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Five numbers to sum up the Spending Round for health and social care

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‘The devil is in the detail’ is a common refrain at major fiscal events like Spring Statements, Autumn Budgets, and Spending Reviews. This Wednesday’s Spending Round was no different, with several new numbers now in the public domain for health and social care spending.

So let’s look at some of the key numbers that were mentioned in the Spending Round. And we’ll do this alongside some equally important numbers that were not explicitly mentioned on Wednesday, but which are still helpful for understanding what lies ahead for health and social care spending in 2020/21.

What the Spending Round is (and isn’t)

A Spending Round or Review is a process that sets government budgets for future years. Although there is no firm convention, Spending Reviews (also called Comprehensive Spending Reviews) tend to set budgets for three to five years. So the term Spending Round is used because only one further year of budgets – for 2020/21 – were set this time around.

Budgets for capital investment had already been allocated for 2020/21, so this Spending Round also largely focused on setting budgets for resource spending (ie. day-to-day spending on things like staff salaries, medicines and other things that will be used during the year).

Spending can be expressed in cash terms or in real terms adjusting for inflation. When describing real terms in the sections below, spending has been put in 2019/20 prices using deflators published by the Treasury in June 2019.

1. £1 billion for adult social care

The Spending Round contained a multitude of different numbers on social care spending, including £2.5 billion, £1 billion, £500 million, and 2 per cent. Let’s take these in turn.

The £2.5 billion refers to the existing social care grants that will be rolled over (on top of the main adult social care budgets) from 2019/20 to 2020/21 in cash terms. For context, in 2019/20 these grants were made up of £1.8 billion from the improved Better Care Fund, £410 million from the social care support grant in for adult and children’s services, and £240 million from the winter pressures grant for adults.

As there was no certainty these grants would continue into 2020/21, their rollover from the Spending Round – albeit in cash rather than real terms – is positive news for councils who would have otherwise been forced to contemplate decommissioning the much-needed services that are supported by these grants.

The NHS contribution to adult social care through the Better Care Fund will also continue, and increases in 3.4 per cent in real terms on its £3.8 billion baseline. It is hard to place a figure on how much extra BCF funding for adult social care there will be in 2020/21, as local areas can top up how much funding is placed into the Better Care Fund on top of the mandatory minimum, and only some of the Better Care Fund money is directly spent on adult social care (for example, some BCF funding is spent on reducing delayed transfers of care). Further details on how the money will be spent will come in the annual Better Care Fund policy framework from the Department of Health and Social Care.

On top of that the Government will make an additional £1 billion available to councils in 2020/21 for both adult and children’s social care. Local councils will decide how much of this £1 billion will be spent on adult social care and children’s social care respectively. If the present year is any guide, the Association of Directors of Adult Social Services Budget Survey 2019 tells us that just over half of the similar £410 million is expected to be spent on adult social care in 2019/20 – which would equate to about £500 million of funding in 2020/21 from the new larger grant.

The government will also consult on continuing the adult social care precept into 2020/21. Since 2016/17 councils have been allowed to increase council tax to bring in additional funding ringfenced for adult social care. Subject to the results of the consultation, councils will be allowed to increase local tax by up to 2 per cent in 2020/21. Every 1 per cent of precept is estimated to bring in approximately £230 million nationally in 2019/20, and only a small number of councils opt out of applying the precept. So continuing the precept gives councils the potential to raise around £500 million more for adult social care in 2020/21 – with the details to be confirmed as part of the local government finance settlement later this financial year.

So up to £1 billion of new funding for adult social care will be available to councils in 2020/21, if we assume £500 million comes from the continued adult social care precept and £500 million from a share of the £1 billion grant. This funding growth will help adult social care services to meet rising demand and continue to help stabilise (but not fully stabilise) the system over the coming year. This extra funding is more than a sticking plaster – a bandage perhaps – for the budget cuts councils have seen in recent years. But it does not lessen the need for the much-promised and regularly-delayed fundamental reform of how adult social care is funded and financed.

