-2.5%
AfC Band 8d	4,379	As above	92%	-0.2%	0.0%	-3.1%
AfC Band 9	1,844	As above	92%	-0.1%	0.0%	-3.3%
Non-AfC	133,769	As above	87%	-0.1%	-1.2%	-0.7%

Table 5.4 shows the estimated pension membership rate for VSMs with basic pay of over £100,000 per year as of October 2020. Although the time periods for this analysis are different, most of this group will be in the ‘managers’ subset of the table at Table 10. A small proportion may fall into other staff groups (for example, nurses and medics), because their role requires professional registration and they will always be coded as such, despite being managers.

The table shows that while 82% of all VSMs with basic pay over £100,000 per year are members of the scheme, membership rates decrease as basic pay increases. Further investigation is necessary to explain this, however the department recognises that experience of pension tax may be a factor. This is explained in more detail in the pension flexibility for high earners section below.

It is important to note that as there is no single way to identify VSMs, a number of proxy measures have been used to identify individuals for inclusion in the analysis:

• individuals must have a basic pay per FTE of at least £100,000 (based on pay received in October 2020)

• non-medical staff should either have a ‘G0’ occupation code or a job role that suggests they are a member of the executive board

• medical staff should have a job role that suggests they are a member of the executive board (for example, ‘Medical Director’)

• staff should not be employed on a national contract (either NHS TCS or the national consultant contract)

Table 5.4: NHSPS membership for VSMs at October 2020

Pay range	Estimated pension membership rate
£100,000 to £125,000	89%
£125,000 to £150,000	84%
£150,000 and above	62%
All above £100,000	82%

Pension flexibility for high earners

The government’s manifesto committed to resolving the pension taper issue that was causing some high earning staff to opt out of the scheme or leave NHS employment through early retirement for fear of high tax bills. Although the evidence of the impact of pension tax on service delivery was strongest for senior clinicians, the government took an evidence-based approach to the issue, which also considered the impact on VSMs.

To address this, the Chancellor announced changes to the annual allowance taper thresholds in the March 2020 Budget. From 6 April 2020, the tapered annual allowance thresholds increased by £90,000, providing all members with additional headroom. Raising the thresholds means that no one with net income before tax below £200,000 will be caught by the tapered annual allowance.

Prior to the 2019 election, the department consulted on a proposal for pension flexibility. However, following the annual allowance changes, the department will not be implementing the pension flexibility proposal they consulted on.

Those who still experience tapering following the changes are the very highest earners in the NHS, and a very small minority of VSMs. The ‘Scheme Pays’ facility is a proportionate way for them to meet annual allowance tax charges without needing to pay any cash upfront. It allows the tax to be paid by debiting the annual pension at retirement. Staff will still increase their annual pension substantially once the tax charge is taken off.

NHS Employers have published guidance on the approaches that employers can take locally to support staff who remain within scope of the tapered annual allowance or who have exceeded their lifetime allowance. One approach employers can take is to recycle the unused employer contribution as additional pay where a staff member opts-out of the scheme as they have exceeded their allowance for tax-free pension saving. The guidance is clear that this should provide no net increase to the individual’s total reward package and therefore not increase costs for employers.

Where a VSM opts-out of the scheme to better live within their allowance for tax-free pension saving, the decision to recycle the unused employer contribution as pay has no interaction with the approvals process for VSM salaries in excess of £150,000.

In line with NHS Employers guidance, DHSC ministers have confirmed that where an employer offers their unused contribution as pay, they do not need to submit a case to the department for approval providing that:

• contribution recycling is only permitted where an individual is expected to breach the tapered annual allowance or exceed the lifetime allowance.

• recycling arrangements are short-term and comply with pension auto-enrolment legislation.

• contribution recycling does not increase the value of an individual’s total reward package, and the increased pay in lieu of pension is reflected in trust annual reports.

Total reward

Total reward is the tangible and intangible benefits that an employer offers and employee, and it remains central to recruiting and retaining staff in the NHS. There is some evidence that more employers across the NHS are developing a strategic approach to reward which may be due to:

• staff demand arising from total reward statements

• recognising that they need to do more to recruit and retain staff in an increasingly competitive employment market

• offering the support that staff need for their physical, mental and financial wellbeing helping to reduce sickness and other absences

The department’s ambition for the NHS reward strategy remains that employers should develop their capacity and capability to:

• utilise the NHS employment package to recruit, retain and motivate the staff they need to deliver excellent services to patients

• develop and implement local reward strategies that meet organisational objectives and workforce needs

• improve staff understanding of their reward package and what options they have to change aspects of it

• improve staff experience of working for the NHS

• contribute to improvements in workforce productivity and efficiencies in use of the NHS workforce pay bill

• continue to be at the leading edge of innovation in public sector reward to help improve NHS staff satisfaction with pay

The value of the reward package for VSMs is made up of basic pay, employer pension contributions, annual leave entitlement, maternity leave, and redundancy entitlement. Arrangements regarding additional annual leave, maternity pay and redundancy entitlement above the statutory minimum for VSMs are for employers to decide locally, although we understand these terms and conditions are in many cases broadly similar to those offered under AfC. VSMs may also benefit from local arrangements such as car and relocation allowances.

