News / £4bn a year savings challenge set by pre-election Budget

The scale of the efficiency challenge facing the NHS came into sharp focus following the Budget’s announcement that the Department of Health and the NHS in England will deliver more than £4bn a year in savings by 2012/13.

The efficiencies are part of the government’s commitment to save £11bn a year by 2012/13. Health will be the biggest contributor, with other big spending departments such as education and communities and local government asked to save £550m and £200m respectively.

Chancellor Alistair Darling’s Budget report confirmed frontline NHS funding will rise with inflation in 2011/12 and 2012/13. But the NHS in England will have to plug an efficiency gap of £15bn-£20bn over the next four years. The £4.35bn in annual efficiencies announced by the Department will contribute to those efforts.

The Budget report also showed health spending in 2009/10 was less than planned. In the pre-Budget report, the departmental expenditure limit for health was £100.1bn, of which the NHS’s was £98.4bn. But Budget documents showed £99.6bn and £98bn.

The Department said the smaller figures were actual spending. While the planned limit for 2010/11 increases by £100m to £104.1bn, the NHS figure drops by £200m to £102.1bn – effecting a transfer to underpin pre-announced free personal care changes.

Health secretary Andy Burnham said the Department and the NHS would achieve the £4.35bn target through a range of initiatives. These included up to £1.5bn by getting better prices for goods and services, £555m by reducing staff sickness absence and £100m from the new approach to the national programme for IT. The latter is part of the £600m cut in lifetime costs of the IT programme announced in the pre-Budget report.

Mr Burnham said delivering the efficiencies would be an historic achievement. ‘To go from good to great, the NHS must become more preventative, more people-centred and more productive. By making tough efficiency savings, this will mean we can continue to increase real-terms resources available for patient care year by year,’ he said.

HFMA president Paul Assinder said the announcement was helpful in planning terms. ‘While continued emphasis on efficiency savings from the back office is inevitable, finance directors fully realise that the challenge ahead is all about doing things differently clinically. The real challenge is to design new clinical pathways that are safer, that improve the patient experience and are also cheaper.’

He added that a lot of work had been done on procurement and it would be disappointing if the NHS was not leveraging best value from its spending power already. 

Renegotiation of IT contracts would be a productive source of savings in the short-term, but had to be weighed against the need to automate processes to reduce headcount or free frontline clinical staff. Tangible plans at organisational level were needed quickly if potential savings from reduced sickness were to be realised in a realistic timescale.

 King’s Fund chief economist John Appleby said the challenge for the NHS was clear. ‘Our analysis has shown the NHS will face a £21bn productivity gap by 2013/14. Although this could be reduced to £14bn by looking again at assumptions on spending, closing this gap would still require prod-uctivity gains of 3% to 4% a year.'

He added that figures released on Budget day by the Office for National Statistics showed that NHS productivity fell by 3.3% between  1995 and 2008, proving how tough the challenge would be.