News / Department to take tight grip on finances in the short term

The operating framework for 2011/12 will outline increased central control over finance in the short term, NHS chief executive Sir David Nicholson confirmed as he broadly outlined where the £15bn-£20bn of efficiency savings would come from.

At a hearing of the Commons health committee, Sir David said greater central control over finance was needed as the service prepared for reform. ‘If you are saying to me: "Will the NHS feel, universally, a more freed up system in the next 12 months?", no it won’t. We will have to take a very tight rein in relation to the management of finance.’

The Department had already taken steps to get a firmer grip on finance, he said. The provider efficiency gain built into the tariff had increased to 3.5% this year to prepare them for a further 0.5% rise (to 4%) in 2011/12. And most primary care trusts have been able to spend 2% of their allocations non-recurrently. He expected a similar set of arrangements to be in the 2011/12 operating framework, due later this month.

Sir David said the £15bn-£20bn in efficiency savings needed to close the gap between planned NHS spending and rising costs would come from three areas. About 40% would come from central budget savings as well as pay, management and administrative cost savings, and about 20% from service change, including moving services out of hospital. The final 40% would be levied through the tariff.

He also appeared to confirm the £15bn-£20bn efficiency challenge would be spread over four years rather than three. The Department was revisiting its calculations as not only was the timeframe longer, but some of the assumptions on which the calculation was based had to be changed. For example, the public sector pay freeze would reduce the growth in the NHS pay bill. Also, the original calculation was based on no rise in health funding (flat cash), when in reality the NHS had been given more – 0.4% in real terms over the four years of the spending review.

‘We are having to redo our numbers based on the spending review in particular, because there is a different set of analyses,’ he said.

A Department spokesperson later confirmed to Healthcare Finance that the efficiency challenge was now framed over four years. ‘The NHS chief executive’s annual report first set out the £15bn-£20bn challenge in May 2009, based on a broad assessment of future demand and cost pressures and plausible NHS funding levels in the fiscal climate. These assessments have since become firmer, in particular with the spending review confirming funding for the next four years. Over this period, the scale of the efficiency challenge remains broadly the same.’

King’s Fund chief economist John Appleby, who attended the hearing, said: ‘There certainly seemed to be a recalculation going on. They seem to be looking at a productivity gain of just over £4bn-£5bn a year over four years. When David Nicholson said it would be £15bn-£20bn it was a pretty broad figure, though it does seem to be accurate.’