Planning and NHS revenue contributions; Twin…

There has been a running sore in the planning world for the past few years, namely the extent to which NHS bodies are entitled to seek revenue funding from a developer when a new housing development is proposed, supposedly to fill gaps in their funding arrangements until (so it is said) the NHS funding model catches up with the number of patients presenting at a hospital. Lawyers have been instructed on behalf of NHS bodies to make s106 contribution applications for this type of revenue funding in a large number of planning applications, and they have largely gone through without opposition.

However, when University Hospitals of Leicester NHS Trust made an application for a substantial contribution in relation to a proposed development of 2,750 houses near Lutterworth, Harborough District Council dug their heels in and refused to impose a requirement on the developer to make the requested contribution. That decision was unsuccessfully challenged before the High Court in R (University Hospitals of Leicester NHS Trust) v Harborough District Council [2023] EWHC 263 (Admin).

This is a complex decision but it is first necessary to say what this application was not about, namely capital funding. This decision has no effect on s106 applications to fund capital projects such as a new GP surgery or classroom to meet the needs of the new residents of a residential development. This case is concerned with an attempt by NHS bodies to secure revenue funding, namely funding to assist them with the ongoing costs of operating NHS facilities. The NHS case was, in summary, that NHS funding for the hospital trust was set on an annual basis and was dependent on patient numbers in the previous year. Hence, so the Trust argued, if there was an influx of patients in any year due to a new development, the Trust would not be funded for those patients because they were “new” patients who were not in last year’s cohort which was used to fix the funds allocated by the local NHS commissioners to the Trust. They thus sought the “cost” of treating these new patients in the year before the NHS funding model caught up with the number of patients actually presenting for treatment.

During the course of the hearing counsel for the Trust was required to accept that, “if the Trust could not point to a funding gap for the provision of health services attributable to the occupation of housing on the site, there would be no relevant impacts from the … scheme to justify a s.106 contribution”. In other words, unless the Trust proved the funding gap, no s106 contribution could be justified.

That focused the Judge’s mind on whether the Council were justified in saying the Trust had not proved that there would be a funding gap.

The essence of the Trust case was that its funds come primarily from the local NHS commissioners (previously the local CCGs, now the Integrated Care Boards) and that the ICB is not funded for new residents in an area and so cannot fund the Trust for new residents. This is where the Trust’s argument broke down because, as the Judge noted at paragraph 62 “… it would be wrong to infer that there is no connection between an ONS projection of population growth in an area, used in the funding of CCGs, and new development in an area to accommodate that growth”. Hence, the Judge found that projected population growth is taken into account when allocations are made by NHS England to CCGs (now Integrated Care Boards). Whilst the ICB is not funded specifically for the new residents in a particular housing development, its overall funding includes an element for population growth in an area. Thus, where a new development is approved to meet the needs of that expected new population, the level of NHS funds that will flow to that area in future years already takes into account the need to fund the cost of providing NHS services to additional people (some of whom might live in the new development).

The Trust’s attempted to answer that point by arguing that, even if the ICB was funded for new residents, NHS rules meant that this funding could not be passed to a local Trust. In contrast, the Council’s case was that the mandatory funding rules under the Health and Social Act 2012 required the ICB to take account of new residents when fixing block contract payments and so the need to fund extra patients arising from a new development was permissible. Hence, so the Council argued, the rules of the National Tariff meant that the ICB was required, amongst other factors, to take new residents into account when setting block contract prices in future years. If that was right, so the Council argued, there should be no funding gap.

The key finding of the Judge on this point was in paragraph 73 where he noted that the Trust accepted that “the NT [National Tariff] Rules (and the Model Contract) do not preclude the CCGs and the Trust from negotiating a block contract which has regard to population growth, or to additional activity resulting from first year occupancy of new development”. Hence, if the Trust elected to do so, it could negotiate to eliminate the funding gap. That led to the Judge rejecting the Trust’s case. He said pithily at paragraph 159:

“The problem is that the Trust continued to assert that there was a funding gap without demonstrating that there was [such a gap]”

That approach was confirmed by Holgate J when he heard a very similar challenge a few months later in R (Worcestershire Acute Hospitals NHS Trust) v Malvern Hills District Council & Ors [2023] EWHC 1995 (Admin). That challenge was also dismissed.

Where does this leave applications by NHS bodies for revenue funding?

In the Harborough case Holgate J considered at paragraphs 147 to 152 whether there were principled legal objections to such a planning condition. He pointedly said “This judgment should not be read as deciding that there would be no legal objection” and observed that some new residents in a housing development would be entitled to social security benefits, but no s106 application could be made for payment of that cost to public funds. So, the door is left open for a future court to say that there are principled legal objections to such a planning obligation with a heavy hint that this may well be outcome if the point fell to be decided.

However, it seems unlikely that the issue will come before the court again because the judgments make it far more difficult for NHS bodies to progress such applications in future and, if they do, they are unlikely to be granted for two reasons. First, demonstrating a future funding gap of a defined level will be enormously challenging for NHS trusts because of the findings that (a) the NHS National Tariff means that NHS provider trusts can negotiate with their commissioning ICBs for extra funds to meet the costs of treating new residents and (b) the fact that ICBs have to consider those costs. As the judge notes, no proven funding gap means no s106 contribution.

Secondly, even if an NHS funding gap was proven, the Judge left it open for a planning authority to conclude that any proven revenue funding gap was a wider problem and should not (as a matter of planning judgement) result in the need for a s106 contribution from the developer. That appears to give planning authorities a discretionary way of refusing to incorporate such obligations and hence avoid the complexities and costs to LPAs shown by this case.

The Trust in the Harborough case have not sought permission to appeal. It is unclear if an appeal will be attempted in the Worcestershire decision. Whilst the decisions are not strictly binding on any future High Court Judge, they are binding on planning inspectors and thus they are likely to result in far fewer (if any) NHS revenue funding conditions being included in future planning consents.

David Lock KC, alongside Dan Kolinsky KC, acted for the successful Council in the Harborough case.