I was at a recent Global Government Forum event in Newcastle where Jim Mackey was talking about digital (again). Feels like I’m stalking him a bit. And, again, the same question came up:
Why does NHSE keep giving Trusts capital for digital when what’s really needed now is revenue?
It’s an intriguing question when you think about it. Government can decide the capital vs revenue split pretty freely. It chooses the labels. So why not just give the NHS the mix it actually needs? Why are digital leaders still pleading for less capital and more revenue but nothing changes?
The answer isn’t fiscal. It’s political.
Capital looks good. Revenue growth looks bad.
Capital buys “things” you can cut ribbons on – systems, kit, buildings – and you only have to pay for it once. Revenue pays for people, licences, support and ongoing services – and once you fund it, you have to keep funding it.
Politically, announcing capital spend sounds like “investment in the future.” Announcing more revenue looks like “bigger state, more bureaucracy, higher pay costs.” You can’t badge it, spin it or cut a ribbon on it. It’s basically unannounceable.
There’s another critical piece:
Capital spend doesn’t hit the government deficit in the same way.
“Invest to save” capital doesn’t make Rachel Reeves’ fiscal rules any harder to meet. In fact, more capital spend makes the numbers look better, not worse. So government gets the PR win of “investment” without worsening its fiscal position.
Meanwhile, the NHS has learned to take what it can get. Capital is simply easier to access than revenue, so organisations keep bidding for it. That reinforces the illusion that the demand is for capital, even when it isn’t. EPRs and digital infrastructure don’t need to be capital-funded anymore – at least not to the extent they currently are – but that’s the only route Trusts have, so the cycle continues.
And make no mistake – this isn’t going away with a change of government. The political incentives for capital are just too strong. Jim’s response at the event made that clear: they tried to get more revenue funding from Treasury, and failed. It’s entirely financially sensible to shift the balance – but politically unattractive.
The irony is that all this capital investment creates the very revenue burdens government is trying to avoid. The “one-off” spend spawns long-term licensing, staffing and maintenance costs anyway – often at the same scale as if the revenue had been funded up front.
So we carry on – growing recurrent digital spend regardless – but with all the inflexibilities that come from capital money: 10-year contracts, assets that have to be sweated to failure, and no ability to flex capacity when need and digital maturity demand it. And of course all the admin of applying for capital, and the strings that are attached to it when it arrives.
There is a more sensible way to fund digital – but it would require Treasury to stop pretending it’s a one-off purchase like a CT scanner.
Digital systems aren’t physical assets you buy once and own forever. They’re used over time – typically seven to ten years – and most of the cost sits in licences, cloud hosting, cyber, configuration, optimisation and support. Yet the current capital model forces the NHS to take the whole hit upfront, as if it were buying a machine, and then pick up the revenue tail locally.
A depreciation-style model would fix that without increasing revenue baselines. Instead of handing over £70m of capital in year one for an EPR and then walking away, the funding would be phased over the life of the system – for example, £10m a year over seven years. Treasury could still classify it as investment, but it would stop the artificial split where the “capital” bit is funded and the “revenue” bit is dumped on Trusts later. It’s not about more capital – it’s about treating digital as infrastructure funded over time, rather than a building that gets bought upfront and depreciated on a balance sheet.
Until Treasury is willing to do that – and accept that digital is cost of business infrastructure rather than kit – we’re stuck with a funding model that everyone knows is irrational but no one is politically willing to change.