Responding to the financial challenge facing the NHS

The NHS faces one of its toughest ever periods financially. In order to meet increasing demand from an ageing population, drive up quality and respond to rising patient expectations it will have to do more with the same amount of money. It is therefore inevitable that the shape of some services will have to change.

A relentless drive to improve productivity

The King's Fund's analysis shows that, by 2013/14, current spending plans will leave a £21 billion gap between the most reliable estimates of NHS future funding needs and the money likely to be available to it. This gap could be reduced to £14 billion by looking again at the assumptions behind future spending in three key areas: staff pay and pricing (of medicines, for example); reducing waiting times; capital investment.

Closing the remaining gap, which is essential if the NHS is to maintain services and quality, would require productivity gains of up to 4 per cent a year – a significant challenge given its past productivity record. However, there are opportunities at every level in the NHS to improve productivity. The government should look to clinicians and managers to identify innovations that can drive up productivity and reduce variations in clinical practice – this alone could significantly reduce costs and improve quality of care. At a national level, politicians and health care leaders have to engage in an honest dialogue with the public about the scale of the challenge ahead and the implications for services locally and nationally. In the current financial climate, a relentless drive to improve productivity must be the NHS’s top priority.

A measured approach to structural reform

Any new government may be tempted to make structural changes to the NHS. However, all the evidence suggests that structural change takes time to deliver savings and, in the short term, is likely to increase costs and distract attention from improving productivity and delivering high-quality services. While there may be a case for some changes to the current organisational structure of the NHS over the longer term, the immediate focus of the incoming government should be on increasing productivity from within the current system.

This should not preclude changes to the current levers and incentives in the system. Many of these levers, including Payment by Results, patient choice, and increased competition, were put in place during a period of rapid spending increases when the focus was largely on improving care in the acute sector. These were major shifts in the way the health care system is run, and we are only now beginning to understand the impact of the reforms that have been put in place over the past 10 years. It is essential that the next government considers carefully, and learns from, the growing evidence base around these programmes as it considers the next phases of reform

A productive and engaged workforce

The NHS in England employs 1.3 million people, and 70 per cent of the NHS budget is spent on staff costs. In such a labour-intensive service, where so much of the scope for improving efficiency lies with its staff, the workforce must be at the heart of the productivity agenda. Winning the hearts and minds of staff in confronting the challenges ahead will be vital, particularly as pay increases are likely to be held close to the rate of inflation for the foreseeable future.

Staff will need to be flexible, adapting to work in different settings, learning new skills and working in different ways. Further work is also needed to promote clinical leadership and more effective teamworking and collaboration between staff across professional boundaries. In a difficult financial climate, training and development budgets will be an easy target for cuts. However, it will be more important than ever to invest in the skills of the workforce to develop the leadership, management and financial skills needed to deliver efficiency savings, while maintaining quality. Existing contractual frameworks for NHS staff, in particular Agenda for Change and the current consultant contract, could be used more effectively to promote productivity improvements.

The King's Fund's work on the financial challenges facing the NHS

With the NHS facing the biggest financial challenge in its history, we have launched a new programme of work to help it improve productivity. Our key concern is that the NHS is able to maintain the quality of the health care it provides despite the difficult financial climate.

  • Our Quality in a Cold Climate project will support the NHS in improving productivity. The project was launched with the publication of How cold will it be? the most authoritative analysis available of the financial challenges the NHS faces, undertaken in partnership with the Institute for Fiscal Studies.
  • We have been involved in improving health care leadership for more than 30 years. Our leadership development programmes aim to develop the leaders who will drive improvement and lead change across the NHS in future. We are currently running programmes with a specific focus on clinical leadership and developing multi-disciplinary team working.
  • Last year, we published NHS workforce planning, a comprehensive analysis of how to construct an NHS workforce fit for the future.