Ten questions to ask about the 2010 Spending Review

1. Has the NHS got a real increase in funding?

The coalition government has promised to ringfence the NHS budget and to provide real increases in funding each year for the four years to 2014/15. Given the macro-economic circumstances it is hard to imagine any real increase remotely similar to those of the past decade, when the average real increase was around 6 per cent each year. So, what will it be? Closer to the long-term average for the NHS – around 4 per cent? Unlikely.

Technically, the promise could be fulfilled with a fractional increase involving a figure far to the right of the decimal point. Best guess would be an increase a shade short of 1 per cent each year – around £3 billion extra in cash each year for the NHS in England, and £12 billion or so over four years. This would mean health spending will take a declining share of GDP over the next four years.

It is worth remembering that all 'real' figures quoted by the spending review will be based on estimates of general inflation in the economy – the GDP deflator. This is not the same as the retail or consumer price indices. Nor is it the same as the inflation rate experienced by the NHS. Historically this has been higher than the GDP deflator – reducing purchasing power in the NHS.

2. Has the 2010/11 budget been changed compared with the plan in the 2007 CSR?

This may seem a somewhat obscure question to ask, but finding a reasonable real increase in funding next year would be helped by reducing the amount that was planned to be spent this year. In fact, this has already happened. Spending in England in 2010/11 as set out in the last Comprehensive Spending Review in 2007 was £109.8 billion. But the departmental report from the Department of Health in 2009 stated that planned spending this year will be £105.8 billion – around £4 billion has gone from the budget. It seems prudent, therefore, to establish what the base year comparison figure is for any reported increase in funding.

3. What has happened to accumulated underspends?

Over the past few years the NHS has made planned underspends to ease the transition to a future of lower funding growth. This year the NHS in England is planning a surplus of £1 billion to carry over into 2011/12 – the first year of the Spending Review. This is not, of course, new money for next year; simply money not spent this year. The fate of this surplus may be in doubt, however, if reports that the 2008/9 surplus of £1.5 billion may be clawed back are confirmed.

4. What are the implications for the NHS given its settlement?

Such a small – historically very small – increase will look generous compared with the settlement for other spending departments. But this will not excuse the NHS from a need to get much greater value out of each pound it spends. Meeting increases in demand, covering NHS-specific inflationary pressures over and above those in the economy at large (such as incremental pay drift – see Question 8) and, importantly, improving the quality of its services, will require big improvements in productivity.

What it should not mean is obsessing about saving money or 'releasing cash'. The only point in doing this is to spend any savings to get higher quality services of greater value to patients. More broadly, rather than making cash savings, the NHS will need to find new ways of working and better ways of diffusing best practice to improve productivity to the value of around £4 to £5 billion a year over the next four years.

5. What is the scale of real cuts for local authorities?

The Institute for Fiscal Studies has estimated that all unprotected departments – including central government grants to local authorities – could face real cuts in their budgets of up to 33 per cent by 2014/15. The government's intentions to freeze council tax rises next year (with a possibility of a further freeze the following year) and increasing difficulties in finding further efficiency savings will leave councils with little room for manoeuvre.

The Spending Review may confirm suggestions earlier this year that around £400 million of the NHS settlement next year could be transferred to social care services. This will ease the pressure on social care services, but at just 2.5 per cent of the total English adult social care budget will still leave councils in a very difficult position.

With changes proposed in the funding of public health activities, local authorities may be allocated a (ringfenced) proportion of the NHS budget – 3 per cent? – to employ public health specialists and to run public health activities.

6. What are the implications for social care and the NHS?

Although different councils will start from different financial positions, with some more able to draw on reserves and find greater productivity improvements, the scale of the reduction in their income is likely to have significant implications for social care. Councils will inevitably have to consider increasing user charges and tightening (already fairly tight) eligibility criteria for access to services.

