The financial crisis is estimated by the Treasury to have dealt a permanent blow to the size of the UK economy. This will inevitably have a significant knock-on impact on the strength of the public finances. But despite this, both the Labour and Conservative parties have said they would not cut NHS funding in real terms from 2011 onwards.
But how realistic are these pledges and, even if met, can the NHS seriously expect enough money to stay on the ‘fully engaged’ health spending course, the most expensive and committed of the options set out by Sir Derek Wanless back in 2002?
Analysis by the King’s Fund and researchers from the Institute for Fiscal Studies suggests that from 2011 onwards up to 2017 at least, the NHS will face one of the most significant financial challenges in its history.
Our work shows for instance that even if the NHS were to get a zero real rise for each year up to 2016/17, all other spending departments would need their budgets cut by around 8% in real terms by 2017. A small real rise of 2.5% for the NHS over the same period – low by historic standards– would mean real cuts across the board of 16%.
And even with such a real rise, the gap between actual funding and Wanless’s mid-range ‘solid progress’ scenario would amount to £23.5bn at today’s prices (22% of the NHS budget in England), and could be as high as £49bn if the NHS had real cuts in its budget.
Improved productivity should help fill this gap, but given the NHS’s historical record, it is hard to see it making gains of between 4% and 8% each year for six years.
That’s why it’s crucial that the NHS does all it can over the next two years to prepare itself for the financial freeze that will take hold over the two coming Spending Review periods.
Professor John Appleby is chief economist at the King’s Fund. How cold will it be? Prospects for NHS funding: 2011–17 can be downloaded from www.kingsfund.org.uk/prospectsfornhsfunding
