1. New funding and higher productivity

The issue

Nearly two-thirds of acute hospitals are now in deficit, with NHS providers having overspent their budgets by more £800 million in 2014/15. The prospects for 2015/16 are even gloomier. With many hospitals having received emergency financial support or run down their reserves last year, a financial crisis is looming.

Looking further ahead, the NHS five year forward view argued that the NHS will need additional funding of £8 billion a year by 2020/21. This is the bare minimum needed to maintain standards of care – it will not pay for new initiatives, an increase in staff numbers or the upfront costs of service change.

This estimate also depends on delivering efficiency savings of £22 billion a year by 2020/21. While there is significant scope to improve productivity, delivering efficiencies on this scale is hugely ambitious and would require much higher productivity improvements than the NHS has historically been able to deliver.

Meanwhile, significant reductions in local authority funding have led to cuts in social care, reducing access to services and increasing pressure on the NHS. With estimates suggesting a potential funding gap of more than £4 billion by 2020/21, the pressures facing social care must be addressed urgently.

What must be done?

There is a real prospect of deficits snowballing and, unless additional funding is found, an accelerating decline in NHS performance and a deterioration in the quality of patient care as staff numbers are cut and waiting times rise.

  • The first priority for the government must be to plug the growing black hole in NHS finances. Additional funding is needed this year to maintain standards of care and address the unprecedented pressures driving so many NHS organisations into deficit.
  • Beyond 2015/16, the government must use this year’s Spending Review to put the NHS on a sustainable financial footing for the rest of the parliament. This means providing real-terms increases in the NHS budget each year, up to at least £8 billion a year by 2020/21. Additional funding must also be found for social care.
  • This level of funding will not cover the costs of essential changes to services. The Spending Review should also establish a new health and social care transformation fund to support large-scale service changes and manage the transition between old and new models of care.
  • Efforts to increase efficiency should be re-doubled. Better outcomes can be delivered at lower cost by reducing fragmentation of services, tackling variations in the way patients are treated and improving the co-ordination of care.

Next priority: a new approach to NHS reform