2. £210 million for NHS workforce development

The Spending Round mentioned three key numbers on the NHS workforce: £150 million; £1,000, and 3.4 percent.

Let’s take the first two numbers together. Health Education England’s budget for the continuing professional development (CPD) of NHS nurses, midwives and allied health professionals will rise by £150 million in 2020/21. If this £150 million in 2020/21 was matched by the same level of investment in 2021/22 and 2022/23, it will provide an extra £1,000 per head in total training budgets over this three-year period.

The continuing professional development needs of clinical staff who are not directly employed by NHS trusts – such as health visitors and nurses employed in social care – are no less important. But for the moment it is unclear whether these staff will be able to benefit from this additional funding.

In one sense, expressing the growth in CPD budgets per head over the three years from 2020/21 to 2022/23 makes complete sense because it matches the revalidation cycle of NHS nurses (ie, registered nurses, nursing associates and midwives have to renew their registration every three years with the Nursing and Midwifery Council so they can continue to practice).

But in another sense, it is strange to see a three-year commitment made as part of a Spending Round that was only meant to provide certainty for 2020/21. The Chief Executive of NHS England, Simon Stevens has already said he expects education and training budgets to rise over the next four years. The Department of Health and Social Care have confirmed they will ensure funding is available in subsequent years so that staff have access to their £1,000 personalised CPD budget even if we are unclear over whether the funding from 2021/22 onwards will come from additional funding from the Treasury, or from reallocation and match funding from within the Department of Health and Social Care and NHS England and NHS Improvement budgets.

So where does the £210 million come in? This is the increase in education and training budgets that was trailed earlier in the week, but was not explicitly mentioned in the Spending Round itself. It includes the £150 million for CPD, but also provides an extra £60 million of funding for Health Education England to support the recommendations of the NHS People Plan in 2020/21.

Simon Stevens said in July 2019 that the nursing bursary is ‘back in play’ as an issue, which highlights how much more work is needed to both recruit more staff, and retain the staff the health and care system already has. If increasing the CPD funding opportunities for existing staff is one way to improve staff retention, learning and morale, it is possible (but still to be determined) that the remaining £60 million could be targeted instead at increasing clinical placements and growing the clinical workforce.

So that takes us to the final number of the 3.4 per cent real terms increase in Health Education England’s budget. If you take Health Education England’s programme spending in 2019/20 (which is planned to be approximately £3.96 billion after adjusting for the £49.1 million of expenditure for the NHS Leadership Academy, which transferred to NHS Improvement from April 2019), and grow it by £210 million in cash, that gets you to the 3.4 per cent in real terms the Chancellor referred to.

3. £7.0 billion for NHS capital

Unfortunately, while most of the Spending Round focuses on 2020/21, capital is one area where we have to jump between spending in 2019/20 and 2020/21 because budgets for both years have now been increased.

The Spending Round mentioned five key numbers on NHS capital: £2 billion, £854 million, £1 billion, £250 million and £78 million.

2020/21

Let’s take the key numbers in reverse order. Earlier in the year, the government announced plans to invest in artificial intelligence to improve the prevention, early diagnosis and treatment of chronic diseases, with multiple programmes of spending related to this goal. The Spending Round confirms the government will invest £250 million in the programme, of which £78 million will come in 2020/21. It is hoped that this government funding will attract some matching investment in these programmes from charitable bodies and industry.

2019/20

Now let’s go back to 2019/20, where the £854 million and £1 billion are also related. In August 2019, the government announced plans to increase capital spending by £1.8 billion. At the time of the announcement there was considerable debate over whether this money was ‘new’ or ‘old.

Let’s break the £1.8 billion into two chunks. The £854 million is new funding from the Treasury to upgrade 20 NHS hospitals and is spread over 5 years. Of this, £100 million will come in 2019/20.

