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What does the Spring Statement 2022 mean for the NHS?

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The Chancellor set off some NHS fiscal fireworks in 2021. He created a new health and care levy to raise more funding for services, announced a new three-year NHS funding deal, and launched a string of capital investment programmes to boost NHS capacity and help tackle growing hospital waiting lists. Because of these previous announcements and the need to focus on the current cost of living crisis, it’s no surprise that the Chancellor had relatively little to say about NHS spending in last week’s Spring Statement.

But I think there were still three things worth highlighting from what we did hear at the despatch box last Wednesday.

First, the NHS is not immune to the inflationary pressures facing our wider economy and individual households. Departmental funding settlements are made in cash terms, ie, before the impact of inflation is factored in. So, while the Spring Statement 2022 repeats the government’s commitment from autumn 2021 to raise day-to-day health spending to £177 billion in 2024/25, it also makes clear that this amount of cash will be worth less in real terms because of higher-than-expected inflation.

'The government would now have to spend nearly £2.5 billion more in 2024/25 if it wanted to maintain the real-terms growth in NHS spending originally expected back in Autumn 2021.'

The government would now have to spend nearly £2.5 billion more in 2024/25 if it wanted to maintain the real-terms growth in NHS spending originally expected back in Autumn 2021. But so far, the government has no plans to either raise health spending to account for the change in inflation or to lower expectations for what the NHS can now deliver given the rising costs it faces. This may be a sensible position in the short-term given the potential volatility in pay and price inflation that lies ahead, but it will be an increasingly untenable position if these inflationary pressures are sustained – particularly as the pain of inflation is already impacting on planned NHS spending in the coming financial year.

Second, the Spring Statement was a good illustration of how the new health and care levy, which ‘hypothecates’ (or earmarks) a portion of national insurance revenue for the NHS and social care, is a very loose form of hypothecation indeed. The changes to national insurance thresholds announced in the Statement would (all other things being equal) reduce the amount of money the levy raises for NHS and social care services and would – one might think – then reduce planned spending on these services. Instead, health spending plans will not change one jot, with future health budgets ‘made good’ from government revenues that sit outside the levy.

The third thing to highlight is the Chancellor’s clear focus on NHS efficiency and productivity. National NHS arm’s length bodies are already going through a restructuring and are likely to be largely exempt from the government’s attempt to find £800 million of savings from quango budgets.

But that doesn’t mean the NHS will have it easy.

The Chancellor’s Spring Statement speech echoed the tone of the Health and Social Care Secretary’s recent speech, in which Sajid Javid said ‘I’ve seen first-hand how – when healthcare takes up an ever-greater share of national income, you have to make some serious trade-offs on everything from education to infrastructure.’ And there was a striking contrast in the types of news stories that were released to the media in advance of recent fiscal events. In 2021, the stories were ones of largesse and new funding to build community diagnostic centres and surgical hubs. In 2022, the stories were of a doubling in NHS efficiency targets.

'...there is no doubt that the NHS should do as much as it can to improve the value for money of its services and reduce unwarranted variation in how services are delivered.'

As Sajid Javid noted recently ‘The NHS is already one of the more efficient health services in the world’. But there is no doubt that the NHS should do as much as it can to improve the value for money of its services and reduce unwarranted variation in how services are delivered. And the plethora of NHS national programmes, efficiency reviews and savings plans over the past decade testify to the sustained focus on this topic.

But there is still considerable uncertainty over just how more productive the NHS can be over the next three years. Digital technology could boost productivity, but the evidence for this is contested. Changes in infection control guidelines could help speed up NHS processes, but that guidance could snap back to stricter levels as more waves of Covid-19 crash on our shores. Taken together, bullish expectations on NHS efficiency could ultimately lead to the NHS experiencing its own cost of delivering crisis in the next few years and a return to the substantial financial deficits that have haunted parts of the NHS in the past.

So then, this was one of those rare fiscal events in which the Chancellor didn’t announce substantial additional funding for the NHS, but it was not lacking in substance for the NHS. In his first Spring Budget in 2020, the Chancellor promised to give the NHS whatever it needed to cope with Covid-19. Two years later, the content and tone of his latest Spring Statement suggest the Chancellor now wants more back in return.