Are the NHS and social care sustainable?

12 June 2018

I am going to talk very briefly about three issues – funding, productivity and systems reform and reality. Let’s start with where we are now.

The finances of the NHS and adult social care currently lack any credible policy for stabilising them. NHS finances are in free fall – with at least a £2 billion shortfall in prospect for the current financial year.  Social care finances are not in much better shape but have been stabilised a bit in the past year or so. Both have been seriously underfunded since 2010 relative to rising demand. Both have serious longstanding problems of low productivity and curbing demand. Both have significant care delivery as well as cash problems.

On care there is at least some kind of NHS plan – the Five Year Forward View, now updated – and a Chief Executive capable of implementing much of it if it was properly funded, which it currently isn’t. For social care we have neither a care or funding plan but only the promise of a much-delayed Green Paper. The pace of change and reform remains painfully slow with inadequate emphasis on preventing ill-health; too little care and treatment provided in the community; and little parity of esteem between physical and mental health services. Staff need to work in radically different ways, with much greater use of technology by a too-often Luddite NHS. The budgets and care delivery of the NHS and social care must be integrated rapidly – both nationally and locally.

There remain serious doubts as to whether the updated Five Year Forward View will resolve the NHS’s major productivity problems, whereby far too often it produces the wrong services in the wrong way and in the wrong places. Over the next decade it needs an annual productivity gain of about 2.3 per cent. The best it has achieved in any recent year is 1.5 per cent and the average for the last Parliament was under 1 per cent, Most of this was achieved by curbing staff pay. The acute and specialist hospitals are the worst offenders, with an annual productivity gain averaging 0.4 per cent over the last Parliament. All these figures are a long way short of the £22 billion of productivity gain by 2020 required in the original Five Year Forward View.

Both the NHS and social care need more money, now and longer term, with any level of increase guaranteed for at least 5 years. However, pumping lots more money into an unreformed NHS without a set of conditions on its use is probably the worst thing any Government could do. Giving the NHS unconditional money flies in the face of the historical evidence that the NHS only reforms when it is pressurised to do so and is held to account for improving performance. Politicians need to recognise that the public has rumbled the NHS’s inefficiency. The 2014 British Social Attitudes Survey shows that over half the public thought the NHS wasted money.

Any new funding settlement has to include adult social care. The system should remain means-tested because many older people can and should pay for their care and it is a waste of taxpayer money to subsidise them unnecessarily. However, the means test should be more generous and there should be a cap on individual liability, both of which were recommended in the Dilnot Report and could be implemented quickly using the 2014 Care Act. But about half the users of publicly-funded adult social care are under retirement age and disabled. This group mainly lack the resources to fund their care, so the Government will have to pick up the tab for this growing volume of demand in some way. For older people a new stream of revenue is badly required as the governments of Japan and Germany recognised some time ago with their social insurance models for funding long-term care.

The promised Green Paper needs to set out some credible, longer-term funding streams that will produce a reliable market for the providers of care – residential, nursing and domiciliary – to stay in and invest in the publicly-funded part of the market. This almost certainly requires a short-term funding boost as well as a longer-term approach, using accumulated housing wealth, collecting more care debt after death, moving away from Council tax funding and modifying the pensions triple lock and other daft handouts to the wealthier elderly, including me. In the interests of inter-generational fairness the better-off elderly have to contribute more to the costs of their social care, either before or after death.

So, what’s the Warner financial prescription? You can’t run a modern efficient health care system on a 1 per cent annual increase and an underfunded social care system. The annual increases for both need to be greater and proportionately similar because they have similar demand pressures. Budgets should be guaranteed for at least 5 years, with most of the new money being ring-fenced for investment in reforming care delivery. We also need a major overhaul of the way NHS money is allocated from the centre and used to fund local services if we wish to incentivise the preferred forms of care delivery. However, in this brave new world, other public services have to be protected from a voracious resource-consuming health and care system.

Longer-term funding guarantees for the NHS must have a realistic ceiling. This cannot be set at a 4 per cent real terms annual increase as some – who should know better – are now suggesting. No responsible Chancellor should agree to this. With average GDP growth in recent decades well under 3 per cent and currently under 2 per cent and with all the uncertainty of Brexit, then I think it could reasonably be argued that such a ceiling should be no higher than 2.5 per cent real terms increase annually in return for a 5-year guarantee. It should also have some measurable productivity requirements attached to it, monitored by an independent body answerable to Parliament.

So, yes let’s give the NHS a 70th birthday present but it should be gift-wrapped with tough love and accompanied by a credible funding plan for adult social care.

Lord Warner, Member, House of Lords NHS Sustainability Committee

This article has been republished from a speech Lord Warner gave on 6 June 2018 at the Adam Smith Institute and LCS Health and Social Care Programme event at the House of Lords.

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