It might not seem like it to people working across the health service, but the NHS is one of the lucky ones when it comes to funding.
Health has some significant challenges as it embraces a new structure and an ongoing search for £20bn in efficiency savings, as Public Finance's April cover feature shows. But it has generally been protected in an otherwise headlong rush to cut spending.
This preferential treatment was seen again in the Budget, when Chancellor George Osborne announced an extra 1% reduction across most Whitehall departments. Health, along with schools and aid, was excused.
Instead, the burden was carried by a number of unprotected ministries including Transport, Justice, Environment and Business. Local government – usually at the front of the queue when it comes to being unloved – was given dispensation for the first year.
This distinction between the loved and the unloved is harder to justify as the austerity agenda continues apace. Influential figures across all parties – from Business Secretary Vince Cable to former defence secretary Liam Fox – have questioned the need to ring-fence spending.
Every government has its priorities and wants to communicate this to the electorate. But funding favouritism seems somewhat out of keeping with the coalition’s claim that ‘we are all in this together’.
With borrowing stubbornly refusing to come down and debt inexorably rising, the chancellor has to impose a high burden on a small number of departments.
Writing on the PF Blog, Tony Travers suggested that local government, along with some other non-ringfenced services, could expect real-terms reductions of at least 50% by 2018.
It goes without saying that such an outcome would be unprecedented. According to Travers, ‘an historic change is under way to the British state’.
Osborne has limited options when it comes to current spending across ministries – known in the parlance as Departmental Expenditure Limits. But he has even less control over welfare spending and other aspects of Annually Managed Expenditure.
DEL is forecast to fall over the next five years, whereas AME will grow significantly. Meanwhile, the economy stagnates, reducing potential tax revenues for the chancellor.
Osborne’s frustration with the system was clear in the Budget when he described AME as ‘annually unmanaged expenditure’ and promised to introduce a cap in the Spending Review on June 26.
He is clearly ready to think the previously unthinkable. Perhaps he should do the same when it comes to protecting individual departments.
This article first appeared in the April edition of Public Finance
