NHS funding: what we know, what we don’t know and what comes next

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As the dust settles on the new NHS funding announcement, it is a good time to set out our understanding of exactly what is included, what is yet to be determined and outline what we can expect to happen over the next few months as the ’plan’ for spending this money is developed.

The headlines were hard to miss: real-terms funding growth for the NHS of 3.4 per cent a year over the next five years, amounting to an extra £20.5 billion by 2023/24. At the moment, the plan is to slightly frontload the extra money to mean 3.6 per cent in each of the first two years.

What the offer includes

The government’s offer applies to the Mandate funding provided to NHS England. The NHS Mandate is an annual publication from the Department of Health and Social Care that sets out what the government wants the NHS to deliver for the year and also sets its spending. The offer of new funding commitment uses 2018/19 as its baseline year (the year from which growth is measured). The 2018/19 Mandate was published on 20 March and it set the budget at £113.8 billion for the year excluding a few technicalities.1 However, there are two important things to note about this Mandate.

  • First, the NHS has agreed a three-year pay deal with staff covered by Agenda for Change who make up the largest element of the NHS workforce. HM Treasury has always promised to cover the costs of this pay deal: current estimates suggest that it will cost £800 million in 2018/19, making a grand funding total of £114.6 billion for 2018/19. The 3.4 per cent will work off this higher baseline.
  • Second, the Mandate includes more than the money provided to NHS England and CCGs to spend on services. It also includes three other areas namely: £2.45 billion set aside for the Provider Sustainability Fund; £1.8 billion spent on commissioner running costs, i.e. the administration costs of CCGs and NHS England; and £1.2 billion spent on some public health services that are provided through the NHS (mostly screening programmes and the vaccination and immunisation programme). These are all included in the £114.6 billion.

Table one: the multi-year plan

 

2018/19

2019/20

2020/21

2021/22

2022/23

2023/24

Funding in cash terms (£ billion)

114.6

120.55

126.91

133.15

139.83

147.76

Growth in real terms (after inflation) (%)

 

3.6

3.6

3.1

3.1

3.4

Additional pensions funding (£ billion)

 

1.25

1.25

1.25

1.25

1.25

New total funding in cash terms (£ billion)

114.6

121.8

128.16

134.4

141.08

149.01

Table originally published here.

In addition, in 2019/20 there will be a big jump – £1.25 billion on latest estimates – in NHS pensions costs. Once the final cost is confirmed, HM Treasury will add this sum to the budget for 2019/20 and the following years. As a result, when we look back at spending growth between 2018/19 and 2019/20 it will appear to have grown by much more than the 3.6 per cent announced by the government (as it will include this £1.25 billion). I would simply note that government could have announced a bigger figure – indeed more than £2 billion more (about 4 per cent real-terms growth) by adding pension costs to the announced Mandate funding for 2018/19. Of course, this would soon have been unravelled by eagle-eyed analysts but that has not always stopped government’s from bigging up their spending announcements in the past.

What it excludes

Until recently, it was the spending of the Department of Health and Social Care that formed the basis of commitments on spending. While it is true that (setting aside capital spending which I will come to later) the Mandate to NHS England covers around 90 per cent of the Department’s spending, there are some important areas that fall outside it.

These include spending on training (Health Education England, around £5 billion) and the public health grant to local authorities (slightly more than £3 billion). It also includes the running costs of the Department itself, the Care Quality Commission, NHS Improvement and other arm’s length bodies (excluding NHS England). The King’s Fund with the Nuffield Trust and the Health Foundation have expressed repeated concerns about these other areas of spending, given that they the government has previously cut them in order to fund increases in NHS England’s budget. The risk that this may happen again remains until their budgets are confirmed, either because they are key parts of the forthcoming 10-year plan or through the Spending Review in 2019.