Total reward statements (TRS) are provided to staff and give NHS staff a better understanding of the benefits they have or may have access to as an NHS employee. TRS provide personalised information about the value of staff employment packages, including remuneration details and benefits provided locally by their employers. Local reward offers from NHS organisations might include:

• recommend a friend scheme

• affordable accommodation

• childcare and carer support

• counselling and support

• various salary sacrifice schemes

• retail discounts

• education and learning support

• financial wellbeing

• physical and mental health and wellbeing

• signposting to pensions advice services

NHS Pension Scheme members also receive an annual benefit statement (ABS), which shows the current value of their NHS Pension benefits.

Data obtained from the NHS Business Services Authority (NHSBSA), who issue these statements, shows that from August 2019 to August 2020, the number of combined statements (which includes where there is an ABS available or where there is just employer benefits) available increased by 70,665. The calculation success rate, which represents the percentage of members for whom it is possible to calculate an ABS, increased from 90.08% in 2019 to 91.56% in 2020.

On 10 October 2020, the number of statements viewed by staff was 375,457, an increase from the 314,916 that had been viewed at the same point in 2019. This may indicate that more people are viewing their updated statements earlier.

Since 2016, the NHSBSA have held stakeholder engagement events across the country for a range of different NHS organisations to help employers better understand their role in promoting TRS. The workshops also explain the difference between a TRS and an ABS.

6. NHS finances

This section describes the financial context for the NHS.

Funding growth

The NHS Long Term Plan (January 2019) sets out the NHS’s 10-year strategy to improve the quality of patient care and health outcomes, ensuring that patients will be supported with world-class care at every stage of their life. The plan rightly sets out that putting the NHS back onto a sustainable financial path is a key priority and is essential to delivering further improvements in care. The government signalled its clear support for this plan in the 2019 Spending Round, where it confirmed the 5-year settlement for the NHS which provides an additional £33.9 billion cash terms annual increase by 2023 to 2024 compared to 2018 to 2019 budgets.

At Budget 20, DHSC received over £5 billion to meet the government’s manifesto commitments of 50,000 more nurses, 50 million additional appointments in primary care, more funding for hospital car parking and establishing a Learning Disability and Autism Community Discharge Grant to support discharges into the community.

The Spending Review 2020 also provided a further £3 billion to support NHS recovery from the impacts of COVID-19 in 2021 to 2022, on top of the Long Term Plan settlement. This includes around £1 billion to begin tackling the elective backlog, and around £500 million for mental health services and investment in the NHS workforce.

The Spending Review 2020 settled non-NHS revenue budgets for 2021 to 2022. This includes £260 million for Health Education England to continue to support the education and training of the NHS’s workforce and deliver on the commitments of the Long Term Plan. Included within this is funding for training more new nurses and doctors, delivering some of the biggest undergraduate intakes ever.

The Spending Review settlement delivers a 3.5% a year real-terms increase on DHSC’s overall core resource budget (excluding COVID-19 funding) since 2019 2020. Increasing these vital budgets will further enable the NHS to deliver a better service and health outcomes for patients.

Table 6.1: opening mandate for NHS England

NHS England	NHSE revenue departmental expenditure limits (RDEL) excluding ringfence (RF) (cash) £ billion	NHSE capital departmental expenditure limits (CDEL) excluding ringfence (RF) (cash) £ billion
2013 to 2014	93.676	0.200
2014 to 2015	97.017	0.270
2015 to 2016	100.200	0.300
2016 to 2017	105.702	0.260
2017 to 2018	109.536	0.247
2018 to 2019	114.603	0.254
2019 to 2020	123.377	0.260
2020 to 2021	129.681	0.305
2021 to 2022	136.134	-
2022 to 2023	142.841	-
2023 to 2024	151.318	-

Source: 2020 to 2021 revised financial directions to NHS England

The table above shows the opening mandate for NHS England in 2020 to 2021, and indicative amounts for future years, as per NHS England’s Financial Directions. These figures include an increase for pensions revaluation which was provided alongside the Long Term Plan settlement. Figures exclude depreciation, annually managed expenditure and technical budget.

The Long Term Plan commitment gives the NHS the financial security to address challenges in a sustainable manner. There will be multiple calls on available funding, including pay, and these will need careful prioritisation in order stay within available funding. More funding put towards pay will mean less funding for other priorities, including the size of the workforce that is affordable, as well as wider investments required to deliver the NHS Long Term Plan.

It is essential this money is spent wisely, which is why the government set 5 financial tests alongside the Long Term Plan settlement to ensure the service is put on a more sustainable footing for the future. The 5 tests are:

1. The NHS (including providers) will return to financial balance.

2. The NHS will achieve cash-releasing productivity growth of at least 1.1% a year, with all savings reinvested in frontline care.

3. The NHS will reduce the growth in demand for care through better integration and prevention.

4. The NHS will reduce variation across the health system, improving providers’ financial and operational performance.

5. The NHS will make better use of capital investment and its existing assets to drive transformation.

While the 5 tests remain important to the delivery of the Long Term Plan, the onset of the global pandemic has meant reporting against the tests has rightly been put on hold to allow the system to focus on managing and responding to the developing pandemic.

