Lord Kerslake: The Spending Review - what does it mean for health and social care?

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  • Posted:Friday 04 December 2015

Lord Kerslake, Chair of King’s College Hospital NHS Foundation Trust, gives his perspective on the outcomes of the 2015 Spending Review.


What I’ll do is talk about my perspective as the Chair of King’s College Hospital, but also actually what has been the bulk of my career, which is local government, so try and bridge these two worlds, if you like, and I think they very much come together.

I think the first thing we should say is that this is considerably better than we expected or feared. You might say it’s still tough, and it is and I’ll come on to that in a minute, it was though a late adjustment in the numbers I pick up from colleagues who work in government, it was helped by the OBI forecast, and it was very hard fought.  We should not lose sight of that.  But we should recognise some of the achievement actually in getting this better settlement.  So actually I think we should say that.

What I think it has done though effectively is avoided what I saw when I was leaving government, us going full steam ahead towards a brick wall. So it absolutely had to happen, in my view, both on health and on care we were heading for a brick wall.

So, to some extent, Osborne has bowed to the inevitable. Something had to give in the numbers and it has given, which doesn’t diminish the achievement of persuading the Treasury and others that something needed to change, because believe me that is not easy to do.

There is always the small print here and my kind of way of looking at the numbers, we’ve got £3.8 billion next year, but of that £2 billion effectively is covering what we know now to be a deficit in the system. I think there’s about £900 million needed to cover new costs, particularly pensions, and so you can do the maths, there’s not a huge amount extra in reality that’s available here in terms of the pressure on the system.

That’s one point to bear in mind. Secondly, in relation to local government, Sarah will say more about this, the spending power, the equivalent real term reduction in ability to spend in local government over the period is about 6.7% which is a lot less than the last five years, but it assumes council tax going up effectively by all councils by 4% every year for five years when the public have enjoyed pretty much council tax freeze for five years.  That’s a huge shift, a huge shift.  And I wonder how many councils are going to be able to have the bottle to see that through, to be blunt.  So that’s another bit of the small print.

Last bit of the small print to say here is that £1.5 million that comes in by 1920 additional on the bed care fund, a good half of that comes from local government’s existing funding, so it’s a redistribution within local government rather than new money to local government. About half of it is genuinely new.  So look at the small print very definitely.

What would my overall conclusion be? Well, I think we have avoided disaster through this in the short term, but we haven’t tackled the fundamental structural problems in the way things are funded on health and care.

First point on that already been made by John, we spend massively less, the percentage is falling in terms of GDP, we spend massively less than our equivalent countries. That, for me, is not a sustainable model.  We haven’t yet resolved the issue of the long term sustainable funding of the NHS.

And whilst ever that’s the case, we’re going to keep staggering from year on year injections of funding to keep the show on the road, I think. So there is a fundamental funding issue that hasn’t yet been addressed.

Secondly, the Lansley reforms, and this is somebody coming new in to health, if you like, having not seen the impact on the ground. I was genuinely surprised at how much it had fragmented the system.  When you ask whose in charge it’s not easy to say, but you want to change things it’s not easy to do across systems, and that’s important because we have to change quite rapidly, quite significantly.  And how do you do that in a very fragmented system is a big question for me.

Third issue; we have a real mismatch between the reality of acute trusts and what people want it to be. The external world wants to see shifting money away from acute into community care, believes that we put too much into our acute trusts, particularly into hospitals like King’s, and the perception that some or other are engineering the system to keep the level of usage up.

The reality, if you’re in a hospital, is you’re desperately trying to manage demand down. We’re not touting for business.  So we have a mismatch between the real world in hospitals, virtually all of them are in deficit, virtually all of them are trying to desperately manage demand down and a world outside that says why aren’t these hospitals changing the way they do things.

Now, we are going to have to acknowledge we have a real problem here or we have to redouble our efforts to shift the balance of demand and activity. We can’t carry on with this parallel world really and parallel perceptions.

The fourth thing I’d say, in terms of the issues, we’re still in a world of short termism, massive short termism. It seems to me bizarre, I’ll put it as bluntly as that, that you’re shifting money from capital to revenue when there’s inadequate investment in the basic infrastructure in health.  This is short term fix stuff with a vengeance.  I know why it’s being done, I understand why it’s being done, but in terms of any kind of organisation, you would not do this.  You would invest for the future.

Secondly, I’m really aware not much got published in the reductions in the education budgets. When I met the deputy heads of nursing yesterday this was the thing that most concerned them, because actually it’s the thing that gives them the investment in them as people and their development, and we’re cutting back on that.  That seems to me not part of being a learning NHS.

And the third thing is I think we are potentially storing up, I mean we hope averted issues with the Junior Doctors, we may be going straight into another set of issues with the nurses, I think. We remain in a world where, to put it at its mildest, industrial relations are very fragmented and morale is very, very challenged at the moment.

One last point, integration is the way we should go, but the pace of change is too slow. We haven’t yet found a sustainable, effective way of moving towards integration across the piece, and part of that links to the fragmentation and lack of system leadership.
So some ways forward.

We absolutely need to look again at what is the long term funding model for the NHS, well actually the NHS and care. One of my colleagues in the Lords, Lord Patel, constantly asks for a Royal Commission, I’m beginning to think he’s right actually.  We were talking about that earlier Phillip.

Secondly, we can’t carry on with a world as we have it now. I was genuinely shocked when I came into this role, how much the kind of core financial disciplines had broken down within providers.  If you’re in local government you have to by statute balance your budget year on year.  You just do not do anything else other than that.  You have to have effective useable balances, ideally up to about 5%, we used to have 10%.  That’s the way you run things.  You cannot reach a situation that we did in King’s, where we overspent by £47 million and had no balances.  We had literally run out of cash.

Somehow or other we have to sit down with NHS England, with Monitor and sort out a robust financial regime that is of the same ilk between health and local government. It’s just unsustainable to carry on with this way of doing business, in my view.

I say that as somebody who probably had one of the biggest deficits at a hospital of any in the system.

And part of that is reforming the tariff regime. I know it was a big debate last night.  The tariff barely covers breakeven when you should be creating surpluses to reinvest back in the business.  This is not the way to do it, and unless you get to grips with that, we’re just going to stagger on, in my view.

The third thing; we have to find a way of developing effective local system leadership. It will be different in different places; Manchester has a model, other places have different models, but unless we do that, we won’t be making the system changes to match the institutional changes.

Fourth thing; I think acute trusts have to get better and more consistent about driving efficiency. I don’t believe actually we’ve found all the potential efficiency savings and we should put our hand up and say that.  But alongside that, we need transformational programmes.  At King’s we will invest in fundamental top to bottom reviews of our pathways of care in key areas.  Areas where we particularly think there’s scope to make an impact.  We’ve got to fundamentally review how we do outpatients, for example, which is not done in a way it could be.

So there is a responsibility on the individual institutions to drive efficiency; 2%, which is what we’re being asked to do, will be seen as a walk in the park for most of local governments. So let’s be clear about it, we need a transformation and efficiency programme.

And then the last point really is, we absolutely need to find a way of maintaining investment in people, in property and in innovation. The short termism means we’re not doing the sort of investment in the organisation.
And all of the staff say to me at King’s, and it’s a brilliant institution by the way, they believe in the organisation, they’ll do their bit to get us out of financial challenges that we face, but they want to see us invest in developing King’s, developing them as well as keeping the show on the road.

And if there isn’t, if you like, that vision and hope for investment in the future, we’re going to have a very tough time indeed keeping our staff on side with what we’re doing.

Thank you very much.


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