Comment / Finance’s big ask

How should we feel after November’s spending review settlement for the NHS? A sense of relief? Certainly the government made good on its promise of an additional £8bn in real terms for the NHS by 2020/21 – even if this involved a few boundary changes to what people generally understood to be the ringfence.

And a good chunk of the additional real-terms funding – £3.8bn – will come in 2016/17. Again this meets the ‘frontloading’ demands of finance directors (see HFMA NHS financial temperature check, p10), representative bodies and wider commentators.

But few finance directors in providers or commissioners will see this as a return to sunny days. The received wisdom is that the deal is the bare minimum needed and the best the NHS could have expected.

Health was not the only budget ‘protected’ as police, education, international aid and defence also avoided cuts. But elsewhere – for transport, energy, business and the environment – the chill winds of austerity continue to blow.

The challenge remains stark. At the halfway point in 2015/16, providers were forecasting a combined £2.2bn deficit – and eliminating any recurrent elements of this overspend will be a first call on any new funds.

There are other pressures also coming downstream, perhaps the biggest being the cost to employers of pension changes from next April. Implementing seven-day services will be another.

Perhaps the most natural state of mind following the spending review settlement is one of uncertainty. The whole settlement and indeed the Five-year forward view are built on the premise that the NHS needs to close a £30bn funding gap by 2020/21 and that it can deliver £22bn of improvement in that timescale.

Whether £30bn captures the overall size of the challenge posed by an ageing population, rising demand and changing disease patterns is up for debate – especially given apparent new demands such as seven-day services and the continuing pressures of ensuring safe staffing levels.

And can the service really outperform previous levels of productivity growth and deliver the implied 2%-3% efficiencies needed each year?

NHS England’s five-year strategy was clear that achieving the 2%-3% would need a combination of ‘catch up’ (bringing less efficient providers up to the level of the best), ‘frontier shift’ (new models of care) and ‘moderating demand increases’. However, NHS England’s case was built on a ‘more activist prevention and public health agenda’ and the availability of social care services.

How will the cuts to non-ringfenced budgets, including public health, play into this? And are the announcements around additional money for the better care fund and a new social care precept enough to ensure the financial challenges in local government don’t simply shift across the dividing line?

Staff are clearly the service’s biggest cost driver and recent deficits have been exacerbated by growing agency staff expenditure. Over the long term, changes around funding (bursaries to loans) for student nurses will have an impact on providers’ ability to recruit to permanent positions – but will this improve the current situation or exacerbate it?

Rising agency costs are a very immediate problem. But central initiatives including greater mandation of approved framework contracts, ceilings on numbers and (most recently) maximum hourly rate caps, have not yet had time to have an impact. Providers welcome any tools they can use to curb these growing costs, but it is not yet clear how well these measures will work in practice.

New models of care are desperately needed – not just for sustainability reasons but to properly support changing patient need. But the short-, medium- and long-term financial impacts are far from clear.

Part of finance directors’ job is to identify risks and uncertainty and mitigate against them. But the current levels of uncertainty are unprecedented. The challenge for the finance community is to find a way to support both the delivery of financial targets in the short term, while supporting the improvement and transformation work that will help shape a sustainable future.

This will involve supporting reduction in unnecessary clinical variation, improving core efficiency (supported by the Carter review) and developing clinically and cost-effective new patient pathways. It is a big ask.