What did the Autumn Budget do for the NHS’s financial health?

A week before the Chancellor of the Exchequer Rachel Reeves delivered her first budget, the Nuffield Trust published analysis showing that the NHS in England was facing £4.8bn worth of unfunded cost pressures in the current financial year. This was our “keeping the lights on” assessment of the funding shortfall that the budget needed to tackle, rather than an estimate of what would be needed to do both that and also make any start on meeting the improvement aspirations set out in the Labour government’s manifesto.

The bulk of that shortfall – around £3.45 billion – reflected the fact that the funding envelope set by the previous government provided coverage for NHS staff pay increases of just 2%, compared to the average final settlement for the year of 5.5%. The remaining £1.35 billion reflects the rate of overspending by NHS providers even before the pay settlements were implemented.

Have Reeves’ headline average annual real terms increases of 4% for NHS day-to-day spending for this year and next solved the problem?

It is still too early to answer that in full, but it is looking extremely tight. Just how tight becomes clear when we unpick some of those headline figures.

We have learned to expect some chicanery when it comes to the headline figures presented at fiscal events. And while it should be noted that real improvements do appear to have been made in this area, old habits die hard. A particularly vexed matter is the Treasury’s decision to discount £2.7 billion worth of NHS England spending from its 2023/24 baseline – thus boosting the headline growth rate in future years.

The Treasury’s rationale for this is that it views that spending as non-recurrent. Around £1.7 billion was related to NHS England’s estimate of the direct costs of industrial action, while the remaining £1 billion was to help cover pay awards. While arguments could be mounted on either side over strike costs, the £1 billion on pay is undeniably a recurrent pressure, and so it is a concern that the Treasury does not view its funding as such.

Undoing the Treasury’s adjustments to the 2023/24 baseline reveals a real-terms increase for the NHS averaging just 3% over this year and next. The broader Department of Health and Social Care (DHSC) budget – which includes funding for public health – for once fares marginally better, with increases averaging 3.2%. But with pay rates up 5.5% compared to last year, NHS costs have risen by around 4% real terms this year – considerably faster than its funding level.

Filling the immediate £4.8 billion cost pressure in the NHS this year then will require two things to happen: the DHSC being able to make additional “non-recurrent” transfers from its non-NHS budgets, and the NHS making further efficiency savings. Both are likely to be painful.

The requirement for yet more efficiency savings comes in the context of a government-wide budget which the Office for Budget Responsibility anticipates will significantly push up inflation over the rest of this financial year, reducing the scope for efficiency savings to be made in supply costs, and thus magnifying the focus on the directly employed workforce.

Meanwhile, the hope that some of the pressure can be offset by a further (possibly non-recurrent) transfer from the DHSC’s non-NHS budget will risk continuing the decade-long-and-more deprioritisation of the areas that budget is supposed to fund: adult social care reform, public health, health care research and development. Each of these areas is vital to the three shifts the new government has said it wants to see in the health service, as well as to the NHS’s ability to improve productivity. But this budget did little or nothing to back that up with funding.

What the budget did of course do was set out a significant boost to the capital budget, with average increases of 11% this year and next. This represents a large uptick in funding for infrastructure and technology. However, there are question marks over how this will play out on the ground. The Chancellor’s new “guardrails” around government borrowing will make it harder for government departments to raid capital budgets when revenue funds are tight – as the DHSC has relied on in recent years.

But with a day-to-day budget that currently looks like it will be below the level of NHS inflation, being able to adequately staff new equipment and buildings – including the ambition to have more capacity in community settings and GP practices – may prove a challenge, and a real brake on the extent to which a more generous capital budget can actually be spent.

*This blog was originally published in BMJ Opinion on 4 November and is reproduced with permission.