How much has the NHS saved by holding down pay?

In the last seven years, the English NHS has been on a savings drive that never ends. First there was the “Nicholson Challenge” to save £20 billion by 2015; then a new “Five Year Forward View” goal of £22 billion in annual savings by 2020. A major lever to achieve these has been to cut costs by holding down the pay of NHS staff, through a freeze until 2013 and then limiting increases to 1 per cent a year.

We often get asked about how much of a contribution this has made towards those big savings targets down the years. Staff and organisations that represent them want to put a number to the sacrifices they feel have been made. But the question is a tricky one. To answer, we need to be able to compare what has actually happened to pay with what would have happened if the NHS hadn’t been trying to make any savings. But we’ve never seen an NHS trying to make no savings at all.

Falling behind

One approach is to look at how the course of NHS pay has compared to that for general prices of goods and services in Britain – in other words, inflation. If wages had kept up with inflation, this would have meant that the average amount NHS staff were able to buy with their wages just stayed exactly the same.

Another approach would be to look at how much NHS pay has risen compared to pay in the private sector, where wages are set by the market. This sets a lower bar: in the last few years in the UK, private pay has actually fallen behind inflation due to an economy struggling to improve productivity.

The graph below draws on data from NHS Digital to look at how pay for staff in commissioning groups and NHS trusts matches up.

For each of the different groups, the graph shows what really happened to pay per full-time member of staff over the last seven years – on a simple average basis, including overtime and extra pay in areas like London. The solid blue lines show inflation and private sector pay in the same timeframe. The percentage change each year reflects how pay in that year compares to the baseline year of 2010.

By 2016, pay for every major staff group had fallen behind both inflation and the private sector. This will reflect not only the official pay freeze and cap, but also the effect of the balance between the higher and lower paid members of staff in each category.

The lowest paid big staff groups – admin and catering staff and support staff – have done somewhat better than doctors and nurses. This may be because at the start of this period, the lowest paid NHS staff were given small pay rises when everyone else’s wages were frozen.

Over the years, this gap adds up to a fair amount at an individual level. A nurse or health visitor last year earned around £35,000 on average. This would have been £38,000 if pay had kept up with inflation since 2010, or £37,000 if it had kept up with the private sector.

The grand total

So how much money did all that save? Comparing NHS pay to the private sector over this period, we can see that they initially kept pace. However, NHS pay then fell behind somewhat in 2013. Last year, as private sector pay rose steadily, staff in the health service earned £1.4 billion less than they would have done if their pay had been rising at the same amount.

However, for a better measure of savings, it seems to make more sense to look at how NHS pay related to inflation. Private sector wages are an important benchmark but they don’t seem a fair representation of no savings taking place: the private sector is under constant pressure to minimise costs.

On this basis, a gap emerged rapidly at the start of this decade. Last year, NHS staff received £2.6 billion less due to savings made by holding down their pay since 2010.

Adding to the bill

In reality, this is probably an underestimate of the total savings to the NHS.

The health service will also have saved money by not having to pay additional pensions and national insurance in line with pay rises. An exact calculation would need us to obtain the salaries of every member of staff to see which bands they would fall into. But these extra costs add about an extra fifth on top of salaries across the Department of Health, so the saving is probably a several hundred million more a year.

People who work for private sector contractors, like nurses in general practices, may also have had their pay held down – unfortunately, we don’t have the data to know by how much.

Despite the huge size of the NHS, even £2.6 billion is a serious chunk of savings. It is more than was spent on all of England’s NHS ambulance services combined in 2016/17.

Can we keep going like this? NHS plans are reportedly banking on further savings of £5 billion by 2020 – at least the same again. But every sign indicates we are nearing the end of the road. Staff vacancies are at alarmingly high levels, especially in nursing. After a prolonged political campaign, Jeremy Hunt has announced he views the pay cap as now effectively over.

It looks impossible to keep going with savings from pay on this scale – but it will be difficult to keep going without them.