The Autumn Budget and Spending Review 2021: what was announced and what does it mean for health and care spending?

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The October Spending Review 2021 is the first time since 2015 that multi-year budgets have been set for total health and care spending. So, where do these announcements leave health and care spending over the next three years?

Resource (day-to-day) health budgets

The 2021 Spending Review confirmed much of what had already been said in the Build Back Better announcements in September 2021 (which we have discussed previously). But there were some wrinkles.

The Health and Care Levy is now estimated to raise £13 billion a year on a UK-wide basis (rather than the £12 billion a year from Build Back Better). This, plus updated forecasts of inflation, cost pressures and compensation for the NHS from additional employer costs of the levy, mean NHS England’s budget is now £2.5 billion a year higher over the 2021 spending Review period (in cash terms) than was indicated in the Build Back Better announcements. Over this Spending Review period, NHS England’s resource spending will now rise by 3.8 per cent each year on average (in real terms, see Figure 1). This includes the pre-announced £8 billion to tackle elective backlogs over the next three years and increase activity by 30 per cent by 2024/25.

Figure 1 NHS England resource spending

Resource spending for the Department of Health and Social Care will rise by 4.1 per cent a year on average over the 2021 Spending Review period (in real terms, see Figure 2).

Figure 2 Department of Health and Social Care resource spending

There will be £9.6 billion over this Spending Review period for Covid-19 related work including test and trace, vaccines, and personal protective equipment. While the Chancellor noted that ‘today’s Budget does not draw a line under Covid’, he must be hoping that total health spending will take some time before it returns to the extraordinary levels of 2020/21 (see Figure 3).

Figure 3 Department of Health and Social Care total spending

In return for this extra funding, the Spending Review makes its own triple aim for the NHS: tackle the elective backlog, deliver the NHS Long Term Plan and continue to fight Covid-19. And it also notes the government's view that the NHS has been given the resources it needs to repair the impact of the Covid-19 crisis on its financial position. The 2018 NHS funding deal came with clear financial tests (including every NHS organisation balancing its books) – future guidance will reveal what additional financial commitments and tests may accompany this new deal.

The government might hope this settlement is the final word on health spending for this parliament. But under these new plans health spending will still grow by little more than inflation between 2023/24 and 2024/25 (see Figure 4). Growing pressures on services and a looming general election might mean these spending plans are revised upwards between now and the end of the parliament.

Figure 4 Annual change in resource (day-to-day) spending

Workforce

The dog that didn’t bark (or at least was muzzled) in the 2021 Spending Review was a settlement for workforce spending.

The Spending Review does say that ‘hundreds of millions of pounds’ will be provided over the funding period for the recent larger-than-usual intakes of medical and nursing students. There is £30 million to support investment in research skills and training to provide more opportunities for under-represented groups in nursing, midwifery and the allied health professions. And the government’s commitments for 50,000 more nurses and 50 million more primary care appointments will be part-supported by funding already committed from the Spring Budget 2020.

Back to that triple aim then. The NHS will only be able to clear elective backlogs, deliver the NHS Long Term Plan and fight Covid-19 if it has the workforce it needs (a workforce that is far broader than the tightly prescribed workforce commitments in the government’s manifesto). A recent international poll asked the public for the biggest problems facing their health care systems. The answer most frequently selected in Great Britain was ‘not enough staff’. The public aren’t wrong.

Public health grant

In the Autumn Budget 2020 the government chose to maintain (rather than increase) the Public Health Grant in real terms over the coming year – a decision described as ‘a kick in the teeth’ by public health leaders.

In the 2021 Spending Review the government has chosen to stick with this approach and the grant will be maintained in real terms over the next three years – a decision described as ‘unfathomable’ by public health leaders, who have played a crucial role in the response to and recovery from the Covid-19 pandemic. On a like-for-like basis the public health grant has already been cut by 24 per cent in real terms per person since 2015/16. And it is hard to see how public health services (and the people who deliver and use them) will not come under more intense pressure over the next three years.

There was some more positive news for public health, with the £100 million invested in 2021/22 to tackle obesity maintained. And there will be higher tax duties for higher strength alcohol drinks. More evidence from an equality impact assessment will be needed on the health of the population before we know the ulitmate impact of this decision. But, as we and others have called for, this action and the sugar tax levy broadly demonstrates how governments can use their wider taxation and regulation powers in areas that affect the nation's health.

