What happens when the money runs out? Our most recent quarterly monitoring report and the latest in our series of breakfast events looked at past and future pressures on health and social care. The Department of Health’s annual accounts for 2013/14, published today, provide the definitive answer to how the NHS has spent its funding in the year to March 2014. This information means we can look both backwards and forwards to assess its financial performance.
Looking back at 2013/14, congratulations to the Department of Health for bringing the NHS to within a whisker of the spending controls set by HM Treasury. However, there may have been a few sleepless nights involved in delivering an underspend on revenue – for those in the know, non-ring fence RDEL, which is the measure that matters – of £151 million (a mere 0.14 per cent of the budget) and of £95 million on capital (2.1 per cent of the budget).
To put this into context, in 2012/13, the equivalent figures were £1527 million and £713 million respectively. This means that this year’s underspend translates into real-terms growth in spending of 2.6 per cent in 2013/14, by far the highest increase since deficit reduction began. With the NHS budget set to increase in real terms by a wafer-thin margin over the next two years, the NHS will not be able to afford another increase in spending on this scale this year or next.
However, this mini-surge in real-terms growth was not linked to an improvement in NHS performance. In fact quite the contrary: across a range of indicators, including referral-to-treatment, A&E, cancer and diagnostics waiting times, the NHS is either breaching targets or delivering them by a hair’s breadth. In other important areas, such as mental health and community health services, the lack of routine performance data makes it hard to measure what is happening. However, some of the comments at our breakfast event about the situation in mental health in particular were, if anything, even more worrying. The evaporation of the large annual underspend the NHS has produced since 2006 means that any improvement in performance in 2014/15 must come with effectively no real-terms growth in spending. With GP referrals, emergency admissions and A&E attendances continuing to rise, it is an understatement to say that this will be tricky to pull off.
Looking beyond 2014/15, the outlook does not get better. Instead, the NHS and social care are caught between three apparently irreconcilable facts. First, as Paul Johnson, Director of the Institute for Fiscal Studies, emphasised at our breakfast event, the outlook for UK public finances continues to be bleak and any growth in the NHS budget can only come at very high cost for other parts of the public sector. Second, there is a distinct lack of enthusiasm among politicians from all the main parties for a debate about health and social care funding this side of the general election, not least because of the same challenge to overall public finances this would create. Third, financial and service pressures are getting worse.
If no more money is found, then what happens? At the point commissioners and providers are told to reduce spending, there will be no real alternative for many other than to reduce staffing. Initially, the ‘Francis effect’ and pressures to maintain nurse: patient ratios will mean that non-clinical staff are likely to bear the brunt of this. But it will be impossible to protect nurses and doctors for long. This happened in the 1990s and had begun to happen after 2010 until the Francis report changed priorities. Of course, this is not to say there are no important savings to be made in procurement and other areas of non-staff costs – there are, but these will not be enough to carry the NHS over the long and sustained flatlining of spending that NHS England among others expects.
If in 2013/14 the NHS struggled to maintain performance even with a recruitment round, the chances it can continue to do so with fewer, rather than more, staff look non-existent. This, no doubt, is what sits behind the continued pessimism of NHS finance directors reflected in our quarterly monitoring report. King's Fund
Looking back at 2013/14, congratulations to the Department of Health for bringing the NHS to within a whisker of the spending controls set by HM Treasury. However, there may have been a few sleepless nights involved in delivering an underspend on revenue – for those in the know, non-ring fence RDEL, which is the measure that matters – of £151 million (a mere 0.14 per cent of the budget) and of £95 million on capital (2.1 per cent of the budget).
To put this into context, in 2012/13, the equivalent figures were £1527 million and £713 million respectively. This means that this year’s underspend translates into real-terms growth in spending of 2.6 per cent in 2013/14, by far the highest increase since deficit reduction began. With the NHS budget set to increase in real terms by a wafer-thin margin over the next two years, the NHS will not be able to afford another increase in spending on this scale this year or next.
However, this mini-surge in real-terms growth was not linked to an improvement in NHS performance. In fact quite the contrary: across a range of indicators, including referral-to-treatment, A&E, cancer and diagnostics waiting times, the NHS is either breaching targets or delivering them by a hair’s breadth. In other important areas, such as mental health and community health services, the lack of routine performance data makes it hard to measure what is happening. However, some of the comments at our breakfast event about the situation in mental health in particular were, if anything, even more worrying. The evaporation of the large annual underspend the NHS has produced since 2006 means that any improvement in performance in 2014/15 must come with effectively no real-terms growth in spending. With GP referrals, emergency admissions and A&E attendances continuing to rise, it is an understatement to say that this will be tricky to pull off.
Looking beyond 2014/15, the outlook does not get better. Instead, the NHS and social care are caught between three apparently irreconcilable facts. First, as Paul Johnson, Director of the Institute for Fiscal Studies, emphasised at our breakfast event, the outlook for UK public finances continues to be bleak and any growth in the NHS budget can only come at very high cost for other parts of the public sector. Second, there is a distinct lack of enthusiasm among politicians from all the main parties for a debate about health and social care funding this side of the general election, not least because of the same challenge to overall public finances this would create. Third, financial and service pressures are getting worse.
If no more money is found, then what happens? At the point commissioners and providers are told to reduce spending, there will be no real alternative for many other than to reduce staffing. Initially, the ‘Francis effect’ and pressures to maintain nurse: patient ratios will mean that non-clinical staff are likely to bear the brunt of this. But it will be impossible to protect nurses and doctors for long. This happened in the 1990s and had begun to happen after 2010 until the Francis report changed priorities. Of course, this is not to say there are no important savings to be made in procurement and other areas of non-staff costs – there are, but these will not be enough to carry the NHS over the long and sustained flatlining of spending that NHS England among others expects.
If in 2013/14 the NHS struggled to maintain performance even with a recruitment round, the chances it can continue to do so with fewer, rather than more, staff look non-existent. This, no doubt, is what sits behind the continued pessimism of NHS finance directors reflected in our quarterly monitoring report. King's Fund
- See our latest quarterly monitoring report
- Catch up with the event highlights: Is more money the answer?
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