The productivity challenge remains: The King's Fund reaction to the Pre-Budget Report

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Commenting on the Pre-Budget Report today, Professor John Appleby, chief economist at The King's Fund, said:

'Today's announcement suggests that overall there will be a cut in the total NHS budget in real terms in 2011/12 and 2012/13. The Chancellor promises that 95 per cent of health service funding will see an increase 'in line with inflation'. While tough, this is better than the situation faced by many other spending departments.

'However, clarity is needed about what is at risk if the 'unprotected' 5 per cent is cut – equivalent to around £5 billion for the NHS in England. There may be savings to be made in administration costs, but if training or research is cut this could have consequences for future productivity and quality.

'The funding gap between Derek Wanless's projections for NHS spending and that faced in reality, identified by The King's Fund and IFS, means that the NHS must achieve productivity gains of 6 per cent a year for the next three years at least. This is a real challenge as NHS productivity has actually fallen in the past ten years by around 1 per cent a year.

'As the population continues to grow and to age, more people will need care. Just to meet these extra demographic demands requires an additional real rise for the NHS of 1 per cent a year.

'A cash cap of 1 per cent on NHS staff pay increases will shave around 1 percentage point off the annual 6 per cent productivity improvement required. But for NHS staff this could mean a pay cut in real terms, and still leaves a big task for the NHS to make its money go further.

'There will have to be trade-offs if we want a health care system that is fit for the 21st century. Every pound spent in the NHS will need to be stretched further, but at the same time we have to ensure patient safety and quality of care are not compromised.'

Notes to editors

  1. For further information or interviews, please contact The King’s Fund media and public relations office on 020 7307 2585, 020 7307 2632 or 020 7307 2603. An ISDN line is available for interviews on 020 7637 0185.
  2. How cold will it be? Prospects for NHS funding: 2011-2017, by John Appleby, Rowena Crawford and Carl Emmerson published in July calculated that if the NHS were to receive real increases averaging 2.5 per cent a year for the six years from 2011 to 2017 then other departments could need budgets cut by an average of around 2.8 per cent a year. This would represent a real reduction on 2010/11 budgets of around 16 per cent over six years.  If there was no real rise in NHS funding – on average other departments would need real budget reductions totalling around 8 per cent by 2016/17.
  3. NHS near-cash frontline spending – the 95 per cent of spending that supports patient care – will rise in line with inflation in 2011/12 and 2013. (Chapter 6 of the Pre-Budget Report, p103, Protecting Public Services, par.6.24)
  4. A 1 per cent cap on basic pay uplifts across the public sector for 2011/12 and 2012/13 will generate savings of £3.4 billion a year by 2012/13. (Chapter 6 of the Pre-Budget Report, Protecting Public Services, p112, par 6.49)
  5. The King’s Fund seeks to understand how the health system in England can be improved. Using that insight, we help to shape policy, transform services and bring about behaviour change. Our work includes research, analysis, leadership development and service improvement. We also offer a wide range of resources to help everyone working in health to share knowledge, learning and ideas.