Comment / Reality check

Warnings of extreme financial pressures in the NHS are not new. Representative bodies, including the NHS Confederation, NHS Providers and the HFMA, have all raised their voices with good reason to highlight the current mismatch between capacity and demand in both the health service and social care.

But last week’s finance board paper from NHS England underlined the seriousness of the current situation. The paper explores the current pressures in 2022/23 and looks ahead to next year and beyond. The language is clear and the message stark. This is not a financial challenge that can be managed through further efficiencies. Inflation is forecast to remain high next year and a similar pay settlement to this year would further increase cost pressures. As NHS England chief financial officer Julian Kelly, told the board, managing that pressure within the currently indicated budget would mean revisiting investment in cancer, mental health, primary care and diagnostic capacity. 

Anyone working in NHS finance understands the issues. The service had not built up much resilience in the run up to the pandemic. Ten years of funding growth below the long run average of 3.7% a year in real terms had contributed to a situation where the NHS had fewer doctors, nurses and beds than most of western Europe. Then Covid-19 hit, leaving the service now with an unprecedented elective backlog and a depleted and tired workforce.

This year the NHS is having to cope with a 1.4% real terms cut in funding. There is an overall efficiency target of 2.2%, which would be tough enough. But this feels more like 4.6% thanks to the additional reduction in Covid funding, which has been slashed from £5.1bn in 2021/22 bn to £2.2bn this year.

The cut in Covid funding assumed Covid costs would diminish significantly. However, while some infection prevention and control measures have been relaxed, increasing capacity, on average there have been more beds occupied each day with Covid patients this year than in the previous two years.

Covid also continues to have an impact on staff sickness and absence, increasing temporary staff costs. Systems have committed to significant reductions in agency staff budgets compared with last year – and these planned savings have been turned into hard ceilings (with a minimum 10% reduction). But in reality, agency spending is above last year’s level.

There have been lots of reports of winter-like pressures carrying on through the whole year. High levels of non-elective demand and real problems with delayed discharges, while patients await care packages to support them in the community, have also impacted on the service’s ability to address the elective backlog.

The NHS in England as a whole has taken a big hit financially this year. Not only has inflation eroded the real purchasing power of its settlement, but it has had to find funds for the additional cost of the pay settlement above the level of funding included in the spending review. This additional cost will be recurrent.

The NHS England board paper makes it clear the financial challenge will intensify in coming years, with sustained high inflation and potential cost-of-living associated pay settlements further increasing costs compared with planned spending totals.

NHS England says it has already committed to delivering £12bn of annualised savings by 2024/25. But this could extend by a further £6bn to £7bn depending on how inflation feeds through into pay and prices next year.

Far from spending increases, the Institute of Fiscal Studies has suggested the government will need to be spending £60bn a year less by 2026/27 to put the country’s finances on a sustainable path following its promised tax cuts. Even with health spending protected within this, cuts in other departments would not be good for those wider determinants of health.

Arguably the two pressing problems for the NHS are staff shortages and social care capacity – and both will involve funding as part of the solution.

The staffing problem will not be sorted overnight. But increased staffing levels in future mean starting training now. That needs to be planned for and training places paid for. Social care needs an overhaul that goes far beyond capping the personal contributions people can make to their care over their lifetime. A real solution requires better pay for staff – demonstrating that their roles are valued – and proper funding for local authorities.

Analysis from the Health Foundation this week found that one in five residential care workers in the UK lived in poverty from 2017/18 to 2019/20 - higher than the rate for all workers and more than double the rate among health workers.

Of course, it is not just about money. There are lots of other ingredients needed to get the NHS back on track. Productivity can be addressed and there are efficiencies that finance staff can support their organisations to make. There are real opportunities to deliver better outcomes, experience and value for patients by taking a pathway view of services. And a move to population health management offers significant potential to start addressing health rather than simply delivering healthcare.

But systems need to be given the time and space to realise these opportunities. And that will require realism about the budget needed and realistic expectations of what can be delivered.