Five reasons why the Chancellor must find extra cash for the NHS at the budget

John Appleby and Sally Gainsbury on why it would be a serious missed opportunity if the NHS funding gap is not addressed on November 22.

Blog post

Published: 08/11/2017

It’s that time of year again. As the NHS turns its attention towards looming winter pressures and their associated challenges, the Chancellor is preparing his latest set-piece fiscal event, to be delivered in two weeks’ time on 22 November.

While this year the Autumn Statement has morphed into an Autumn Budget, the questions for the NHS remain the same as they have done for years: will the Government provide some much needed respite for services by increasing funding? Will the long years of austerity finally be eased in order to boost staff pay? And will the Chancellor pull any rabbits out of his hat for the NHS or social care?  

If anything, the climate in which these questions are being asked is frostier than ever. Brexit, and the uncertainty over any bill the UK Government may end up paying for an exit deal, as well as stalling productivity in the wider economy, provide a daunting backdrop for this year’s budget.

But an Autumn Budget that does not make a start in addressing the very real – and growing – funding gap facing the NHS, would be a serious missed opportunity and would risk the sustainability of a health service that is already under immense pressure. So why should the Chancellor find extra cash for the NHS on 22 November?

1) NHS funding is not keeping pace with what the population needs

It has become almost a truism to say that the amount of money the NHS is getting under current plans is not enough to maintain standards of care and meet rising demand for services. Our analysis published today with the King’s Fund and Health Foundation shows that health spending in England will rise from £123.8 billion in 2017/18 to £126.5 billion in 2020/21. This might sound a lot, but the increase is only about 0.7 per cent a year in real terms, compared to the 4 per cent the health service was used to receiving prior to 2010.

How much, then, is the right amount? Opinions differ (and you can read our recent work setting out a range of options here), but projections from the three health think tanks based on the Office for Budget Responsibility’s assessment of the likely health of the population in future, taking into account improved NHS productivity, suggest that the health service could be headed for a £4 billion shortfall next year alone, rising to over £20 billion by the end of the parliament.

2) NHS trusts are deeper in the red than official figures suggest

NHS trusts that run hospitals make up the bulk of spending on services by the Department of Health. In 2016/17 they reported a net deficit or overspend of £791 million. But in this same year, their financial positions were improved by a £1.8 billion injection from a ringfenced NHS England budget intended for investment in ‘sustainability and transformation’, and £1.1 billion in one-off savings or accountancy measures.

As both these sources of extra funding and savings were temporary fixes, the provider sector actually entered 2017/18 with an underlying deficit of £3.7 billion. Looking to the future, providers look set to have an underlying deficit of at least £2 billion in 2021. This is not sustainable in the long run.

All this is more than just accountancy quibbling. Unsustainable levels of deficit means trusts are less resilient to sudden shocks, like the impact of a bad winter or the costs of providing temporary staff. This all means more patchy care for patients and also means that the £3 billion or so fund set aside to invest in NHS transformation (which is needed to implement the ambitions set out in the Five Year Forward View) is instead being used to fund and offset hospital deficits: paying for yesterday’s care, leaving nothing aside to invest in tomorrow’s.

3) NHS funding per head is set to fall next year and funding for the neediest will likely be reduced

The NHS has been facing smaller increases per year than it has been used to. As we saw above, these average out at around 0.7 per cent per year. But looking at those individual years, the increase in 2018/19 is just 0.4 per cent. This means that funding per person in England is actually set to fall, from £2,226 this year to £2,220 next. 

The Conservative party has pledged to boost NHS spending per head in every year of this parliament, so this fall per head may be averted. But simply raising overall spend per head doesn’t deal with the different levels of need in the population. For example, between 2009 and 2015, the total population in England grew by around 6 per cent. But the numbers of people aged 65-69 increased by 28 per cent, while the numbers aged over 90 years increased by 27 per cent and the number of those aged 40 to 49 actually fell.

As older people tend to need significantly more health care than younger people, the changing demographic shape of England has a profound impact on demand for health services. This means that even if spending per head is held flat or rises slightly, the amount spent per patient who needs it most will likely not grow. 

4) NHS buildings are falling into disrepair

Over the past four years, the part of the NHS budget meant for maintaining and developing buildings, medical equipment and things like software has been cut by a fifth. Money has been switched from this part of the NHS budget (known as the capital budget) to pay for the day-to-day running costs of NHS organisations.  

This means that the bill for essential repairs and building maintenance is now bigger than the entire capital budget, at £5.7 billion. This leaves NHS hospitals and other facilities running with dangerously outdated buildings and facilities.

What’s more, the bill for dealing with this backlog could be even higher than first thought as NHS organisations have to make changes to comply with fire safety standards after the Grenfell tower fire. Scrimping on capital funding is simply no longer an option (if it ever was).

5) The NHS cannot afford to fund the lifting of the pay cap

Pay for NHS staff has been frozen or capped at 1 per cent for all but the lowest paid workers since the start of the decade. This has meant that NHS pay scales have not kept pace with inflation and have fallen by 6 per cent when compared to inflation.

But although public sector pay restraint is not due to end until 2020/21, recent announcements have suggested the public sector pay cap has been lifted. It is not known yet whether NHS pay will be increased and, if so, by how much. But our analysis published today shows that if it was to keep pace with inflation, the additional costs to NHS employers would be at least £600 million for 2018/19, and £1 billion in 2019/20. 

Jeremy Hunt recently told the House of Commons that his flexibility to negotiate future pay rises for NHS staff will be linked to further productivity improvements in the NHS. But this is not credible. The NHS has actually been more productive than both the economy as a whole and its own past performance recently, and any money freed from productivity must be used to pay for patient care. It is essential therefore that any pay rises for NHS staff are fully funded by the Government, otherwise NHS employers would be forced to choose between overspending their budgets and employing fewer staff.

Suggested citation

Appleby, J and Gainsbury, S (2017) "Five reasons why the Chancellor must find extra cash for the NHS at the budget", Nuffield Trust comment.