Three things the NHS will be watching out for on Wednesday

With the recent Health and Care Levy announcement raising as many questions as it answered, Mark Dayan and Sally Gainsbury look ahead to tomorrow’s Spending Review and highlight three vital areas for the NHS and social care.

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Published: 26/10/2021

At his three-year Spending Review tomorrow, people working in fields from climate change to further education will watch intently as Chancellor Rishi Sunak unveils their financial futures. People in the NHS and social care might be expected to take less of an interest. For them, the announcement of the Health and Care Levy six weeks ago already cemented billions in extra funding.

In fact, though, this raised as many questions as it answered. Whether the more than £10 billion each year coming from people’s payslips will really stabilise and secure these services depends on other crucial decisions we may hear more about tomorrow.

Is it finally time for the UK to catch up on capital?

The Health and Care Levy announcement dealt with revenue funding – day-to-day spending on staff, salaries and other running costs. But it is capital funding – long-term investment in buildings, machines and technology – where the NHS has historically been most underfunded compared to other countries.

The UK went into Covid-19 after years of investing only half as much as comparable countries. Outdated buildings filled to the brim made it difficult to shift patients around to maintain social distancing without disrupting planned care. The lack of spare space and equipment is stopping us from taking some of the steps that other countries can to get back on track. Meanwhile, the backlog of maintenance work delayed has reached £9.2 billion.

As the pandemic began, the government made the decision to lift the capital budget up towards the £10 billion or so that would be more normal for an economy of the UK’s size. With some diversion to Covid-19, this underlying budget has largely held up over the last two years, as the chart below shows.

DHSC planned and actual capital spend, £bn real terms 26/10/2021


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Will the Spending Review now lock in another three years of respectable core capital funding, enabling the NHS to keep pace with its global peers or even catch up a bit? Or will we slide back into short-termism?

The announcement at the weekend of £6 billion in capital funding may seem to answer the question, but it does not. It is unclear whether it is in addition to a continued healthy sum or just a ring-fencing exercise setting aside money to catch up on planned care within a similar or even smaller budget.

If the NHS capital budget is in fact going to sink back down, but will also have this extra claim on it in addition to the ambitiously defined 48 “new hospitals”, funding for maintenance and facilities in general may be very hard to come by.

What exactly is the new NHS funding in the Health and Care Levy supposed to cover?

September’s announcement featured a headline that NHS revenue spending over the years to 2024-25 would be boosted by an extra £16 billion over original plans. That sum consists of increases of £6.6 billion next year, £3.6 billion in 2023-24, and £5.6 billion in 2024-25.

The last of these is tenuous. It was calculated against a notional plan – never before published – to freeze NHS England’s budget in real terms that year.

The additional increases for next year and the year after are sizeable and will come as a marked relief. But our analysis published in August showed that by the end of 2020-21, with Covid in full flow, the NHS’s inability to meet the unrealistic efficiency targets baked into the previous funding settlement had led to a chronic mismatch between funding and spending.

We concluded that by the end of this year that overspend will grow to just under £5 billion, even before counting the additional extra spending needed to deal with the pandemic. Figures published by NHS England showing spending to July this year are in line with that projection.

This implies that if NHS England returns to the “Long Term Plan” as it originally intended, the free funding to catch up with the backlog of elective care will not be £6.6 billion, but only around £1.5 billion. This is much less than the £4.2 billion the Health Foundation has calculated as the annual cost of truly addressing the backlog, or even the £1.8 billion required to get back to missing targets by only as much as the NHS did in 2018.

We will want to watch closely for whether there is a signal that commitments under the plan are being traded off against the need to get waiting times back on track – along the lines reported by the Health Service Journal.

Those two calls on the health budget – stabilising existing services at current standards, and increasing capacity to address waiting times – are before any consideration of the ongoing costs of dealing with the pandemic. The NHS has been receiving billions extra for this: in the second half of this year it is set to receive £4.4 billion. Will the added cost really fall to zero in the year beginning in April 2022?

That uncertainty perhaps explains a surprising aspect of the Health and Care Levy announcement: that £9 billion of the money raised over three years was directed to simply sit in the DHSC’s budget, not specifically earmarked for the NHS or social care.

These funds may be intended for Test and Trace, but they could also help cover the costs of the pandemic for the NHS. Alternatively, some may be destined for the training and support budget for the NHS workforce. Spending, and in particular attempts to boost diagnostic capacity through capital investment, will fail to make an inroad into the backlog without more staff. This creates significant room for the Chancellor to make more announcements for free – and means some of the biggest decisions have yet to be made.

Is there any money to stabilise social care?

If the NHS will still have to face hard choices, social care faces a struggle simply to carry on. Only £5.4 billion of the £36 billion over three years raised by the levy was destined for this sector in England. Much of that will go towards the new cap and floor.

This could solve one of the problems which beset the sector – catastrophic costs facing individuals. Unfortunately other issues are now so severe that a sector which does so much to support hundreds of thousands of people to live better lives is at the point of collapse.

The workforce has seen high turnover and vacancy rates for many years, with the government’s Migration Advisory Committee concluding that “the root cause of the problems” is “the failure to offer competitive terms and conditions”. The main recent policy action has been to shut off migration into most social care roles. As other sectors begin to hire again, monthly reports from providers to the Care Quality Commission have shown an alarming rise in posts left vacant, from 6% in April this year to 10% in September. In our NIHR-funded work, we have seen that this is a problem for care homes and home care agencies across the country, leading to growing waiting lists for assessments, home visits cut down to 15 minutes, and concerns about safety.

The recent announcements of £162 million this year and £500 million over the next three to support care staff recognise the problem, but they are probably too small to meaningfully address it. They amount to only around £100 each year for each of the 1.5 million people in the sector. The Homecare Association recently published a calculation showing that it would cost £776 million every year to pay English care workers who travel to people’s houses at the real living wage – even without counting the 40% of staff who work in care homes. Even this would be less than competitive with NHS wages.

On top of this, the market for organisations providing care is also buckling. Years of falling funding for councils have led to downward pressures on fees for care providers. This has led a growing number to refuse contracts to deliver publicly funded care. Others have to compensate by charging higher and higher prices to those who pay for their own care. The promise to allow self-funders to access council rates for care, announced alongside the levy, potentially addresses this, but at the cost of straining providers still more.

These worsening pressures, and the lack of money for councils to purchase care, have meant that the number of people getting publicly funded care actually fell in the four years before Covid-19 – even as needs rose in a growing, ageing population. The Chancellor will be considering whether he can provide the sizeable funding needed to turn this around. Otherwise, reforms to help people pay for social care will fall flat as the system visibly continues to collapse over the coming years, leaving more and more people unable to get safe care at all.

Suggested citation

Dayan M and Gainsbury S (2021) “Three things the NHS will be watching out for on Wednesday”, Nuffield Trust comment.