But look in the round at the public health announcements in this Budget, and you can’t help but feel that there is scant evidence of the ‘new age of optimism’ the Chancellor described.

Capital health budgets

Ironically, in recent years the NHS has had far more long-term certainty over its day-to-day resource budgets than its long-term capital investment budgets. The 2021 Spending Review aimed to address that by setting total capital budgets for the funding period (and linking capital investment to the levelling-up agenda by promising that many of the new community and hospital facilities will be located outside of London and the South East).

Total capital health spending will rise to £11.2 billion in cash terms by 2024/25 – an average annual increase of 3.8 per cent in real terms over the Spending Review period. These capital budgets over the next three years will include:

  • the pre-existing commitments from the Autumn Budget 2020 – £4.2 billion of cash funding to continue the process of building or refurbishing 40 to 48 hospitals and upgrading a further 70 hospital facilities
  • spending that was pre-announced days before the budget – the £5.9 billion of cash funding for community diagnostics (£2.3 billion), elective surgery hubs (£1.5 billion) and digital technology (£2.1 billion)
  • £450 million in new commitments, including £300 million to finish replacing dormitory-style accommodation in mental health facilities with single en-suite rooms, and £150 million to enhance safety in mental health units and invest in new mental health facilities linked to A&E departments
  • £5 billion of research and development (R&D) funding to support life sciences, genomic research and social care research, and develop further treatments for Covid-19.

We know how much will be spent in each of the next three years on the hospital building and upgrade programmes and R&D. But the Spending Review documents do not provide the same detailed information on how the £5.9 billion or £450 million break down over coming years. But because these commitments are likely to peak and trough at different times in this Spending Review period capital budgets will not increase evenly over that time. For example, funding for R&D and the hospital building programme is heavily back-loaded, with nearly three times as much spent on the latter in 2024/25 compared to 2022/23 (see Figure 5).

Figure 5 Department of Health and Social Care capital spending

And if we subtract these specific national spending commitments from the overall capital budget in the coming years, it leaves a relatively flat profile for ‘everything else’ – including those capital budgets that lie more under the control of local NHS leaders.

In some ways the picture may not be as bad as it seems because some of the new funding commitments on mental health or hospital upgrades now sit in their separate pots rather than being funded from a larger ‘general’ pot. But local NHS finance directors, facing both a growing backlog of maintenance issues with existing facilities alongside growing calls for investment in new ways of delivering care, may well wonder whether their level of autonomy and control over capital budgets in 2024/25 will be any greater than it is now.

Overall, it is important to remember that the story of capital funding over the past decade was a story of uncertainty and stagnation. Money was consistently transferred out of capital budgets to prop up day-to-day spending, and the unpredictability over future budgets led to one senior NHS leader describing NHS capital planning as ‘like driving in fog’. The Spending Review 2021 suggests that capital growth is back and the fog is finally lifting.

Adult social care

Compared to health, the picture for adult social care funding is an altogether more complex and uncertain one.

Adult social care reforms

The 2021 Spending Review confirmed the pre-announced £5.4 billion over the next three years from the Health and Care Levy to help reform of adult social care funding. Of this, £3.6 billion will go directly to local government to implement changes to the means test for care, introduce a cap on care costs and meet the ‘fair costs of care’ for providers. This £3.6 billion is heavily back-weighted (with £0.2 billion in 2023/24 rising to £2.0 billion by 2024/25) to reflect when the impact of these changes falls over the next three years.

The remaining £1.7 billion from the £5.4 billion levy funds over the 2021 Spending Review period will go towards wider improvements to the social care system. This includes a £500 million investment to improve skills, qualifications and wellbeing of staff in the care workforce. With a social care White Paper in the offing, more detail on how the rest of this £1.7 billion will be spent are expected before 2022/23.

And there may be a final sting in the tail. If the Health and Care Levy reciepts are now larger than expected, and if there was any choice in how this funding could be used after public sector employers like the NHS has been compensated for the impact on their budgets, it doesn't auger well that the social care share of the levy (or at least that element outside the £3.6 billion to phase in the reforms) remains unchanged while the NHS budgets have been boosted.

Core pressures in adult social care and wider local government

Alongside extra funding for its social care reforms, the government has also made more funding available to local authorities, some of which will find its way to social care budgets to help meet the rising pressures they will face in coming years.

