Historical funding arrangements

Historical funding arrangements

Prior to the 2010 Cost of Service Inquiry a vital element in the new contractual framework was the ‘Formula for Future Years’, which was designed to ensure that annual adjustments maintained the value of the contract. The components that informed annual adjustments were:

  • The GDP deflator, the Government’s measure for underlying inflation
  • Increases in dispensing volume, at marginal cost
  • Increases in staff salaries in excess of GDP deflator levels
  • An efficiency assumption, which assumes some ability to make efficiencies and is consistent with efficiency targets in the NHS as a whole

In addition to the above, adjustments to the sums were also made to reflect costs necessitated by significant additional regulatory burdens on contractors. Regulatory burdens were assessed on a retrospective basis. Information on regulatory burden can be found here.

Consideration was also given to the levels of retained buying profit and any other factors, for example recognition of BSA underpayments.

The uplift mechanism was reviewed as part of the 2010 Cost of Service Inquiry.

Summary of previous years funding settlements









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