Hail to the chiefs! But major challenges remain

27 November 2015

As the details of the spending review were announced this week, the scale of the achievement by Jeremy Hunt and Simon Stevens in securing a frontloaded NHS settlement became clearer.

The spending review is, in the words of the Institute of Fiscal Studies, one of the tightest in post war history. Unprotected Departments will see cuts of 19% over the period. And 2016/17 was always going to be the most difficult of the five years covered by the review. 

So, to pull off an £8 billion real terms increase and get it frontloaded – an extra £3.8 billion in 2016/17 and £1.5 billion in 2017/18- is a considerable success. The seeds of that success lie in the strong case for extra NHS funding made in the Five Year Forward View and the way that health service leaders and civil servants have handled the spending review process.

Of course, challenges remain. A brief overview of NHS 2016/17 finances confirms the size of task:

Whether you see this as a challenge or a gap, there isn’t a lot on the other side of the ledger: an estimated £1 to 2 billion in efficiency savings; and, crucially, now, a funding rise that not only takes account of inflation but gives the NHS an extra £3.8 billion it would not otherwise have had. While the sums still look very stretching, the extra £3.8 billion really does make a difference.

The spending review is, in the words of the Institute of Fiscal Studies, one of the tightest in post war history

Providers tell us they are ready to play their part in meeting this 2016/17 challenge. But, of course, they are waiting to see how this settlement translates into the detailed financial NHS framework for 2016/17.

They are, though, encouraged by the positive statements from Jim Mackey, the new chief executive of NHS Improvement. He has stated that the tariff efficiency factor for 2016/17 needs to be set at 2% and that there needs to be dedicated financial support to get individual trusts, and the sector as a whole, back into surplus as fast as we can. He also recognises the importance of the crucial, but oft-forgotten, details such as reasonable rises in CNST premia and a sensible approach to funding specialised services. But, put simply, none of this would be possible without the frontloaded settlement.

There is, of course, a myriad details to work through. Four particularly important ones are:


It is also important to put the overall settlement in its proper context. NHS cost and demand rises by 3.5 to 4% a year and historically, up until 2010, the NHS has received average annual funding increases of 3.6% per year. However, across the parliament as a whole, assuming no more money is added at a later date (see above), the equivalent annual increase is 1.75% - just half the historic NHS average.

If there is to be no more money, the share of our national wealth – GDP per head – spent on health will continue to fall: by 0.7% between 2010 and 2020. As the Secretary of State himself acknowledges, given that we spend below the OECD average (8.5% versus an OECD average of 8.9%) and an awful lot less than the French, German and Dutch, who all spend around 11% of GDP on health, we should be increasing, not decreasing, the percentage of GDP spend on health.

So, despite the relative generosity of the settlement in relation to other public services, we should be under no illusions that a huge challenge remains. However, our immediate prospects look a lot better than had we not had a 2016/17 settlement that exceeds expectations.

This blog is also published in the BMJ

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