English local authorities will be given £1.6 billion of new grant funding in each of the next three years. But only a share (to be determined locally) of this funding will be for adult social care, with support for vulnerable children and other local authority-provided services also having pressing claims on the funding.

In addition to (potentially) raising Council Tax, local authorities with social care responsibilities will also be able to increase the Social Care Precept by 1 per cent per year. But there are risks in having adult social care budgets increasingly reliant on local taxation. Unlike grant funding, these taxes raise different amounts in different parts of England and may disadvantage poorer areas. And it will take courage on the part of local authorities to raise local taxes during a cost-of-living squeeze, with social care appearing as separate lines on both Council Tax bills (through the precept) and salary slips (through the new Health and Care Levy).

And finally, unlike previous Budgets the Spending Review did not specify what will happen with other existing grants including the improved Better Care Fund, Disabled Facilities Grant and Care and Support Specialised Housing Fund. Greater certainty over whether these grants will be maintained will hopefully come in the upcoming local government finance settlement.

In real terms then, this package means core spending power for local authorities increases by 3.0 per cent a year on average over the 2021 Spending Review period, if the funding ring-fenced for adult social care reform is included. Once this funding, which is tied to specific new responsibilities, is excluded then spending power increases by 1.8 per cent a year. But that belies the uncertainty over just how much funding local authorities will be able to raise from local taxes. And there must be serious doubts over whether this funding will be enough to substantially improve care quality while meeting cost pressures from demographic change and increases to the National Living Wage.

Conclusion

The Chancellor couched the Autumn Budget as the foundation for the future and a ‘new age of optimism’. But in the narrow confines of health and care funding, this Spending Review was a rather strange event, in part because many of the blockbuster announcements had been made in the days and weeks before the Budget.

In many ways, the total package of funding announcements since September 2021 paints a picture for the health and care sectors that is both better than some expected and less than some hoped. A new health funding deal that is above long-run average growth. Adult social care reform grasped in a way that has eluded previous governments. Capital investment growing after years of cuts.

But at the same time, if Spending Reviews are meant to provide certainty and predictability, a lingering sense of unease remains while workforce budgets remain unclear, NHS winter pressures loom and social care services face a ‘tsunami of unmet need’. While it would make for poorer rhetoric at the Despatch Box, perhaps health and care funding is – at best – entering an age of cautious optimism.

Health spending TDELs, RDELs and CDELs

Government departments are allocated budgets through the Spending Review process – these budgets are called departmental expenditure limits (DELs).

The overall budget for a department is called the total departmental expenditure limit (TDEL). TDEL can be subdivided into two parts: resource departmental expenditure limits (RDELs), for day-to-day running costs on items such as staff salaries or medicines, and capital departmental expenditure limits (CDELs), for long-term spend on fixed assets that have a useable life longer than a year, such as buildings and equipment.

Both the Department of Health and Social Care and NHS England and NHS Improvement have TDELs, RDELs and CDELs, though NHSE holds a relatively small annual capital budgets of around £300 million.

In this document, the term ‘health spending’ refers to Department of Health and Social Care TDEL and ‘NHS spending’ refers to NHE England and NHS Improvement RDEL.

The spending review period

Most of the spending announcements cover funding in the three-year ‘Spending Review 2021 (SR21) period’ ie the years 2022/23, 2023/24 and 2024/25. In some cases the amount of funding allocated is broken down by individual years while in other cases – such as the £5.9 billion of capital investment announced on Monday 25 October 2021 – only the aggregate amount of funding over the three-year period was revealed.

Core and Covid-19 spending

In 2020/21 and 2021/22 separate funding was ring-fenced to support health and care services in their direct response to Covid-19 eg funding for personal protective equipment and vaccines. From 2022/23 onwards this Covid-19 funding will be included, but not separately identified, in budgets.

‘Core’ budgets refer to spending once one-off or time-limited expenditure, including some of the Covid-19 spending in 2020/21 and 2021/22, has been stripped out.

Cash and real terms

Figures can be reported on a cash basis or, if adjusted for inflation, in real terms.

Figures in real terms in this document are in 2021/22 prices using deflators published by HM Treasury in Oct 2021. The impact of Covid-19 means that care should be taken when interpreting real-terms changes from 2019/20 to 2021/22.

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