“Today’s announcement that public spending as a whole will only grow in line with inflation in 2018/19 confirms that the unprecedented squeeze on NHS budgets is likely to continue over the next Parliament.
“Although the health service faces upward cost pressures of around four per cent each year, this tight fiscal picture and the deep cuts seen by other departments make it likely that NHS funding will not increase over this period. We have estimated that this will lead to a further funding gap of around £30 billion by 2021/22.
“Importantly, the Government today committed to looking at further public sector pay restraint after 2015/16. This echoes the hospital finance watchdog Monitor, which has said that further pay restraint will be needed to close the funding gap.
We have already warned that hospital finances are showing serious signs of strain, and policy-makers need to be ready for the possibility of a large number of NHS trusts entering real financial difficulties
“Yet although pay restraint has been crucial in the NHS meeting its financial targets so far, it will become very difficult to continue if the health service has to compete for talent with the private sector in a full economic recovery.
“Continuing to deliver an annual four per cent saving through 2019 will be challenging for every part of the NHS and will probably not be possible. Productivity growth has never reached this level, and our research shows no sign of a step-change since the beginning of austerity.
“We have already warned that hospital finances are showing serious signs of strain, and policy-makers need to be ready for the possibility of a large number of NHS trusts entering real financial difficulties. Monitor could find potential productivity gains of a maximum of £18 billion compared with NHS England’s estimate of a £30 billion funding gap which is in line with our own.
“Closing the funding gap will also require delivering so far elusive savings from providing better joined-up care, and helping people to stay out of hospital. It is right that the Government should take this seriously.
“However, the Integration Transformation Fund in 2015/16 is likely to result in an especially tight year for NHS finances, as a further £1.9 billion is ring-fenced from NHS budgets to maintain social care services for the elderly and to integrate care.”
Notes to editors
The Nuffield Trust first laid out the evidence for a funding gap up to 2021/22 in our report: A decade of austerity? The funding pressures facing the NHS from 2010/11 to 2021/22 (December 2012). This work has since been broadly accepted by Government bodies.