It is difficult to be precise about the possible implications for health care, but if support for people at home and placements in care homes are reduced, this could lead to higher hospital admissions, delays in discharge from hospital, and increased pressure on A&E services.

7. What has happened to the £200 million special cancer fund pledge?

While £50 million, found from central Departmental budgets, will be allocated to primary care trusts (PCTs) for cancer services this month, decisions about the final size of the special cancer fund to operate from next April will be taken as part of the overall spending review.

The fund is controversial as it not only prioritises cancer patients over others in equal need, but is designed to pay for drugs that have been rejected by NICE as not cost effective.

8. Has the coalition's public sector pay policy changed?

The June Budget has already announced a two-year freeze in public sector pay (except for those earning less than £21,000 a year), with estimated savings of around £3.3 billion by 2014/15. In addition, public sector pension arrangements are to be reviewed – with the expectation of finding further savings. This will ease the financial situation for the NHS, but still leaves it facing an increase in its pay bill of around £750 million to £1 billion each year due to in-built increments in most NHS staff contracts. Tightening up policy to eliminate this incremental pay drift looks unlikely given the implications of having to unpack and re-negotiate pay deals covering more than a million employees.

9. What will be the cost of implementing the White Paper reforms?

The policy proposals of Equity and Excellence: Liberating the NHS will be costly. No estimate has yet been provided by the Department of Health, but significant structural reorganisation, including the abolition of PCTs and strategic health authorities, and new arrangements at every level of the NHS could, on one estimate, cost between £2 billion and £3 billion. If the NHS does receive a 1 per cent real increase in funding each year, then the bulk of this increase will be absorbed by these costs.

Another cost may be the loss in performance in the short term as managerial efforts and attention is diverted to implementing reforms.

10. What are the funding prospects beyond 2014/15?

The Spending Review will cover the coalition's spending plans up to 2014/15. But what about the medium- to long-term prospects for funding? To inform public debate and to set out possible policy options and trade-offs, many countries produce regular long-range projections of future health care spending and costs. In our review in 2007 of Sir Derek Wanless's 2002 long-term health spending forecasts we recommended that the Treasury or Department of Health should support the production of similar forecasts – possibly by an independent body similar to the newly constituted Office of Budgetary Responsibility (or, indeed by the OBR itself).

This blog also appeared on the Public Finance website

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Comments

#247 John
Retired

Earlier today I posted a comment against this article, and it has subsequently been removed. Surely, The Kings Fund should report and act without fear or favour, and show full transparency, however, I am now inclined to believe that you fail both these tests of due impartiality.

My comments merely voiced a moderating view, on the wisdom of deferring too much to the opinions of Sir Derek Wanless, and I cited the NHS 2002 Funding Report. I was proffering a personal view, albeit one that I judge to be a consensus view, garnered from an eclectic range of factual and reliable sources. I even referenced my comments against web sources posted by the BBC, and the All Party Commons Treasury Select Committee, upholding my view.

The Kings Fund may not agree with my view, and that is their rightful prerogative. That per se is not a reason for removing the comments of those contributors, whose courteously tendered views are not aligned with your own.
If you only seek unctuous praise via these 'comments' , and are to quickly censor any dissent, then surely, it is all a rather pointless and one sided exercise.

For the benefit of all your readers, you may now like to reconsider your crass and censorial action and reinsert my earlier comments. If you do not agree with them, than add a footnote below clarifying your own position. It's called democracy. We should be free to agree and differ.

I happen to live in Bath, NOT Pyongyang !

#249 Katie Mantell
Head of New Media
The King's Fund

In response to John’s comment, we welcome a range of views on our website and actively encourage users to leave their comments. We very rarely remove comments posted on our site - and do so reluctantly. However, we took the - very unusual - step of removing your original comment because it contained personal criticism of a third party individual, and we are sensitive to the implications of retaining such comments on our site.

