As the details of the spending review were announced this week, the scale of the achievement by Jeremy Hunt and Simon Stevens in securing a frontloaded NHS settlement became clearer.
The spending review is, in the words of the Institute for Fiscal Studies, “one of the tightest in post-war history.” Unprotected departments will see cuts of 19% over the five year period. And 2016/17 was always going to be the most difficult of the five years covered by the review.
So, to pull off an £8 billion real terms increase and get it frontloaded—an extra £3.8 billion in 2016/17 and £1.5 billion in 2017/18—is a considerable success. The seeds of that success lie in the strong case for extra NHS funding made in the Five Year Forward View, and the way that health service leaders and civil servants have handled the spending review process.
Of course, challenges remain. A brief overview of NHS 2016/17 finances confirms the size of the task:
• Around £4 billion needed just to stand still as NHS demand and costs rise;
• A likely underlying £0.5 to 1 billion Department of Health 2015/16 deficit, including an envisaged £2.5 billion provider side deficit, to recover;
• An extra £1 billion national insurance pension cost to meet;
• A £2 billion funding gap in social care to close;
• A set of extra demands, such as seven day services, to deliver—the detail, timing, and cost of which we still need to see; and
• A transformation fund needed to support the move to new models of care, ideally sized at £2 billion according to the King’s Fund and the Health Foundation.
Whether you see this as a challenge or a gap, there isn’t a lot on the other side of the ledger: an estimated £1 to 2 billion in efficiency savings; and, crucially, now, a funding rise that not only takes account of inflation but gives the NHS an extra £3.8 billion it would not otherwise have had. While the sums still look very stretching, the extra £3.8 billion really does make a difference.
Providers tell us that they are ready to play their part in meeting this 2016/17 challenge. But, of course, they are waiting to see how this settlement translates into the detailed financial NHS framework for 2016/17.
They are, however, encouraged by the positive statements from Jim Mackey, the new chief executive of NHS Improvement. He has stated that the tariff efficiency factor for 2016/17 needs to be set at 2% and that there needs to be dedicated financial support to get individual trusts, and the sector as a whole, back into surplus as fast as we can. He also recognises the importance of the crucial—but oft-forgotten—details, such as reasonable rises in CNST premia and a sensible approach to funding specialised services. But, put simply, none of this would be possible without the frontloaded settlement.
There are, of course, a myriad details to work through. Four particularly important ones are:
• What does this settlement mean for community, mental health, and ambulance services? In the words of Claire Murdoch, chief executive of a large community and mental health provider: “the presentation and pre-briefing of the spending review all still reads as if everything is about seven day hospital services. I thought the agenda was more self-care, better prevention, improved community care, and better mental healthcare.”
• Will allowing local authorities to increase council tax by 2% and allocating an extra £1.5 billion to the Better Care Fund really cover the gap in social care funding? We’re promised that the £1.5 billion for the Better Care Fund is, unlike last time, additional new money. But it’s important to note that all this doesn’t start taking effect until 2017/18 and will only reach full effect in 2019/20. If social care continues to be cut in the meantime, the NHS will continue to bleed too.
• We need to fully understand the impact of the 21% or £2 billion reduction in the non-NHS ring fenced element of the Department of Health budget. One analysis says that this will largely be delivered by shifting the funding of student nurse placements to the student loan book and cuts to the administration budgets of the department and its arms length bodies. However, public health spending will also be cut by 4% a year in real terms. As Sarah Wollaston, the chair of the Commons Health Select Committee, argued yesterday: “Public health is the frontline of the NHS. It is both core clinical business and crucial to future savings.”
• And can the NHS really survive on a real terms increase of £0.5 billion in 2018/19 and £0.9 billion in 2019/20? One argument is that this gives the NHS two years to gear itself up to deliver significantly higher levels of efficiency and productivity improvement (though plenty of these will clearly be needed between 2016 and 2018 too). Others are already arguing that frontloading means the NHS will be able to go back for more money in these middle years—a clever trick to pull if it succeeds. Yet one that would come at a price. We have argued for some time that the NHS needs to plan properly on a multi-year basis and stick to the financial totals it has been given. If, as seems likely, the current 2018/19 and 2019/20 totals are undeliverable, the settlement will perpetuate a hand-to-mouth, year by year, financial approach in which the NHS has to keep asking for more. There must, surely, be a limit to how often we can do that and retain credibility.
It is also important to put the overall settlement in its proper context. NHS cost and demand rises by 3.5 to 4% a year and historically, up until 2010, the NHS has received average annual funding increases of 3.6% per year. However, across the parliament as a whole, assuming no more money is added at a later date (see above), the equivalent annual increase is 1.75%—just half the historic NHS average.
If there is to be no more money, the share of our national wealth—GDP per head—spent on health will continue to fall: by 0.7% between 2010 and 2020. As the secretary of state for health himself acknowledges, given that we spend below the OECD average (8.5% versus an OECD average of 8.9%) and an awful lot less than the French, Germans, and Dutch, who all spend around 11% of GDP on health, we should be increasing, not decreasing, the percentage of GDP spent on health.
So, despite the relative generosity of the settlement in relation to other public services, we should be under no illusions that a huge challenge remains. However, our immediate prospects look a lot better than had we not had a 2016/17 settlement that exceeds expectations.
Chris Hopson is chief executive of NHS Providers, the membership organisation for NHS acute hospitals, community, mental health, and ambulance services. You can follow him on Twitter @ChrisCEOHopson
Competing interests: I work for an organisation whose principal source of income is membership subscriptions from NHS Foundation Trusts and Trusts and it is our stated mission to publicly represent their interests.