Through these tests, the government set the NHS a stretching but realistic goal of making productivity growth of at least 1.1% per year, with all savings reinvested in front line care. The impact of COVID-19 has caused major disruption to this goal. The additional £3 billion of funding set out in Spending Review 2020 will help the NHS to get back on track to delivering the Long Term Plan, but the government recognises that recovering previous efficiency plans will be challenging.

Financial position

The government’s 2020 to 2021 mandate to the NHS provides clarity on headline objectives for the NHS. The financial directions to NHS England published alongside the mandate partially reflect further funding to deliver manifesto commitments agreed at Budget 2020 and do not fully reflect emergency COVID-19 funding. Given the nature of COVID-19, the mandate reinforces the importance of public money being spent with care on targeted, timely and time-limited interventions.

Although recovering finances in the NHS continues to be a major focus, in these exceptional circumstances funding the response to COVID-19 has been, and continues to be, a priority. In 2015 to 2016 disciplined financial management was reintroduced to stabilise finances and secure the immediate future of our health service. NHS leaders devised a plan of action, in operation since July 2016, involving a series of controls and levers designed to exert tighter control over local organisations.

This approach has been broadly successful in doing what it set out to achieve – notably we have seen a stabilising of finances across NHS providers, with the majority of trusts demonstrating strong, effective and sustainable financial management.

In the 2019 to 2020 financial year the NHS balanced its financial budget based on opening accounts of NHS planned spend, excluding COVID-19 spend. Through continuing focus on financial rigour and efficiency, most trusts have once again met their control totals.

This financial rigour and efficiency will need to continue in future years to help recover from COVID-19. The impact will be felt across the health and social care system in the 2020 to 2021 financial year and beyond.

2019 to 2020 was the first year of the Long Term Plan period and represented a step towards these longer-term ambitions, where both commissioner and provider sectors move towards aggregate financial balance and fewer organisations end the year in deficit. Significant progress was made pre COVID-19, with the NHS once again delivering overall financial balance, with the number of trusts in deficit reduced by half and finances in most trusts and commissioners in a much healthier position than seen in previous years. A minority of trusts remain with significant deficit levels, but a number of those have hit their agreed financial targets and were on track to recovery.

While the majority of COVID-19 related spend will occur in future financial years, spending impacts have been felt in February and March of 2019 to 2020. Those trusts affected and the NHS overall have been fully supported with funding and financing at the right time, and all spending pressures have been met.

Table 6.2: NHS Providers RDEL breakdown (millions of pounds)

NHS Providers RDEL Breakdown	2015-16	2016-17	2017-18	2018-19	2019-20
Total resource DEL	2,548	935	1,038	826	1,008
Provisions adjustment	-74	-43	-39	23	50
Other adjustments	-27	-101	-8	-22	-159
Aggregate net deficit	2,448	791	991	827	899
Unallocated sustainability funding	0	0	-25	0	-144
Adjust net COVID-19 impact	0	0	0	0	-85
Reported net deficit	2,448	791	966	827	669

Conclusion

The government reiterated its commitment to the NHS, in the Spending Review COVID-19 has further reinforced government’s continued financial assurance to the NHS. The Spending Review 2020 provided a further £3 billion to support NHS recovery from the impacts of COVID-19 in 2021 to 2022, on top of the Long Term Plan settlement. This includes around £1 billion to begin tackling the elective backlog, and around £500 million for mental health services and investment in the NHS workforce.

To help in controlling the spread of infection, employers have been supported financially to ensure that staff are given full pay where they are told to self-isolate and where they are off sick because they are infectious with the COVID-19 virus. Funding has not only been given to recognise the increased cost of sickness absence during the pandemic, it has also had to cover the unprecedented backfill costs which have arisen through staff having to self-isolate.

This support is also evident in the agreed multi-year funding deal for junior doctors and staff on AfC contracts. The agreed 2018 AfC multi-year deal provided a new pay structure that reinforced public sector pay policy of increased pay flexibility in return for reforms that improve recruitment and retention while boosting productivity. Over a million NHS staff received pay rises in April 2020 from existing multi-year deals and in July we accepted the independent pay review body’s recommendations of a 2.8% pay rise for SAS doctors, dentists, consultants and salaried GPs.

Additionally, the government accepted the DDRB’s recommendations in full for 2020 to 2021, rewarding staff dedication and productivity improvements, as well as encouraging recruitment and retention.

Pay is a key component of a wider rewards package that includes pensions (discussed in greater detail in section 4 above), and as a whole is intended to recognise the hard work of the NHS workforce.

COVID-19 has resulted in additional financial pressures and the majority of COVID-19 spend will occur in future financial years. Despite this, 2019 to 2020 represented a step towards the longer-term ambition of returning all organisations within the NHS to financial balance and pre-COVID ambitions outline this. It is important that the 2021 to 2022 pay awards support the government’s objective to deliver long-term financial sustainability in the NHS, as well as aligning with the full range of investment priorities in the NHS Long Term Plan, in light of COVID-19.