With the Spending Review almost upon us, here are ten searching questions for the Chancellor on the NHS:
1. Has the NHS got a real increase in funding?
The coalition government has promised to ringfence the NHS budget and to provide real increases in funding each year for the four years to 2014/15. Given the macro-economic circumstances it is hard to imagine any real increase remotely similar to those of the past decade, when the average real increase was around 6 per cent each year. So, what will it be? Closer to the long-term average for the NHS – around 4 per cent? Unlikely. Technically, the promise could be fulfilled with a fractional increase involving a figure far to the right of the decimal point. Best guess would be an increase a shade short of 1 per cent each year – around £3 billion extra in cash each year for the NHS in England, and £12 billion or so over four years. This would mean health spending will take a declining share of GDP over the next four years.
It is worth remembering that all ‘real’ figures quoted by the spending review will be based on estimates of general inflation in the economy – the GDP deflator. This is not the same as the retail or consumer price indices. Nor is it the same as the inflation rate experienced by the NHS. Historically this has been higher than the GDP deflator – reducing purchasing power in the NHS.
2. Has the 2010/11 budget been changed compared with the plan in the 2007 CSR?
This may seem a somewhat obscure question to ask, but finding a reasonable real increase in funding next year would be helped by reducing the amount that was planned to be spent this year. In fact, this has already happened. Spending in England in 2010/11 as set out in the last Comprehensive Spending Review in 2007 was £109.8 billion. But the Departmental Report from the Department of Health in 2009 stated that planned spending this year will be £105.8 billion – around £4 billion has gone from the budget. It seems prudent, therefore, to establish what the base year comparison figure is for any reported increase in funding.
3. What has happened to accumulated underspends?
Over the past few years the NHS has made planned underspends to ease the transition to a future of lower funding growth. This year the NHS in England is planning a surplus of £1 billion to carry over into 2011/12 – the first year of the Spending Review. This is not, of course, new money for next year; simply money not spent this year. The fate of this surplus may be in doubt, however, if reports that the 2008/9 surplus of £1.5 billion may be clawed back are confirmed.
4. What are the implications for the NHS given its settlement?
Such a small – historically very small – increase will look generous compared with the settlement for other spending departments. But this will not excuse the NHS from a need to get much greater value out of each pound it spends. Meeting increases in demand, covering NHS-specific inflationary pressures over and above those in the economy at large (such as incremental pay drift – and, importantly, improving the quality of its services, will require big improvements in productivity.
What it should not mean is obsessing about saving money or ‘releasing cash’. The only point in doing this is to spend any savings to get higher quality services of greater value to patients. More broadly, rather than making cash savings, the NHS will need to find new ways of working and better ways of diffusing best practice to improve productivity to thevalue of around £4 to £5 billion a year over the next four years .
5. What is the scale of real cuts for local authorities?
The Institute for Fiscal Studies has estimated that all unprotected departments – including central government grants to local authorities – could face real cuts in their budgets of up to 33 per cent by 2014/15. The government’s intention to freeze council tax rises next year (with a possibility of a further freeze the following year) and increasing difficulties in finding further efficiency savings will leave councils with little room for manoeuvre.
The Spending Review may confirm suggestions earlier this year that around £400 million of the NHS settlement next year could be transferred to social care services. This will ease the pressure on social care services, but at just 2.5 per cent of the total English adult social care budget will still leave councils in a very difficult position.
With changes proposed in the funding of public health activities, local authorities may be allocated a (ringfenced) proportion of the NHS budget – 3 per cent? – to employ public health specialists and to run public health activities.
6. What are the implications for social care and the NHS?
Although different councils will start from different financial positions, with some more able to draw on reserves and find greater productivity improvements, the scale of the reduction in their income is likely to have significant implications for social care. Councils will inevitably have to consider increasing user charges and tightening (already fairly tight) eligibility criteria for access to services.
It is difficult to be precise about the possible implications for health care , but if support for people at home and placements in care homes are reduced, this could lead to higher hospital admissions, delays in discharge from hospital, and increased pressure on A&E services.
7. What has happened to the £200 million special cancer fund pledge?
While £50 million, found from central Departmental budgets, will be allocated to PCTs for cancer services this month, decisions about the final size of the special cancer fund to operate from next April will be taken as part of the overall spending review.
The fund is controversial as it not only prioritises cancer patients over others in equal need, but is designed to pay for drugs that have been rejected by NICE as not cost effective.
8. Has the coalition’s public sector pay policy changed?
The June Budget has already announced a two-year freeze in public sector pay (except for those earning less than £21,000 a year), with estimated savings of around £3.3 billion by 2014/15. In addition, public sector pension arrangements are to be reviewed – with the expectation of finding further savings. This will ease the financial situation for the NHS, but still leaves it facing an increase in its pay bill of around £750 million to £1 billion each year due to in-built increments in most NHS staff contracts. Tightening up policy to eliminate this incremental pay drift looks unlikely given the implications of having to unpack and re-negotiate pay deals covering more than a million employees.
9. What will be the cost of implementing the White Paper reforms?
The policy proposals of Equity and Excellence: Liberating the NHS will be costly. No estimate has yet been provided by the Department of Health, but significant structural reorganisation, including the abolition of PCTs and SHAs, and new arrangements at every level of the NHS could, on one estimate, cost between £2 billion and £3 billion. If the NHS does receive a 1 per cent real increase in funding each year, then the bulk of this increase will be absorbed by these costs.
Another cost may be the loss in performance in the short term as managerial efforts and attention is diverted to implementing reforms.
10. What are the funding prospects beyond 2014/15?
The Spending Review will cover the coalition’s spending plans up to 2014/15. But what about the medium- to long-term prospects for funding? To inform public debate and to set out possible policy options and trade-offs, many countries produce regular long-range projections of future health care spending and costs. In our review in 2007 of Sir Derek Wanless’s 2002 long -term health spending forecasts we recommended that the Treasury or Department of Health should support the production of similar forecasts – possibly by an independent body similar to the newly constituted Office of Budgetary Responsibility (or, indeed by the OBR itself).
John Appleby is chief economist at the King's Fund. This post first appeared at <http://www.kingsfund.org.uk>
