Revenge and justice are satisfied as bankers get a big boot in their bonuses - contributing a few steps on the long march to plugging the government’s debt gap. But something a bit more heavy duty has to be done to deal with the gaping debt hole facing the government - a debt that if not dealt with will become unsustainably large.
However, options are limited: tax more and spend less - but without the former putting the brakes on economic recovery and the latter causing pain and political anguish.
Alastair Darling’s Pre Budget Report plans to square the circle: yes, higher taxes and yes, lower spending - but, for the NHS (and schools and the police), for the years 2011/12 and 2012/13, there will be some protection. Frontline NHS services - 95% of the NHS budget according to Darling - will ‘rise in line with inflation’.
As for the remaining 5% - which could include training, administration, research… - it is clear that if they are not to enjoy increases that match inflation, presumably they will be cut in real terms. Overall, therefore, the NHS will see a real cut in its total budget in 2011/12 and 2012/13.
This is not good news, even if relative to other departments the NHS has done well. But ‘well’ in this context is indeed a relative achievement. A real freeze in NHS funding will mean a funding gap compared with Derek Wanless’s projections for NHS spending and identified by The King’s Fund’s and Institute for Fiscal Studies’ analysis of the order of £20 billion by 2013/14.
This will be ameliorated a bit as the government want a cap on public sector pay increases up to 1% in cash terms - a real cut if inflation is greater than 1%. This will cut around £3 to £4 billion off the £20 billion funding gap as Wanless built in an assumed real rise for NHS staff of around 2.5% a year into his original funding projections.
Nevertheless, the massive productivity challenge remains; a relentless 5% a year (presuming a pay freeze), each year, for three years to meet Wanless’s vision for the NHS.
Can we do it? Er……
Professor John Appleby is chief economist at The King’s Fund