However, realistically the chances of major cuts being made to these other budgets is probably small. The Prime Minister spoke about a need `to create a renewed focus on the prevention of ill-health’. Jeremy Hunt said the long-term workforce plan would be published alongside the 10-year plan, ‘recognising that there can be no transformation without the right number of staff, in the right settings and with the right skills. This applies to both new and existing staff. As part of this we will consider a multi-year funding plan for clinical training to support this aim.’ Neither statement sits well with any secret agenda for swinging cuts to these budgets later in the year (even if the new Childhood Obesity Plan did increase the focus on prevention but did so more through the potential use of regulation and taxation than by promising more spending on public health services).

This leaves the £5-6 billion sitting in capital budgets. In published estimates, capital spending was already set to increase from 2016/17’s £4.6 billion to £6.4 billion in 2018/19 backed by promises from Theresa May in the 2017 general election of an extra £10 billion in NHS capital spending (though not all from the taxman). To quote Jeremy Hunt again, ‘We know that capital funding is critical for building NHS services of the future and again we will consider proposals from the NHS for a multi-year capital plan to support the transformation plans outlined in the long-term plan.’ This suggests the days of cutting capital spending to mop up NHS deficits look to be over.

While there clearly needs to be serious negotiation in all these areas, large-scale cuts to these unprotected parts of the health care budget currently seem unlikely even if the competition for money with other parts of the public sector may make much in the way of growth for these other areas less likely.

More serious negotiations will be needed for social care as the great majority of social care funding is, of course, outside this NHS spending commitment.2 To quote Jeremy Hunt one last time, ‘we also recognise that NHS and social care provision are two sides of the same coin. It is not possible to have a plan for one sector without having a plan for the other’. This is accompanied by reassurance that the government will ensure ‘that adult social care doesn’t impose additional pressure on the NHS’. Hence the Green Paper on social care is moved back to the Autumn along with the 10-year NHS plan. However, finding a long-term plan for social care has defeated successive governments and the demographic pressures facing social care are at least as great as those facing the NHS. Jeremy’s Hunt’s Cabinet colleagues will already be well aware that the NHS has taken the lions-share (indeed, possibly all) of any available funding headroom and may be reluctant to provide another large cheque for social care.

What comes next

The NHS must now come up with a plan for the autumn setting out what it will do for the money and we should soon get more detail around the process for developing the plan. Already mental health, cancer and performance standards have been mentioned as priorities. These performance standards – at least those that relate to waiting times – will themselves be subject to a review.

Yet clearly, the sums promised do not represent a bonanza for the NHS and remain lower than 4 per cent per year called for by the Fund, the Nuffield Trust and the Health Foundation. Hopefully, in balancing the pressures of rising demand against the benefits of better productivity, there will be scope for improved services but these improvements need to be realistic and deliverable. There will be some tough choices around the priorities for investment.

In addition, government will apply five tests to its plans, namely,

  • improving productivity and efficiency
  • eliminating provider deficits
  • reducing unwarranted variation in the system so people get consistently high standards of care wherever they live
  • getting much better at managing demand effectively
  • making better use of capital investment.

So there will be some serious marking of homework going on. But behind these tests lie a greater challenge: workforce. Despite great efforts at recruitment, there are already significant shortages in key areas of the workforce, not least GPs and nurses. These difficulties mean the government has dropped its visa controls on doctors and nurses (let’s hope this is shorthand for all clinical professions). With about 70 per cent of the health budget going on staff, the NHS will need to overcome its current workforce challenges or it may face the depressing reality of handing back money to HM Treasury that it simply cannot spend because it cannot find the staff to spend it on. Not for the first time in NHS history, it may be the ability of the service to recruit and retain staff that determines spending, rather than the other way round.

  • 1. These technicalities amount to another £466 million but are separate from the main budgets that determines NHS spending as we define it. Excluding them is standard practice when setting growth rates.
  • 2. One element falls inside the commitment: the Better Care Fund provides money for social care via transfers from the NHS and is part of Mandate funding.

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