‘Ring-fenced’ NHS will receive limited protection from the coalition

Do health services really justify a ring-fenced budget? Left Foot Forward's health policy expert Trevor Cheeseman examines the issue.

Do health services really justify a ring-fenced budget? Last week the Institute for Public Policy Research (IPPR) published its alternative deficit reduction plan, including proposing the NHS should not be “protected”. This would enable a smaller and slower reduction “of 10 per cent rather than 15 per cent” in all spending areas, including health, supported with a better balance of cuts to tax rises.

The plan follows Will Straw’s deficit reduction proposals on Left Foot Forward last month, which included an 8.1 per cent average departmental reduction by 2013/14, including health spend.

On one level any spending reduction is sustainable – but what are the consequences? The government have promised a real terms increase year on year and under Labour NHS yearly increases between 1999/2000 and 2010/11 averaged 6.7 per cent per year, compared to an average annual increase of 3.5 per cent since 1948.

Against this a reduction of 8-10 per cent in NHS budget would be unprecedented, implying a major redefinition of its core purpose. Even with supposed protection, however, the chorus of local stories about NHS service cuts is growing. Last week its was NHS South West Essex who announced major service restrictions.

This morning’s Guardian reports:

A fifth of NHS trusts in England have admitted to closing or considering closing major services — such as accident or emergency and maternity units — since the election.”

There is a pressing efficiency agenda for the NHS, but it is one of productivity rather than cost-reduction. NHS services are driven by demand – and Britain is getting older, and more obese. For example, over the next 10 years the numbers of over 85s will double, and those aged over 100 quadruple.

In addition, new cost-effective drugs are being evaluated and approved by NICE for NHS services. Yet for the last 18 months, the NHS has built into its own planning a top priority of reducing its costs by 15-20 billion pounds, to give itself cover for the twin pressures of public spending downturn and significantly increased demand.

In parallel, the coalition’s social care cuts will leave the NHS with more to do. The two services are interdependent, and as social care – commissioned and funded by Councils – is squeezed, with service definitions not prescribed in law, the NHS will pick up the slack. As the NHS Confederation argues, those missing out on social care will end up needing NHS services.

The Federation said:

“Some will present as emergencies in A&E departments and GP surgeries, others will find themselves trapped in hospital unable to get home, blocking the bed from someone else who badly needs it. Everybody loses: the users of services, those who care for them, the taxpayer and the NHS.  It’s a classic false economy.”

The government knows this is a weakness, and will be arranging some cross-subsidy from health to social care in the Comprehensive Spending Review.

Yet there are clearly major areas of inefficiency that the NHS needs to tackle effectively in an organization costing 100 billion pounds to run. Clinical variation – significant differences in the way that different NHS institutions and communities organise clinical services – could save over 5 billion pounds by matching the top 25 per cent performance, based on NHS calculations.

This is not an overnight task: it often requires new services and capacity before old services are phased out, for example, yet over time is achievable.  Wage costs form around 70 per cent of NHS costs, so extended pay freezes or employment changes offer further scope for savings.  It is this level of detail that Labour’s deficit planning must contemplate.

The reality is that “real terms increases in funding, year on year” sounds good superficially but offers no security for the current scope of NHS services.  After just a few months, it is clear the NHS will receive limited protection from the Coalition.

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