What the budget didn’t say

10 July 2015

This week the Chancellor presented the first Conservative budget since 1996. While departments across Whitehall were told to expect demanding cuts in the upcoming Spending Review, for the NHS it was a different story. The Government reconfirmed that, in line with Simon Stevens’ Five Year Forward View, the NHS will receive an additional £10 billion a year in real terms by 2020. This, however, is only one side of the deal; in return for the additional investment, the NHS must deliver £22 billion in savings.

This presents an unprecedented challenge for the health service and all those who work within it. It will mean raising NHS productivity from a historic average of less than 1 per cent up to 2-3 per cent within the Parliament. Here hospitals matter most. In 2014-15 two thirds of acute hospitals were in the red, with a sector deficit of more than £800 million. This year is expected to be even worse as providers struggle to meet demand within the budgets available. As David Bennett, Chief Executive of Monitor, has said, hospitals’ savings plans are “not yet as stretching as they need to be”.

Lord Carter last month, in his independent review for the Government, highlighted some of the yet untapped opportunities. Carter argues operational changes could yield £5 billion in annual efficiencies by 2019-20; £1 billion through better drug utilisation, estate management and procurement respectively and £2 billion through improved workforce management. Much of what Carter proposes comes down to the simple idea of eliminating variation between providers so that all hospitals catch up with best practice. In procurement for example, Carter found variation of almost 80% in the price hospitals are paying for knee replacements. Better data collection and sharing is also needed to benchmark hospitals against peers.

What Carter identifies most of all is that without better use of the workforce, “all other areas of opportunity pale into insignificance”. Costing by far the biggest chunk of the NHS budget, there can be no high value NHS without a productive workforce. In the last Parliament, savings were made by a short term freeze on pay rather than sustainable improvements to the way the workforce operates. It is striking that while the Five Year Forward View assumed this would not be possible in years of growth, the Budget announced that public sector pay rises will once again be capped at 1 per cent annually for the next four years. Some commentators have already suggested this could be an early indication that the Chancellor is sceptical the NHS can meet the £22 billion challenge without drastic pay restraint.

Carter’s recommendations are right but only part of the answer. The bulk of the savings will have to come from service transformation – not simply doing what the NHS currently does better, but changing the way the NHS does business altogether. Or, as Lord Prior, Minister for NHS Productivity, put it yesterday “real transformational system-wide change”. The Five Year Forward View outlined plans to implement new, more integrated models of care, manage future demand through a “radical upgrade” in prevention and public health, and engage patients and communities in their health and care. These reforms have the potential to yield significant savings, but as of yet the scale is largely unquantified.

While this week’s Budget may have told only one side of the story when it comes to NHS reform, the Government has started the Parliament with a reforming tone. In his first post-election speech on public service reform, the Prime Minister set out that “there is no choice between efficiency savings and quality of care”. The Health Secretary echoed this, writing “The NHS now needs to deliver its side of the bargain, which is to make substantial and significant efficiency savings”. Delivering on these reforming ambitions is the only way to achieve a sustainable health service.

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