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Practice expenses ratio breaks 60% barrier

By Ian Quinn

Exclusive: The proportion of income being sucked up by practice expenses has soared to levels higher even than when the new GP contract came in, an analysis for Pulse by accountants reveals.

Figures prepared by RS Medical Accountancy suggest that during 2009/10, the proportion of income GPs had to re-invest in their practices soared to more than 62%, far higher than in recent years and above the psychologically important 60% barrier.

The figures suggest a further marked decline in GP income before tax, of up to 10%, following official figures released last week finding real-terms pay had again declined.

The NHS Information Centre said gross earnings were being easily outstripped by soaring expenses, with the average income before tax of GPs falling for a third consecutive year in 2008/09 to £105,300, a decline of 0.7%.

The expenses-to-earnings ratio had risen to 59.3% from 57.9% the previous year, and a low of 55.0% in 2004/5, after which then health secretary Patricia Hewitt accused GPs of failing to invest in their practices.

Average gross earnings for contractor GPs in the UK rose to £258,600 during 2008/09, an increase of 2.6% on 2007/08, but the increase was more than offset by a 5.1% rise in average expenses to £153,300.

Accountants said the situation now was even worse and are forecasting a leap in the expenses-to-earnings ratio to 62% in 2009/10, above the 60.5% figure in 2002/3, when GP morale was rock bottom.

Rosemary Smith, who runs RS Medical Accountancy, said: ‘I'm anticipating for 2009/10 gross earnings will decrease by 2.48% with expenses increasing by 2.58%. Although this doesn't sound too alarming it actually means income before tax will decrease by 9.85%and more alarmingly expenses will rise to over 62% of their income.'

Richard Kay, an accountant at Dodd and Co, said: ‘We've seen GP practices' profits being squeezed and expect this trend to continue as PCTs look to make budget savings, leaving practices facing rising costs taking an ever greater share of their falling income.'

GPC chair Dr Laurence Buckman added: ‘GPs are increasingly working in a challenging economic climate and facing financial pressure in a number of areas, a fact that needs to be recognised by the Government.'

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Pay prediction In Depth

Click here for an analysis from RS Medical Accountancy showing how GP income is being swallowed up by rising practice expenses

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