Life after the Spending Review: what it means for NHS finances

16 Dec 15

Current levels of uncertainty across the NHS are unprecedented. As the dust settles on the Spending Review, the challenge for the finance community is to find a way to meet short-term financial targets and to ensure improvements for the future.

In November, HFMA welcomed the Spending Review announcement of an increase in NHS spending in England from £1011bn in 2015/16 to £120bn by 2020, and we were pleased much of this increase would be seen by 2016/17. It was reassuring that the government listened to the calls of those on the ground for the pledged money to be front loaded, and this additional funding will support NHS organisations, where the vast majority are facing a financially difficult 2016/17. We’re also pleased the government made good on its promise of an additional £8bn in real terms for the NHS by 2020/21 – even if this involved a few boundary shifts to what the sector generally understood to be the ringfence.

However, the extra money does not mean the NHS finance community can put their feet up. The task in hand from the Five Year Forward View means the NHS needs to close £30bn funding gap by 2020/21 and deliver £22bn of improvement in that timescale. Whether £30bn captures the overall size of the challenge posed by an ageing population, rising demand and changing disease patterns is up for debate – especially given new demands such as seven-day services and the continuing pressures of ensuring safe staffing levels. And can the service really outperform previous levels of productivity growth and deliver the implied 2%-3% efficiencies needed each year?

The huge financial challenge remains. At the halfway point in 2015/16, providers were forecasting a combined £2.2bn deficit – and eliminating any recurrent elements of this overspend will be a first call on any new funds. Early analysis of the recently announced £1.8bn sustainability and transformation fund for 2015/16 indicates that this will be the case.

Our recent survey of finance directors found some are also questioning whether the £8bn of additional government funding will be sufficient. Some 84% of finance directors said they don’t have sufficient resources to implement the Five Year Forward View without more financial support on top of this. However, with many budgets not ring-fenced and facing cuts, there is a feeling it is the best the NHS could have hoped for.

As the dust settles, finance directors will be reflecting on their savings plans including ‘catch up’ (bringing less efficient providers up to the level of the best),‘frontier shift’ (new models of care) and ‘moderating demand increases’. However, the Five Year Forward View case was built on a ‘more activist prevention and public health agenda and the availability of social care services. But with cuts to public health spending, we can only predict the impact of this across the NHS. And are the announcements around additional money for the Better Care Fund and a new social care precept enough to ensure the financial challenges in local government don’t simply shift the financial headaches?

The full impact and long term financial impacts of the Spending Review are far from clear. Whilst the finance community in the sector identifies risks and tries to mitigate against them, the current levels of uncertainty are unprecedented. The challenge for the finance community is to find a way to support both the delivery of financial targets in the short-term, while supporting the improvement and transformation work that will help shape sustainable future.

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