Meeting the financial challenge

The NHS is going through the biggest financial squeeze in its history. Since 2010, its budget has effectively been frozen, increasing by just enough to cover inflation. While this is generous compared to other areas of public spending, the increasing demand for care means that services are under huge pressure.

The NHS has responded well to these challenges, but financial pressures are growing, with more than a quarter of hospitals reporting deficits in 2013/14, and many more set to follow suit this year. Meanwhile, cuts in funding have led to a reduction of more than a quarter in the number of people who receive publicly funded social care.

The next government will arrive in office with the NHS facing financial meltdown and social care in crisis. Looking further ahead, pressures to spend more will grow as the costs of treatment rise, public expectations increase and the population continues to age. It is essential that politicians are honest about the scale of these pressures and engage in a public debate about how to address them.

A renewed drive to improve productivity

As a result of the unprecedented slowdown in funding, the NHS has been required to deliver £20 billion in productivity improvements during the term of the current parliament – equivalent to 4 per cent a year. Good progress has been made, with most of the savings found by limiting staff salary increases, reducing the prices paid to hospitals for treatment and cutting management costs – but these options have now been largely exhausted.

There is still scope to find savings, and efforts to improve efficiency should be redoubled. The new government should support a renewed drive to improve productivity based on:

  • a stronger national focus on collating and disseminating good practice in improving efficiency
  • more emphasis on encouraging doctors, nurses and other clinicians to lead changes in clinical practice that improve care and reduce costs
  • stronger leadership at a regional level to plan and implement changes to services
  • more sophisticated approaches to incentivising NHS organisations to improve efficiency.

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A health and social care transformation fund

While improving productivity is essential, it will not be enough to avoid a financial crisis. Unless significant additional funding is found, patients will bear the cost as staff numbers are cut, waiting times rise and quality of care deteriorates. Some emergency support will be needed for otherwise sound NHS organisations that are in financial crisis as a result of the unprecedented pressures on their budgets.

However, new funding must not be spent on short-term fixes or propping up unsustainable services. Instead, it should be used to meet the cost of essential changes to services, and to ensure that care is better co-ordinated around the needs of patients. The next government should establish a ring-fenced health and social care transformation fund to be used to develop new community-based services and to cover double-running costs during the transition between old and new models of care. This is a big ask in the current financial climate, but the money cannot be found from existing budgets.

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A new settlement for health and social care

In the long term, the big question is how to ensure adequate resources to meet future needs. This raises fundamental questions about affordability, funding and entitlements to services. To answer these questions, The King’s Fund established an independent commission, chaired by the economist, Kate Barker. The commission was asked to consider whether the post-war settlement – which established the NHS as a universal service, free at the point of use and social care as a separately funded, means-tested service – is fit for purpose.

The commission’s final report, published in September 2014, recommends ending the historic divide between the two systems by moving to a single, ring-fenced budget, and a single local commissioner of services. Entitlements to social care would be fairer, more consistent and generous, while entitlements to NHS services would be unchanged. This would be paid for by a radical package of measures including tax reforms, limiting some universal benefits paid to older people, and changes to prescription charges. The report provides a compelling vision for a new settlement that meets the needs of 21st-century patients and service users, and is affordable. Responding to the challenge it sets out should be a top priority for the incoming government.

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