ONE in four NHS trusts is in deficit and the situation is deteriorating despite massive injections of funds into the health service in the past two years.

The financial crisis has led to closed wards, cancelled operations and staff shortages in several hospitals with managers struggling to meet targets and balance their books. A joint report from the National Audit Office and the Audit Commission published today shows that the NHS is in deficit for the first time in five years, with some NHS trusts overspending by up to £32 million.

The scale of the problem will jeopardise the Government’s plan to let all hospitals apply for foundation status by 2008. Under the current criteria all hospitals have to balance their books to achieve foundation status, which gives them freedom over managing their resources.

The Tories seized on the report. Andrew Lansley, Shadow Health Secretary, said: “The Government claims to be spending record amounts on the NHS but the money is not getting through to services, “Extra costs, bureaucracy and waste are eating up the additional resources while deficits affecting the frontline are causing cuts to patient services.”

Patient organisations claimed that patients needing elective surgery would bear the brunt of the cutbacks. Richard Goss, co-director of Patient Concern, said that hospitals were throwing money at targets, such as reducing waits for cancer surgery, that meant less money for areas where no targets had been set. “Somebody needing elective surgery might end up waiting longer than they would otherwise have had to,” Mr Goss said. “The consequence is that they will be in a worse state when they get to hospital and may take longer to recover.”

The document, which covers both hospitals and GP services, shows that nearly one in five NHS trusts and one in ten primary care trusts was in “significant” deficit in 2003/04, averaging £5 million each, or 0.5 per cent of their annual budget.

The NHS trusts with the biggest deficits were at North Bristol (£32.2 million), the Oxford Radcliffe (£24.8 million), East Kent Hospital (£24 million) and Mid Yorkshire Hospitals (£30.6 million). Many of these were bailed out with government funds but some, such as the Mid Yorkshire Trust, are still in difficulties. The number of trusts in deficit was higher than in 2002/03.

But the report, Financial Management in the NHS, says the situation is still deteriorating and the Government disclosed yesterday that the NHS had a net deficit of £140 million in 2004/05. This masks huge variations between trusts, including £30 million overspending by the 25 foundation hospitals in operation that year. If accumulated debt over several years is included, the NHS deficit rises to more than £350 million. According to the Audit Commission, the trusts with the highest deficits in 2004/05 include Mid Yorkshire Hospitals (£20 million); Surrey and Sussex (£28 million), Shrewsbury and Telford (£10 million). PCTs with big debts included Kensington and Chelsea (£14 million).

The NAO report also says that auditors are worried about the finances of nearly 200 of the 600 NHS trusts and primary care services. The figures show that over the past five years the picture has been getting steadily worse despite the Government spending £63 billion on the NHS in 2003/04 and £69 billion in 2004/05. Commission officials said that services would have to be cut or merged to ensure trusts balanced their books. They claimed that hospitals were buckling under the pressure of meeting targets such as cutting waiting times and paying for the new consultant contracts.

Patricia Hewitt, the Health Secretary, said: “The study shows that the vast majority of NHS bodies are managing the extra resources well but it also very clearly indicates that in a minority of organisations, leadership and financial discipline are weak. This needs to be tackled head on and with urgency.”

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