Dr David Jenner outlines the importance to general practice of budgeting for practice-based commissioning and includes ten important criteria that the budget should observe

Now is the time to ensure that you have agreed your practice-based commissioning (PBC) budget with your PCT for the year 2007Ð2008. This is crucial as it will define the sum by which you must underspend if you are to gain access to 'freed-up resources' to fund new developments in PBC. It is also quite likely, although not specified at present, that practices will be monitored and performance managed against their ability to operate within their budget. This note is not policy, but it is my realistic interpretation of what may happen. Rules for setting a budget There is very clear guidance on the budget-setting mechanism, which can be found at www.dh.gov.uk/practicebasedcommissioning;1 however, not all PCTs are abiding by this. It is vital, therefore, that each practice checks its PCT is playing by the rules, otherwise the practice will have little chance of achieving any savings.

It should be noted that the rules for budget setting for the next financial year, 2007–2008, are different from those in preceding years, and the option for these to be replaced by a 'fair shares' budget formula for 2008–2009 and beyond is being reviewed by the Department of Health.1

What should an indicative budget contain?

Box 1 lists ten important criteria that the indicative budget should observe for the year 2007–2008.

Check your indicative budget against these top ten points to see whether it passes muster—most will not this year, but number 10 is the one to be especially aware of, and which many PCTs are choosing to ignore. Request your PCT to follow this methodology. A model letter has been drawn up by the British Medical Association (BMA) to help with this,2 which is available to BMA members at: www.bma.org.uk/ap.nsf/Content/Hubgeneralpractitioners/.

Box 1: Ten criteria for setting your practice’s budget for 2007–2008

  1. The budget should be based on historical activity of the practice from 01/10/2005 to 30/09/06, uplifted to 2007–2008 tariff prices.
  2. It should include the prescribing budget as per current local formulae, including an ‘appropriate inflationary uplift’.
  3. It will not be set lower than that of the previous financial year if the practice had made savings against that preceding budget
  4. The budget must be presented so each practice can identify its own budget even within a PBC cluster or group.
  5. It should include a breakdown of expenditure on community and mental health services, even if these are allocated by list size or full-time GP equivalents.
  6. It should have clear identification of all aspects of PCT expenditure to practice level, including the costs of the management team—this should then be ‘blocked back’ to the PCT (this is means that these budget elements are
    identified to practice level but are managed by the PCT, and ensures that no covert top slices are made from PBC budgets).
  7. As a minimum, it should cover all hospital-based care, activity under PbR, prescribing, and community and mental health services.
  8. The budget may be top sliced by up to 5% to form a risk pool at PCT level to cover high cost, low volume activity, or unexpected fluctuations in demand.1
  9. It should contain clear agreements on which procedures are charged against the risk pool and how any surplus in the risk pool is shared among practices at the end of the financial year.
  10. Most importantly, it should not include any top slice to help pay off PCT deficits (para. 3.25 in the guidance) unless the SHA has applied under special measures to the Department of Health for exemption to this (para. 3.29).1
PBC=practice-based commissioning; PbR=payment by results; SHA=Strategic Health Authority

Variations to budget mechanisms

A practice is free to agree with its PCT any differing budget mechanisms, including a top slice for deficit, if sensible agreement on implementation of this can be reached. It should be noted that some PCTs may try to sneak this in through the professional executive committee or with the approval of one or two local GPs. The agreement of an individual practice or of the PBC consortia is needed to deviate from the guidance, which a senior Department of Health official has recently confirmed is the starting point for discussion.

If the PCT insists, it can ask the Strategic Health Authority (SHA) to request an exemption to this 'under clause 3.29 of the guidance'.1 This involves asking permission from the Department of Health, but expect both the PCT and the SHA to be reluctant to follow this route.

Practices experiencing problems agreeing a budget with their PCT should contact NHS Alliance, their local medical committee, or, as a last resort, they should ask the SHA to arbitrate. The NHS Alliance is currently collecting any reports of variances to the standard budget-setting process; please send an email to office@nhsalliance.org with any examples.

Specimen budget

Whatever your budget is for this year, ask the PCT to tell you your 'specimen' fair shares budget, as allocated by the budget-setting toolkit available on the Department of Health website. The PCT will need to populate this with their figures but should then share this with you.3 This will give you an idea whether in future years your budget will be smaller or larger under any move to fair shares.

Please note though that 'at fair shares target' means within a 10% tolerance either side of the target figure—once a practice is within that band, no more fair shares adjustments should be made.1 Currently, the Department of Health calculates that 70% of practices meet this criterion, but local prescribing budgets also need to be factored into this calculation.1

Is your practice budget on target?

Practices that are under or on target to meet their budget can relax, but those that are over target should discuss with their PCT possible reasons for this (some practices, for example, may have a large number of nursing home patients). The PCT is obliged to do this before making any effective reductions to the practice budget in future.

Helpfully, the guidance states that for this year the rate of movement to target should be no more than 1%, which also seems a reasonable rate for future years (although this is has not yet been stipulated). This would mean in most cases any growth money would be allocated differentially, rather than any actual cuts being made to budgets themselves.

Areas of contention

The guidance is fairly clear but it should be noted there are some areas of contention. In particular, there is no national model for allocating prescribing budgets, nor any central recommendation for what represents 'appropriate inflation', unlike the tariff under PbR, which will remain under the control of the local PCT. To me, however, the message seems clear—the movement is away from historical-based budgets towards fair-shares methodology. It is, therefore, likely that prescribing budgets will follow this trend and be set against age, sex, temporary resident, other (ASTRO) prescribing units in due course.

Budgeting for PBC is important

For the present, PBC is voluntary but being accountable for the proper utilisation of public resources will never go away for GPs, who should look at their indicative budgets as they would view their carbon footprint. They should be aware how much they are spending, and why and how that compares to others. Can any variations be justified and explained?


One day the budget may become a reality and the livelihood of the practice may depend on managing it effectively. This is not the reality now but it is the direction a cash-strapped NHS is likely to follow. After all, who better to manage the budget than those who actually spend it every day?


  1. Department of Health. Practice based commissioning: practical implementation. London: DH, 2006.
  2. www.bma.org.uk/ap.nsf/Content/pbcmodelletter
  3. Supporting practice based commissioning in 2007/08 by determining weighted capitation shares at practice level. www.dh.gov.uk/en/publicationsandstatistics/publications/publicationspolicyandguidance/DH_4127155G