Government right to protect NHS funding but NHS facing toughest financial challenge ever

Commenting in response to the NHS financial settlement in today’s Spending Review, Nuffield Trust Chief Executive Dr Jennifer Dixon said: ‘The NHS is in a privileged position compared with other public services and the Government should be credited for protecting health spending.

‘But make no mistake – the NHS has not faced this level of challenge in its history. The real terms increase in total health spending will be just 0.4 per cent over the spending review period – 2011/12 to 2014/5 – i.e. 0.1 per cent per year. In reality, unless the NHS can keep a tight grip on pay and price inflation, this will mean a reduction each year in the volume of health care services the NHS can deliver if current trends continue. This is because over the last decade NHS staff pay, which accounts for over half the NHS budget, and the prices of drugs and equipment, have increased by 1.5 per cent a year more than the measure of inflation – the GDP deflator – used by the Government to calculate its real terms increase for the NHS (1). If history is any guide to the future, ‘health care specific’ inflation in the NHS will continue to exceed the GDP deflator (2), which will intensify the challenge facing the NHS.

‘At the same time, the NHS will have to deal with three major pressures. First, those arising from increasing demands from a rising and ageing population – just standing still and delivering the same services is forecast to cost the NHS just over £1bn extra a year.

‘Second, the significant reforms the NHS must deliver, set out in the recent White Paper. Third, we welcome the extra £2bn per year announced for social care, although we will need to examine the detail of this announcement. £1bn of this will come from the NHS capital budget from 2011/12 to 2014/5 and an additional £1bn per year added to the Personal Social Services grant to local government.

‘But the reality is that local authority budgets will be stretched and funds for social care are not ring-fenced, so the extra £1bn per year is by no means certain. Research to be published by the Nuffield Trust next month (3) reveals how social care can substitute for hospital care and vice versa by helping to reduce admissions or earlier discharge from hospital. It is vital that social care is adequately funded otherwise there will be even greater pressure on health budgets.’

Dr Dixon added: ‘The biggest question now is whether the NHS can meet the £15bn-£20bn of efficiency savings now needed at the same time as significant reorganisation and cuts in management costs of 45 per cent. Productivity increases of around 4 per cent or 5 per cent a year are now required. This is unlikely to happen without fundamental changes to services in some parts of the country.’