Budget fixes doctors’ pension concerns, but is silent on funding for NHS pay

Chancellor Jeremy Hunt (pictured) said he had listened to the concerns of senior NHS clinicians, who claimed that ‘unpredictable pension tax charges’ were making them leave the NHS ‘just when they are needed most’. To avoid doctors retiring early because of the way pension taxes work, he said the pensions annual tax-free allowance would increase by 50% from £40,000 to £60,000.

In addition, the Budget abolished the lifetime allowance. ‘It’s a pension tax reform that will stop over 80% of NHS doctors from receiving a tax charge, incentivise our most experienced and productive workers to stay in work for longer, and simplify our tax system, taking thousands of people out of the complexity of pension tax,’ the chancellor said.

Doctors’ union the British Medical Association (BMA) welcomed the announcement, which they said came after years of campaigning by the union and more recent intensive talks with the Treasury.

Chair of the BMA pension committee and chair of the consultants committee Vishal Sharma called the change ‘incredibly important’. ‘The scrapping of the lifetime allowance will be potentially transformative for the NHS as senior doctors will no longer be forced to retire early and can continue to work within the NHS, providing vital patient care,’ he said. He added that the changes still left some doctors negatively impacted by pension tax rules and the union would continue to work to have these issues addressed.

The NHS Confederation also welcomed the pension reforms and added that the extension to the energy price cap would help to prevent ‘further worsening of health outcomes’ across the country. But it said the Budget failed to provide clarity on how the NHS staffing crisis would be addressed.

‘We are just two weeks out from the start of the new financial year, but don’t yet know the impact of any pay award on the NHS’ already constrained budget,’ said confederation chief executive Matthew Taylor. The government remains in talks with unions responsible for agenda for change staff, although no deal has yet been reached. And the Budget took place against the backdrop of a three-day strike by junior doctors, which has set back attempts to address the elective waiting list, which now stands at 7.2 million people.

‘The NHS currently has funding for a 3.5% increase next year, but with rumours of a potential pay award of 5% or above, this could leave the NHS with a budget hole of anything up to £2bn,’ Mr Taylor continued. ‘We are clear that this cannot be funded from within existing budgets as it would almost certainly result in cutbacks to patient care elsewhere.’

Ahead of the Budget, the confederation had been calling for action on five key areas: funding for the promised long-term workforce plan; new money to support whatever pay rise is awarded; an increase in capital funding; clarity on social care funding; and the announcement of public health grants for the coming year.

With public health grants finally published at the start of the week, the Budget has arguably only addressed one of these issues, with the pension changes providing a partial solution to one aspect of workforce shortages.

Speaking the day after the Budget, with rumours of an imminent conclusion to pay discussions, Mr Hunt told BBC Radio 4’s Today programme that the government was hopeful of getting an agreed deal. ‘We’ve been very flexible about what we are prepared to offer,’ he said. ‘The only condition we put on those talks is that we can’t give an offer that would itself fuel inflation and mean we are having the same discussions this time next year.’

Asked if the offer would be more than the 3.5% included in the government’s earlier recommendation to the pay review bodies, he said there was no agreement yet so he could not give a quantum. ‘If the government says we will do a different deal, we will find a way to pay for it,’ he said.

The chancellor’s only other commitment on NHS workforce was that the long-term workforce plan would be published ‘shortly’.

NHS Providers said they would hold the chancellor to his word on the plan’s publication, with an expectation that it would be ‘appropriately detailed, with staff numbers, costs and funding to match’.

Unions reacted angrily to the lack of funding for public sector pay. ‘In a flourish, there’s cash for another fuel duty freeze, tax cuts for those who need them least, and no action to curb the mega-profits of the oil and gas giants,’ said Unison general secretary Christina McAnea. ‘But not a dickie bird on public sector pay.’ And Unite general secretary Sharon Graham labelled the announcements a ‘budget of betrayal’. ‘This Budget does next to nothing to address the historic cost of living crisis hitting workers throughout our broken economy,’ she said. ‘Since 2010, real wages have fallen by 15% and that’s going to get worse.’

Julian Hartley, NHS Providers chief executive, said that the long-anticipated announcement on the new hospitals programme (NHP) was also ‘sorely lacking’ from the Budget announcements. ‘We know from the sheer number of applications from trusts to join the NHP and the staggering £10.75bn maintenance backlog across the NHS, that there is an undeniable need to provide trusts and systems with major funding for capital projects,’ he said.

The Nuffield Trust said the NHS would now enter the new financial year with an ‘unrealistic budget’ and that it was ‘almost inevitable’ that the chancellor would need to return to Parliament to address this in the not-too-distant future. ‘Our analysis of Department of Health and Social Care spending and government inflation projections finds today’s Budget leaves the NHS with a £2bn real terms funding cut from April this year,’ said the trust’s senior policy analyst Sally Gainsbury. ‘The NHS has been left with little certainty over how it will meet growing demand or address a workforce in crisis.’  

Story updated on Thursday 16 March to include chancellor's comments about possible pay settlement.