The June Budget: swings and roundabouts for the NHS?

As expected George Osborne's first budget set out a combination of spending cuts and tax increases as part of the coalition government's strategy for reducing the country's structural deficit.

For the NHS it looks like a case of swings and roundabouts. The good news is that the Chancellor confirmed it was to be protected, receiving a real increase in funding each year for the life of this parliament. Quite how much will be set out in the spending review in October. The bad news is that the opportunity cost of this and other protective moves imply real cuts in other departments of 25 per cent over the next three years.

On top of a promise to freeze council tax, the impact of these cuts on local authorities will be severe. Social care funding is bound to be cut with obvious adverse consequences for the NHS.

The planned rise in VAT to 20 per cent will cost the NHS in the region of £200 million to £300 million every year. This is an extra cost – similar to the last government's proposed employer NI increase (which will now not be implemented) – that will have to be found by cash-releasing efficiency savings in the NHS.

The Chancellor also announced a public sector pay freeze from next year up to and including 2012/13. For the NHS this will save money of course, but for its staff, depending on the rate of inflation, it will effectively mean a pay cut of around 5 per cent over two years. Lower paid staff, those earning less than £21,000 will receive a flat pay rise each year of £250. Relief for some; not enough for many to cover inflation.

Less direct, but no less important, are the impacts on health and social wellbeing – and on demands for care – arising from the Budget measures as a whole. The Independent Office for Budget Responsibility in their update to their pre-June Budget forecasts now suggest – presumably as a result of the measures in this Budget – slightly lower economic growth and higher inflation this year and next. Quite what the impact of this will be on the population's health is difficult to estimate, but it doesn't look positive.

Other measures such as freezing child benefit, no increase in alcohol and cigarette duty (where an increase in price could exert some impact on demand) and caps on housing benefit will also have some health and social care consequences, though again, very difficult to estimate.

None of this of course need detract the NHS from its central mission over the next few years – to squeeze more and better care out of every pound it's given. A new paper from The King's Fund to be published shortly will analyse in detail the productivity opportunities available and how these might be realised.

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Comments

#148 Stephen O'Brien

Assuming the NHS needs x% to fund demographic and other changes and y% to fund inflationary changes will real terms growth equal x+y?

#149 John Appleby

Our estimates based on Derek Wanless’s 2002 review of future NHS spending is that with no productivity improvement the NHS needs around 6% real growth each year over the next three years to meet demographic and other demands, plus things like a real rise in staff pay, improvements in quality etc. If it gets, say, 1% real increase in its funds (that is, cash increase that is 1% greater than general inflation in the economy, as measured by the GDP deflator - not inflation as specifically experienced by the NHS) then there is a shortfall of around 5% each year, a gap that can either be ignored, or closed by improving productivity to the value of 5% each year, for three years…

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