Pay freeze hits 2006/ 7 profits

Practice profits have fallen by up to 25 per cent after the pay freeze of 2006/7, and accountants have warned of a further downturn in 2007/8.

Laurence Slavin, a partner at accountants Ramsay, Brown and Partners, said he was aware of practices that had seen profits fall by as much as 25 per cent.

At the 110 practices represented by specialist medical accountants PKF, average profits have been maintained at broadly the same level as 2005/6. This was despite an average fall in NHS income of 6 per cent.

Despite the significant falls in NHS income, most practices have managed to maintain profit levels by cutting expenses and generating additional non-NHS income, according to accountants.

The PKF finding is based on three quarters of the 2006/7 financial year, the first in which core GMS pay was frozen in the wake of pay rises under the new contract.

Accounts for the full 2006/7 financial year are likely to show an even greater drop in NHS income.

Accountants predict that profits will fall more heavily across the board in 2007/8 — in which pay has again been frozen — because practices have worked hard this year to cut their expenses, and will be unable to take such drastic action for two years running.

Ms Martin said: ‘In 2006/7, primary care organisations have been strapped for cash and have been cutting back on enhanced services and not paying prescribing incentives. The extras people had before are being cut back.’

Ms Martin said the cuts had created problems for practices at the end of the financial year.

‘Cashflow is the problem,’ she said. ‘Practices are having to pay tax on increased profits from previous years, but with no extra money this year, until quality framework achievement money comes towards the end of April, it’s tight.’

Mr Slavin said some practices were being forced to stop using salaried GPs.

‘Partners are cutting the number of salaried GPs they use and taking on extra work themselves,’ he said. ‘NHS income is down and many enhanced services that were on offer last year are now being taken away.’

Mr Slavin warned: ‘It will be worse in 2007/8. There is no uplift on pay and practices have already cut costs as much as possible.’

Head of the BMA health policy unit Jon Ford agreed that profits would fall in 2007/8.

He forecast that a 2.9 per cent increase in expenses would lead to a 3.1 per cent drop in net income in 2007/8.

‘In real terms this is a drop of more than 6 per cent,’ he said.

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