The remaining £1 billion is new spending in 2019/20 that comes from the Treasury raising the limit of money the NHS can spend on buildings and facilities this year. The money for this investment will come from cash reserves and income NHS trusts already have, or business cases and funding programmes that were already approved.

So, 2019/20 brings a mix of new permission to spend money (the £1 billion) and new money to spend (the £100 million).

Take the £1 billion, £854 million and £250 million together and you get to the ‘over £2 billion of new capital funding’ the Chancellor mention in his speech – though this spending covers multiple years that stretch beyond the 2020/21 ambit of the Spending Round.

So bear with me as we go back to the start of this section and talk about £7 billion. This is the Department of Health and Social Care’s updated capital departmental expenditure limit in 2019/20 for investment in buildings, facilities and technology.

This budget has been a bit of a moveable feast (or famine). The 2015 Spending Review initially set the department’s 2020/21 capital budget at £4.8 billion (the capital departmental expenditure limit was intended to be flat in cash terms at £4.8 billion in each of the five years from 2016/17 to 2020/21).

But subsequent government decisions changed the plans. These included additional capital funding allocated at the Autumn Budget 2017 and the reclassification of some research and development expenditure. This raised planned capital spending in 2019/20 to £6.7 billion.

But then budgets were reduced because capital funding was transferred to support day-to-day revenue spending. £250 million of transfers were initially made in 2019/20, having been planned in advance as part of the 2015 Spending Review. But this was followed by a further £221 million transfer out of capital budgets that was agreed to fund the first year of the NHS long-term settlement in 2019/20.

So after this £471 million transfer, and further adjustments based on the latest estimates of money raised from the sale of NHS assets, the 2019/20 capital budget stood at £5.92 billion before the Spending Round. Add on the £1 billion and £100 million earmarked in the Spending Round and you get back to the £7.0 billion planned spend we now have for 2019/20.

If that description makes you feel lost, then spare a thought for finance directors in the NHS (in both national and local organisations) who have been asked to trim, expand, curtail or accelerate their plans for capital investment at short notice within the space of the year.

We should not begrudge the extra funding that has been provided for 2019/20 and 2020/21. This investment by government will allow the NHS to build, improve or maintain vital facilities and equipment for staff and patients. But the rollercoaster ride of capital spending plans in 2019/20 only makes it more significant that the government has publicly committed to a strategic review of capital expenditure in the NHS.

4. More for public health

More for public health

The Spending Round mentioned no key numbers when it comes to public health services, though it did include some key dates. And although no specific funding numbers were confirmed, this may be a relief given the 2015 Spending Review set out average annual 3.9 per cent real-terms reductions to these budgets. This has seen the public health grant shrink by £850 million in real terms in 2019/20 compared to initial allocations in 2015/16.

The Spending Round did confirm these cuts will be halted with a real-terms increase to the public health grant from 2019/20 to 2020/21. Though, because this increase will have to come from reprioritisation within the Department of Health and Social Care budget, it is more likely to be in the tens of millions than the £1 billion increase we and the Health Foundation called for in 2020/21 to return spending per head to the levels of 2015/16.

And rather than being tied very tightly to the delivery or expansion of new services, any real-terms increases are also likely to be used to meet rising pressures (eg, pay inflation) to help maintain existing services.

No less important is that the implementation of the 75 per cent business rates retention and the Fair Funding Review will be delayed from April 2020 until April 2021. We have noted elsewhere that these changes come with considerable risks as well as potential benefits. So the extra time provides a welcome chance to better understand the impact of these changes and to plan for their potential implementation.

5. 2.9 per cent growth for the Department of Health and Social Care

2.9 per cent growth for the Department of Health and Social Care

So finally to overall NHS spending, where the Spending Round mentioned several key numbers: £33.9 billion, £34 billion, £6.2 billion and 3.1 per cent growth.

