John Appleby: The Spending Review - what does it mean for health and social care?

First of all to say, in the sense of why are we here again with a pretty tough Spending Review settlement. I think it is fair to say that the NHS in 2010 thought it was going to face five years of pretty tough times financially but that after five years things would be a lot better, the economy would be in better shape, public finances in better shape and so on.  But I think we find ourselves, and this is going to be my sort of concluding theme for those of you who don’t want to listen anymore, my concluding theme will be, it is more of the same.

So let me start first of all with the bigger numbers, the macro situation. It’s clear the government haven’t hit its macro targets on borrowing for example, it was meant to be something like 1.1% of GDP this year, it’s 3.9%, National debt is 83% of GDP not 67% as planned.  So as I say we are faced with an autumn statement which is a planning of continuation and cuts of public spending, bringing total public spending, government spending down from about 37% of GDP to 41% from 2009.

So I guess the question for us is what does this mean for, and I can’t help putting inverted commas around the word protected, “protected” areas such the NHS and social care. This is the NHS, English NHS funding, last parliament and the Spending Review as we understand the figures.  This is total spending and I’ll come to something about the promised £8 billion and how that works out for one bit of the NHS budget, NHS England, but this is the total spend, it’s the total department expenditure limit if you like for the Department of Health from 2009/10 and well, notice the front loading of money for the NHS 2016/17 has showed under 2% real increase next year.  Look what happens in the later years of course, 2018/19, 19/20.  Overall the average real rise looks to me around, and these numbers keep changing, they will keep changing over the months as inflation estimates change and so on, but it’s something like 0.85% real increase per year, which is very similar to what the NHS got last time.

Another way of looking at this is how much we spend on healthcare as a percentage of our national wealth, this goes back to 1950/51. What I’ve done her is to scale up the English allocation, and assume that the rest of the country, Scotland, Wales and Northern Ireland are getting roughly the same, so I can use GDP figures because there aren’t any GDP figures for England but there are for the UK, and you can see what goes on there.  There’s going to be the largest sustained fall in spending on healthcare as a percentage of GDP that we have seen since the foundation of the NHS.

Now I just want to explain something about the £8 billion, when we were listening to the Spending Review and we had colleagues from the Health Foundation, we were grappling with the numbers. I see Adam in audience trying to understand what these numbers meant.  One of the things we discovered was that the £8 billion real increase for the NHS in England is expressed in 2020/21 prices.  This is a reasonably unusual way of doing it, in presenting this data.  I just wanted to show you this, and it really is a crucial thing about the way that the money has been allocated to the NHS.  This shows the real increases each year in spending for the NHS and the last column is a sort of accumulative over the five years and it shows that NHS England which is the black bars, will be getting an extra £8.4 billion in real terms by 2020/21, so that’s the government’s pledge and that’s what’s happened.

The trouble is NHS England doesn’t account for all spending in the NHS. There is about £15 billion worth of other spending and that is not protected and what looks like it will happen, is that there will be a loss of around £4.6 billion over the five years from other parts of the NHS and the blue circles with the white dot in the middle show the sort of net effect of this.  So £2 billion in 2020/21 prices real terms next year, then it goes down to essentially zero in 18/19 and 19/20 then it climbs again. We don’t do the figures, the real figures in this way, we tend to use current prices by the way.

Social care, I think Chris was saying that it is a mixed picture and what can we say, not as bad as last parliament, those are the figures, again as we understand them, social care is much more difficult, there is not a global budge circuit for the country, the actual spending will be up to Local Authorities and so on, so we have to wait and see what it is actually going to be. These are our best guesses if you like, about future spending.  Again these are real changes each year in the last parliament which are real numbers and the next parliament which are numbers which we have had to estimate.  Based on projections to do with Local Government spending over the last five years, but also the 2% precept with Local Authorities now have the freedom to levy.  We haven’t made as generous or comprehensive an assumption about every Council levying 2% and then another 2% on top of that, then another 2% on top and another 2% on top.  That’s a treasury assumption.  It’s hard to believe that that’s actually going to happen, so we have taken a slightly more conservative view of that, but it gives Local Authorities or social care spending, a small real cut per year possibly over the next five years.

So it seems to us that the next five years is going to be pretty similar to the last five years. So it’s going to be a decade of pretty tough finances but it’s not the same as 2010.  The NHS and social care are starting from a very different position this year than in 2010.  This is a deficit position the NHS is in at the moment.  This adjustment the provider side, not the whole of the NHS.  2010 there was a surplus of around £500 million.  Last year deficit of over £800 million, the last quarter, last six months £1.6 billion.  That was the plan for the end of the year by the way.  The NHS has already hit that deficit half way through the year.  So of funding, finances looking very difficult this year and next.

Huge numbers of Trusts are overspent. I have taken these numbers for the Q2 for the NHS.  95% of all acute Trusts are in deficit, three quarters of all organisations and so on.  And performance is, well over the last five years I think it has held up remarkably well actually, it’s very heartening that given the squeeze on funding the NHS has done remarkably well, but this is the latest Quarter 2 Trust and Foundation Trust sort of headline targets, mental health seven day follow up, ambulance, diagnostic waits, cancer screening and so on.  As you can see seven out of twelve of those headline targets are currently being missed in the aggregate but Trusts and Foundation Trusts.

So performance is under pressure and some of the numbers are going the wrong way. This is from our quarterly monitoring report, we do a survey of Finance Directors across the NHS.  We asked the question, “what is your estimate of the risk of the NHS achieving 2% to 3% annual productivity increases from now to 2020?”  84% of Finance Directors think there is a very high, or high risk of failure of achieving that.  By the way that 2 to 3%, that’s the £22 billion that the NHS has committed itself to try to achieve over the next five years, but again the NHS is not starting from the same position as it was in 2010, it’s starting from a position in 2015 where there are no more biscuits at meetings, hospitals have switched to low energy light bulbs, or whatever the things are.  These things can’t be done again so we are into a completely different ball game in terms of abstracting more productivity gains.  So it’s a very different world we’re in at the moment.

And just to say on social care of course, last five years in line with funding cuts of about 10%, that’s with help from the NHS by the way, they’re closer to 17% real cuts for social care over the last five years without the help from the NHS, but there have been large reductions, there’s about 25% I think in numbers of people receiving social care across the country.

So where are we? I thought I’d coin this the Osborne challenge. I remember Stephen Dorrell at a meeting in 2010, when the NHS learnt about its allocation and plans were being laid for the NHS to try and make big strides with productivity gains and so on.  Stephen Dorrell stood up at a meeting and said “I think I’ll call this a Nicholson challenge”.  and I could see David Nicholson blanche visibly at this.  Anyway, the Osborne challenge; yes there’s front loaded money for the NHS, I think the consensus is that’s bought a little time at best.  As I say, someone’s going to have to pay for the deficits.  There are other costs next year, there’s things to do with the pension which are going to have to come out of the NHS spending, there’ll be money going out of the NHS into Local Authorities as well, so it’s going to be extremely difficult next year.

Social care, a bit more money, difficult to predict but it certainly is not up front, it’s back loaded and as I say, both health and social care spending will fall as a share of our national wealth. So the challenge facing health and social care is to squeeze more value out of every health and social care pound they’ve been given.  Difficult to say exactly how much, but my back of the envelope calculation is that the NHS is going to have to get something like 16% better value out of every pound it’s given by 2020, social care easily 20% more per pound that it spends.

Anyway, thank you, I hope that’s given you some picture of what the numbers look like.