Last week's Budget cast new light on this through two separate announcements.
First, it was revealed that NHS spending in England for this year (2010/11) is estimated to be less than originally reported in the Spending Review published last October. Instead of £103.8 billion, the Budget reports a figure of £102.9 billion. This gives a lower baseline against which future spending will be compared, potentially making it easier for the government to be seen to have kept its commitment to increasing NHS spending in real terms.
The reasons for the apparent downgrade in spending in the current financial year are to do with various movements of money in and out of different budgets. It appears that there are higher than expected underspends on both revenue and capital budgets, for example, in Connecting for Health. These sorts of transfers and adjustments go on every year.
Second, alongside the Budget, the Office for Budget Responsibility (OBR) raised its estimates for general inflation next year from 1.95 to 2.9 per cent.
Using the new, lower baseline spend for this year plus the new inflation figure suggests that the real rise for the NHS from this April will be 0.024 per cent – just £24 million extra in real terms.
Arguments about whether the NHS will get real increases in its funding every year to 2014/15 have swung back and forth since the Spending Review, but these are a distraction from the real issue: increased inflation means that the spending power of the NHS will decline next year.
The OBR's estimates for inflation in future years are certain to change. Sticking to a pledge to increase funding in real terms in these circumstances – and when the margins are so small – will no doubt keep the political arguments alive. But for the NHS, wrangles over the changing baseline comparison make absolutely no difference – it will still get what the Spending Review promised it would get.
The real issue for the NHS is the increase in the estimated inflation for next year. This means that more of the cash it is to be given on 1 April will be absorbed by inflation than expected.
This fact has been partially obscured by comparing the change in real funding from this year to next using the lower Budget baseline. But the reality for the NHS is that its productivity challenge just got a bit harder.
This blog was also featured on the Public Finance website.