The NHS in England has enjoyed unprecedented increases in funding in recent years — this year's budget is £61 billion more than it was in 1997/8. This is equivalent to a real-terms increase of more than £34 billion.
But the NHS is now under pressure to make significant savings following revised forecasts in the budget for public spending. The Budget 2009 report announced that the Department of Health in England will be required to make efficiency savings of £2.3 billion in 2010/11 in addition to the £8.2 billion of efficiency savings agreed in the spending review for 2008—11. Treasury forecasts issued with the budget also suggest that the NHS is set to receive low or zero real growth in funding after 2011. Funding allocations for health in Scotland, Wales and Northern Ireland will be decided by the devolved parliaments and assemblies.
The immediate impact of the 2009 Budget on the NHS is relatively limited. For the next two years planned increases in primary care trust (PCT) allocations remain as set out in the Operating Framework for 2009/10 published in December 2008. However, when these allocations were announced the pre-Budget report had already declared the need for a £5 billion saving from across public services, and we cannot be sure what PCT allocations would have been had this not been the case.
Planned increases in allocations to local authorities (which cover social care) have been maintained to 2011.
There are challenging efficiency targets for hospitals and local authorities with savings to be recycled back to frontline services.
The Department of Health has said that the £2.3 billion of savings to be made before 2011 will come from the Department's centrally managed budgets, which cover areas such as staff training, Connecting for Health, flu pandemic preparedness and an NHS contingency fund. The government has already confirmed that the contingency fund will be returned to the Treasury.
The dire state of the public finances means that the NHS must prepare for very low growth and, given rising demand, the equivalent of real-terms cuts in funding from 2011 onwards. The Budget revised downwards the government’s forecasts for annual real increases in total government spending on public services and benefits from 2011/12, from 1.1 per cent (as forecast in the pre-Budget report 2008) to 0.7 per cent. The Institute for Fiscal Studies has calculated that once debt pressures and growth in demand-led spending such as unemployment benefits are taken into account, this 0.7 per cent growth translates into an average real reduction of around 2.3 per cent per year between 2011 and 2014 for public finances as a whole.
The scale of this challenge is underlined further by increasing levels of demand and low and declining levels of NHS productivity. The demand on the health service is set to increase as the result of an ageing population and a higher incidence of chronic disease. And although NHS outputs (operations, patients treated etc) have been increasing since 2000, NHS inputs (money) have been increasing at a faster rate and hence productivity in the service has fallen. Future productivity gains will be essential if the NHS is to cope in a period of austerity.
The government has set out a series of policies and tools through which it expects to generate savings after 2011 (and sooner where possible). These include savings from more efficient commissioning (to be measured by a new efficiency competency as part of the World Class Commissioning assurance framework) and from introducing a ‘best practice’ (rather than average costs) tariff for four high-volume procedures from 2010/11 and extending Payment by Results to community services. Additional savings are expected to be generated through improved use of estates; changes to back office functions; and collaborative purchasing. The government had already announced the setting up of a new NHS Productivity and Efficiency Unit to identify and disseminate tools and approaches for improving efficiency. Even with these initiatives the future financial challenges for the NHS and social care will be considerable.
