News / No spending Armageddon for NHS, Johnson tells MPs

Health secretary Alan Johnson (pictured above) has offered the NHS hope that it will receive real-terms growth in the next spending review period, as it braces itself for a Budget expected to demand further efficiency savings from the service.

Mr Johnson said it was ‘inconceivable’ the NHS would be handed real-terms cuts in the next spending review, for 2011 to 2014. He added that NHS organisations’ income and expenditure surpluses – which, including foundation trusts, are expected to be more than £1bn in 2010/11 – would not be plundered by the Treasury.

November’s pre-Budget report pointed to an average real-terms growth across the public sector of 1.2% over the spending review period. While Mr Johnson acknowledged the NHS would not receive the growth levels seen in recent years, he dismissed claims of an ‘Armageddon’ situation for finances and would argue for ‘some sort’ of real-terms growth.

‘Health is the priority of this government and it is inconceivable to me that people will have to cope with real-term cuts. What they will be coping with, I very much hope, is real-term growth, albeit not on the levels of real-term growth we have had over the past 12 years,’ he told a Commons health committee hearing on the 2009/10 operating framework last month.

However, the health secretary accepted that in 2010/11 the health service would contribute a ‘substantial’ amount of the additional efficiency savings unveiled by the chancellor in November’s pre-Budget report. He signalled a renewed focus on producing savings in the Department’s central budgets, in the use of the NHS estate and in back office functions through shared services.

More details are expected in the Budget on 22 April, which will also set out the projected value for money impact of world class commissioning. The Budget is also due to include a report on the scope to increase efficiency further in the hospital sector through the tariff prices paid by PCTs, together with progress on extending pricing to new areas of the health service.

‘I think it is the right thing for us to make our contribution. It will be a significant contribution because we are a significant spending department. We will not be putting in tuppence ha’penny to this.’

He insisted that in negotiations over the next spending review the Treasury would not claw back the NHS surplus in England. But NHS chief executive David Nicholson told MPs the Department had returned an unspent portion of its £4.2bn capital in 2007/08, while £1.3bn of the Department’s 2010/11 capital budget had been cut because it was unallocated.

Johnson’s reassurances came as a Pricewaterhouse Coopers report spelled out the stark choices faced in public spending policy over the next CSR period. Dealing with debt – reforming public services and narrowing the fiscal gap said the Treasury should aim to fill a projected £43bn gap in the national budget either through an unprecedented 1.4% real terms cut in all public spending over the three years to 2013/14 or by a total freeze in public spending and a £25bn increase in taxes.

Although PWC believed the latter option was more realistic, it would require average real spending cuts of 3% a year in most departments to allow health and education to receive a modest real-terms growth of between 0.5% and 1% a year.