#250 John
Retired

Katie, you say 'it contained personal criticism of a third party individual'. Katie - please, please, try and retain a common sense perspective. If you were to sanitise the press by removing all 'personal criticism' by your definition, your daily newspaper would reduce to the size of a stamp ! As for Sir Derek Wanless, I do not know the chap personally, and I would be unable to comment on his character, and neither would I chose to do so. The FACT remains, Sir Derek was remunerated with millions of pounds in the post of CEO at NatWest, and, latterly, as Head of Risk at Northern Rock, at the time of the 'run'. It is perfectly legitimate to question the judgement of those bankers whose decisions directly changed the course of the UK for many years to come. Moreover, it becomes highly legitimate when you then defer to that individual's judgement in other areas. Katie, it is that Curate's egg that I referred to. I do not want a crusade, and I will not us your 'comments' facility again. I simply leave you to ponder the difficult changes that the NHS will see over the next decade. Belt tightening that is a very direct consequence of billions of pounds of Treasury funds that have been diverted to rectify the bankers' greed and folly. The latter are not my words, but those of a large consensus of financial commentator, and politicians of every persuasion - possibly they are all wrong Katie ? King's Fund can disingenuously airbrush the warts from history should they wish to do so, although many would prefer a more honest approach. I trust that you will retain this final riposte on your 'comments', in order that other readers may form their own view. Thank you.

#251 John Appleby
Chief Economist
The King's Fund

Regardless of your or anyone else's views about Sir Derek Wanless, the work he led on the future funding needs of the NHS - researched and written by a co-opted team of economists and others from the Treasury and the Department of Health - is widely seen as one of the most sophisticated and respected attempts to get to grips with a fundamental policy question: how much should we spend on health care?

I refer once to his report - in respect of one recommendation, that there should be regular long range forecasts of funding/spending pressures/needs in health care in order to inform public debate about an important policy area.

If anyone would like to comment directly on this or any other points in my blog they are more than welcome.

#253 John
Retired

Mr Appleby, you say 'regardless of your or anyone else's views about Sir Derek Wanless'.

I am sorry, although conclusions and judgements should be formed having regard to (not 'regardless of') all hues of opinion. It is perfectly reasonable that the much vaunted 2002 Wanless Funding Report should be open to forensic critique, and that should also include the author and leader of that report. Factually cited and referenced examples of judgemental frailty are very pertinent in that regard. That is not personal deprecation, it is simply a view about someone's skill competency, and I find a clear distinction.

You do a good job of lauding the 2002 Funding Report. If I may just offer a few words to temper the enthusiasm.
Firstly, it is widely (although I suspect not universally) accepted that the 2002 Report was written to justify a conclusion. By my understanding, Blair had blurted out on the BBC's Sunday with Frost program in 2000, or 2001, that he would increase NHS funding to Euro levels over 5 years. This amounted to a pledge. At least I believe this is the gist of what happened. Anyway, Prudence Brown was apoplectic that he would have to fund up to £50 billion. The Wanless Report was thus commissioned to provide the 'intellectual justification' for Brown's tax rises, and many GP's now on £250,000 + will be joyous that the necessary funding recommended by Wanless, was available to meet their contracts. That, at least, is one school of thought.

Finally, you mention the 2002 Report's 'team'.

Geoffrey Rivett, in his highly acclaimed work 'National Health Service History' says : 'The Treasury commissioned Derek Wanless, past chief executive of NatWest Bank and a non-executive director of Northern Rock Bank, in perhaps the most expensive report ever requested'. Rivett went on to say : 'Wanless lead a team based within the Treasury, which worked closely with the No 10 Policy Unit and the Department of Health, so, whatever the report was, it was not independent'.

I must now move on. I had promised not to comment further !

#255 James Thornton
Healthcare Quality Improvement Partnership (HQIP)

Regarding quality improvement - and clinical audit in particular - cheaper care can be better care? See HQIP's Response to Government Comprehensive Spending Review

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