At 12:30pm on the 25th of November the long awaited and much rehearsed 2015 Spending Review was announced. Speculation about its content has been rife but, as the Chancellor set out how much government funding will be available for the NHS and social care over the next five years, the debate about whether the settlement will be enough to ensure the sustainability of the service commenced. This week’s blog considers the main details of the settlement and discusses what this might mean for health and social care.

In summary, the Government’s settlement for the NHS and social care includes:

  • £8 billion real term increase in NHS funding in England between 2015-16 and 2020-21, of which £6 billion will be delivered by the end of 2016-17
  • £4.8 billion capital funding, frozen over the next five years
  • integration of health and social care services by 2020, supported by up to £2 billion hypothecated local taxation
  • encouraging partnerships between the NHS and private sector to modernise buildings, equipment and services and deliver efficiencies
  • replacement of education grants with student loans and abolishing the cap on the number of student places for nursing, midwifery and allied health professionals
  • £22 billion efficiencies within the NHS by 2020-21, with savings reinvested into frontline health services, as set out in the NHS’s Five Year Forward View (5YFV) and actions to tackle deficits and ensure good financial management across the NHS.i

There was also specific mention of a £1 billion investment in new NHS technology, £600 million for mental health services and the need to transform the NHS into a 7-day service. However whether this is additional funding or included in the £8 billion is still unclear.

While, at first glance, the above looks like a successful outcome for the NHS, as the details become clearer the initial optimism is fast disappearing. A key concern is the fact that many of the requirements were stated in the 5YFV, however, at the time, the true extent of the current NHS financial crisis was not known. We now know all too well that key targets are being missed; concerns about the quality and quantity of mental health services are increasing; and three quarters of trusts are in deficit. Indeed, NHS providers are expected to end 2015-16 some £2.2 billion in the red.

Despite the additional funding, the NHS is still facing its most austere decade since its inception, with public funding for the NHS falling as a share of GDP to 7.4 per cent, making it one of the lowest of any developed country. In looking at the current financial challenges in the NHS, what is evident is that the increase in deficits is escalating at pace, with nearly 80 per cent of providers overspending by a total of £1.62 billion in the first half of this year alone. This is a significant deterioration of financial performance compared to the same half year point last year when providers’ deficit was £6.36 million (in 2015/16 prices), with 58 per cent of trusts in deficit after six months into 2014/15.ii

There is also the requirement to achieve a £22 billion efficiency saving by 2020-21. Although there are undoubtedly opportunities to improve productivity and reduce variation, £22 billion is equivalent to 2-3 per cent efficiency savings per year, something that has previously proved difficult to achieve and certainly not likely when NHS providers are already in deep financial trouble. A survey by the Healthcare Financial Management Associationiii shows that about nine out of 10 NHS finance directors doubt that their organisations can deliver efficiency savings in the range of 2-3 per cent per year.

Furthermore, while the Government’s front-loading of the settlement is welcome, it is predicated on reductions in funding for other parts of the health service. Indeed, a significant chunk of the extra funding promised to NHS England has been secured by cutting the £15.1 billion non-ring fenced Department of Health budget by £2 billion in cash terms by 2020-21 (a 21 per cent reduction). The bulk of those cuts falling on the £10.3 billion pot of revenue funding that pays for things like health education, public health, and the operation of arm’s length bodies, such as the Care Quality Commission. However, these are not ’back office functions’ indeed both Health Education England and Public Health England, provide key elements of front line care, from funding junior doctor workforce placements to key prevention services such as vaccinations, sexual health and stop smoking services.

Meanwhile the settlement for social care, while offering some semblance of relief, will only reach £2 billion by 2020-21, if all councils take full advantage of their ability to introduce a two per cent precept on council taxes. Compared to the estimated requirement of an additional £6 billion to meet the social care funding gap by 2020, this lever does not come close to closing the funding gap between demand and current capacity. Indeed, most of this extra money will be swallowed by simply keeping the lights on.

As the 5YFV and numerous other policy documents have acknowledged, a key way to address the health and social care funding gap is through the adoption of digital health technology. However, the £1 billion pledged for investment in new technology over the next five years falls far short of the amount that the Department of Health suggested was needed (£3.3 to £5.6 billion).iv Furthermore, the queue for the use of these resources is growing by the day. These include the need for interoperable electronic health records, improved access to information, and the efficient delivery of telehealth and telecare services to support care closer to home. These digital health services are key enablers of service transformation but will require much more funding than the offer on the table. 

Finally, the need for integration of health and social care is supported by a proposed increase in the Better Care Fund. And, without doubt, integration of health and social care is the right direction for improving services for the more vulnerable and frail members of society. However, unless some of the key structural and cultural issues are addressed, any additional money will have limited impact. To avoid social care becoming marginalised and realise the much needed integration agenda, it will require genuine pooling of budgets, risk sharing and changes to funding and tariff arrangements. Furthermore, the cost of transformation and the time taken to achieve it should not be underestimated.

The period covered by the 2015 Spending Review will be the most challenging in the history of the health and social care system. While the government’s commitment to increase the NHS budget in real terms by £8 billion by 2020 is clearly welcome , this appears to be the absolute minimum requirement to maintain standards of care. One thing is certain, both services will need to respond simultaneously to growing pressures while putting in place large-scale changes needed to ensure their future sustainability. Failure to do so will mean long waiting times for patients, deterioration in quality of care, and far fewer people receiving publicly funded social care.


Karen Taylor - Director, UK Centre for Health Solutions

Karen is the Research Director of the Centre for Health Solutions. She supports the Healthcare and Life Sciences practice by driving independent and objective business research and analysis into key industry challenges and associated solutions; generating evidence based insights and points of view on issues from pharmaceuticals and technology innovation to healthcare management and reform.

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