Let’s begin with the easier numbers. The £34 billion the Chancellor mentioned in his speech, and the £33.9 billion (ie, the £34 billion unrounded), are the extra spending previously announced in the 2018 NHS five-year settlement and confirmed in January 2019. This settlement will see NHS England’s mandate spending rise by £33.9 billion in cash terms from £114.6 billion in 2018/19 to £148.5 billion in 2023/24. When adjusted for inflation, this equates to the £20.5 billion increase that was more commonly referred to when the NHS five-year settlement was announced.

The £6.2 billion increase announced in NHS funding from 2019/20 to 2020/21 is also in cash terms, as NHS England’s mandate funding will rise from £123.7 billion to £129.9 billion over this period.

The 3.1 per cent increase that was mentioned in the Spending Round applies to revenue spending (excluding depreciation) by the Department of Health and Social Care. This will see revenue spending rise from £132.3 billion in 2019/20 to £138.9 billion in 2020/21, in cash terms. This rise, when adjusted for inflation, matches the 3.1 per cent growth rate expected in NHS England mandate funding in 2020/21 (to note: the average annual increase in NHS England mandate funding is 3.4 per cent over the five-year deal, the profile of the individual year on year increases is uneven, with the highest growth coming in the first and last years of the settlement).

But the most interesting number in understanding health spending continues to be the total departmental expenditure limit for the Department of Health and Social Care, which is the sum of the resource (excluding depreciation) and capital budgets. This will rise from £139.3 billion in 2019/20 to £146.0 billion in 2020/21 in cash terms, and to £143.4 billion in real terms (a 2.9 per cent increase).

Conclusion

The Secretary of State for Health and Social Care recently described the ‘historic oddity’ that some elements of NHS spending have been separated out from others when it comes to funding settlements. It is certainly odd, though it also very recent history – because the decision to separate these budgets only came in the 2015 Spending Review. And, as the Health and Care Select Committee has noted, this is an unhelpful distinction, the consequences of which are now becoming clearer.

First, different health budgets are increasingly out of kilter with each other. NHS England mandate spending is covered by a five-year funding deal from 2019/20 to 2023/24. Three-year workforce development budgets have been implied, but only one year can be certain. The 2017 Autumn Budget provided additional capital funding till 2022/23, though we don’t know how much baseline funding this additional funding will be added to until the recently announced capital review is concluded. And the Department of Health and Social Care only knows its overall budget up to the end of 2020/21.

Second, there is a risk that ‘3.4 per cent’ real-terms increases in spending become the new benchmark of what health spending should be. The Health Education England budget and Better Care Fund will increase by this amount, which matches the average annual increase in NHS five-year settlement. But as others have pointed out, this growth – while welcome – is less than is needed to modernise and transform services. 3.4 per cent growth in budgets is clearly better than was initially hoped for, but it is still less that is needed.

As a result, national bodies will still need to make tough decisions, as budgets continue to grow but fail to keep pace with rising demand for care. Areas of Department of Health and Social Care spending, from the funding of the bodies that regulate quality and care standards, to digital investment programmes, to funding for vaccines, will all need to be looked at and reprioritised for 2020/21, as there is not enough funding in the pot.

And finally, the consequences of this approach to health spending will include strategic confusion and delays to improving services on frontline. One regional leader has memorably described the NHS capital funding programme as like ‘driving through fog’. And the director of a sustainability and transformation partnership was equally sceptical when I talked to him this week, as he was in the process of developing a five-year financial plan without much certainty of how much money would be on the table to fund the transformation of services his plan envisaged.

Without yesterday’s Spending Round, government departments would have been left in the dark over how much they could spend in 2020/21. The Spending Round has provided some certainty then. And for many public services, it was a far better spending settlement than could have been expected a few months ago. But understandably, for people who work in health and social care, and for the people and public who use these services, a sense of underlying uncertainty might remain.