Letter from finance chief Paul Baumann says contingency of £800m will be used to offset hospital overspends

Ministers have been accused of breaking their promises on mental health after £800m earmarked to improve services was diverted to shore up hospitals’ finances.

A leading mental health charity and the Labour party said redirecting the money would hit patient care and hinder the drive, backed by Theresa May, to improve care for people with serious mental health problems.

“It would be incredibly worrying if mental health investment was being sacrificed so that [NHS bodies] can balance their books,” said Mind chief executive Paul Farmer, who chaired the NHS taskforce on mental health that last year recommended sweeping changes, including to funding.

The move has emerged in a letter written by NHS England’s finance chief, Paul Baumann, which has been seen by the Health Service Journal. In it he makes clear that the £800m, which NHS England held back from its 209 clinical commissioning groups this year, will help stabilise NHS finances.

Simon Stevens, the chief executive of NHS England, last year said the money was “funding that would have been available from CCGs for mental health services, community health services, primary care and other things”. It was being held as a “contingency reserve” in case hospital trusts recorded huge deficits this year comparable to the overspend of £2.45bn they made in 2015-16, he said.

In his letter, Baumann confirms that NHS England now intends to use the “full amount” of the contingency fund to offset overspends by NHS acute hospital trusts in 2016-17.

“The aggregate effect of this will be to increase the surplus across the whole of the commissioning [CCG] sector by around £800m, which will help to offset the provider deficit position and help us to secure a balanced position for the NHS overall,” he writes.

“As expected, provider [hospital] financial position is such that we now require each commisisoning organisation to release the full amount of the 1% non-reccurent reserve to its bottom line. This is an essential element of the risk management strategy agreed across the health sector for 2016-17, and it is vital that we secure the full expected benefit from the release of the risk reserve.”

NHS trusts in England were initially told to overspend by no more than £250m this year. That target was revised to £580m, but trusts are now forecast to end 2016-17 about £873m in the red, according to NHS Improvement – the service’s financial regulator.

Diverting the contingency money will help the health secretary, Jeremy Hunt, avoid the embarrassment of his department busting its budget for this year. It needed an emergency injection of £205m last year.

“The news that the government is using mental health funding to plug the gaps in other NHS spending flies in the face of Tory government pledges for improved funding for mental health,” said Barbara Keeley, shadow minister for mental health.

“Jeremy Hunt has said that children’s mental services are the NHS’s biggest failing. It is of no use pledging improved funding for children’s and other mental health services if the NHS is going to divert funding for trust deficits,” she said, adding that ministers should ringfence mental health funding to ensure it reaches the frontline.

NHS England played down the impact on key services. “As we’ve been saying since the start of the year, we set aside £800m to cover provider deficits if needed, and we do now need to,” a spokesman said. “This is uncommitted money that would otherwise have been invested at the discretion of commissioners. It will be important to get the trust deficit down next year so planned investments can take place.”