News / News analysis: Spending facts

Spending facts

So now we know. After months of lobbying, the NHS in England has an overall view of its budget for the next five years. On the face of it there were few surprises in the combined spending review and autumn statement on 25 November. The NHS will be required to make £22bn in efficiency savings and the government will meet its manifesto pledge to provide an extra £8bn in real terms for health. This is a £10bn increase compared with the 2014/15 settlement, counting the £2bn extra in the current financial year.

This was already widely known. But that does not mean the spending review held little of interest for the health service. As is often the case in Whitehall funding announcements, the detail revealed many of the potential pinch points and policy developments over the next few years.

Health and social care integration was given a huge push in the spending review. Chancellor George Osborne said every area must have an integration plan by 2017, implemented by 2020. While the exact form integration takes will be decided locally, it could include accountable care organisations, devolution deals and lead commissioning structures.

The better care fund (BCF) will be expanded – NHS mandated contribution will be maintained in real terms, while from 2017 the government will give councils extra funding to be included in the BCF. This will be worth £1.5bn by 2019/20.

Local authorities will be allowed to put a precept on council tax of up to 2% for social care funding, which the chancellor said could raise £2bn by 2019/20 if every eligible council used this new power. However, the Local Government Association (LGA) said the precept would raise £1.7bn by 2020 and this was not guaranteed as not every council will be able to or want to raise council tax in this way.

LGA deputy chair Sharon Taylor said: ‘The additional provision of a £1.5bn increase in the better care fund is good news but it is vital this is new money and must be spent on adult social care. We are concerned that councils will not see the benefit until towards the end of decade, when services supporting our elderly and vulnerable are at breaking point now.’

In England, total Department of Health spending will rise from £116bn in 2015/16 to £133bn in 2020/21. The extra funding will be passed through to the devolved nations’ overall budgets, but it will be up to their administrations to decide how much to allocate to health.

The government listened to lobbying from the service and has frontloaded the extra funding. In 2016/17, NHS England will get an additional £5.5bn, a £3.8bn increase in real terms. In the latest HFMA NHS financial temperature check (see box) – published before the spending review announcement – 56% of all finance directors said the £8bn would only be enough to maintain quality if received early in the five-year period.

NHS Confederation chief executive Rob Webster said: ‘The commitment to frontload funding across the next two years gives the NHS a fighting chance to transform the way that care is delivered to patients.’

NHS leaders and politicians will hope service transformation implemented as a result of the frontloading will work quickly, with 2018/19 and 2019/20 looking comparatively tough.

King’s Fund chief economist John Appleby said the NHS had received a relatively good settlement. But he added: ‘Seen in the context of unprecedented financial pressures and rising demand for services, it falls a long way short of the new settlement needed to place the NHS and social care on a sustainable footing for the future.’

He welcomed the decision to frontload the funding, but added: ‘A significant chunk of this will be absorbed by additional pension costs and dealing with provider deficits, leaving little breathing space for investment in new services and unlocking productivity improvements. The new funding will stabilise services in the short term, but smaller increases later in the parliament and the requirement to implement seven-day services will leave budgets stretched to the limit.’

Look a little closer at the £8bn in real terms for health in England and it becomes apparent that the increase has not been applied to the Department as a whole, but only to the NHS. The Treasury defines the NHS as the funding spent by NHS England, which admittedly looks after the lion’s share (£101bn this year of a total £116bn). This can be seen in the tables, which show departmental expenditure limits (DEL) and total departmental expenditure limits (TDEL) for the Department and the NHS. TDEL includes both resource and capital spending.

This new definition has consequences as the government now only has to make good its £8bn pledge on part of total health spending.

Anita Charlesworth, chief economist at the Health Foundation, said: ‘The spending review’s interpretation of what the NHS encompasses has cost the health system dearly – £3bn less than if the increase had applied to the full health budget in 2020/21. The chancellor has given with one hand and taken away with the other.’

Some of the additional funding will be found from Department central budgets, which will be reduced by 25%. This will not just mean a cut in spending on administration. With the ring-fence applying only to NHS England, other budgets to be squeezed include capital and public health, as well as administration costs and arm’s length bodies. The training budget for nurses, midwives and allied health professionals is another casualty. The NHS will no longer offer bursaries to students in these professions; instead they will have to take student loans.

The chancellor spun this as the lifting of caps on training places, which could translate to an additional 10,000 nursing and health professional training places by the end of this parliament. To an extent this is true – under the old system a limited budget bought a defined number of training places.

Royal College of Nursing general secretary Janet Davies said the new policy broke the link between the NHS and trainee nurses, potentially making it harder to plan its workforce.

’There are still a lot of question marks about how the system will actually work, but the RCN is certain that anything that makes people worse off or deters them from becoming nurses, would be a big loss to our society,’ she said.

Public health spending will also be hit. The LGA said this funding will be cut by almost 4% over the next five years and it was ‘short-sighted’ to reduce public health spending when prevention was at the heart of the forward view. However, the government intends to consult on options for boosting public health funding, including allowing councils to divert retained business rates to public health.

Some of the new money has already been assigned. The seven-day NHS could be one of the biggest draws on the new funding, with £750m invested in a new national seven-day GP contract. There were further announcements, including £1bn for new technology and £600m for mental healthcare.

Changes in national insurance following state pension reform and the new apprenticeship levy will increase costs. From April 2017, NHS organisations with annual pay bills in excess of £3m will have to pay an apprenticeship levy, set at 0.5% of the pay bill.

The funding settlement is relatively good but tight. Inevitably, the focus over the next few years will be on finding efficiencies of £22bn and in the process changing how services are delivered.

* excludes depreciation Source: Department of Health