Is the NHS in crisis? (1) Funding

This is the first in a series of comments on key issues in the NHS. They don't represent an agreed or formal position of SSONHS but are broadly consistent with views across the group's point of view.

Any universal health system will have persistently rising expenditure and this does have to be controlled. However most of the finance figures which are bandied around are constructed to serve either political or vested interests. (see for example here. There is no reason we cannot afford a properly managed universal health service free at the point of access. We currently continue to spend proportionately less than many European countries and in many circumstances (though not all) achieve better outcomes. However a service funded out of general taxation means that there does have to be sufficient general taxation.

For the last two years the successive heads of NHS England have been warning of a funding crisis. The current figure, put out by Simon Stevens in the Five Year Forward View, suggests that on present trends of income and expenditure the NHS will have a funding gap of £30 billion by 2020. He has suggested that this should be met by £22 billion efficiency savings and £8 billion extra from Government. This £8 billion represents a growth figure which Stevens describes as flat real per person (simply taking account of population growth)so is an ambition tailored to Goerge Osborne's targets. However most people seem to agree that the £22 billion efficiency savings cannot be reached - at least not without major cost cutting and privatisation. So flat real per person growth is not enough. However if there were a real term increase of between 2-3%, it has been estimated that the total funding gap could come down to £8 billion. Historically until 2011-12 there was on average a real term annual increase in funding of over 3.7%. The funding nettle has to be grasped. We will get the service we pay for. Apart from the taxes aimed at the wealthy, there is increasing evidence that most people would support small increases in general taxation which were for the NHS.

NB these figures are for the NHS and do not include social care where there has been an overall spending reduction of 13.4% including a 17.4% reduction in spending for older people. (Is it any surprise there is more of a burden on the NHS?)

Talk of a funding crisis is nothing new and was seen by Nye Bevan as one of the essential characteristics of the NHS. His now famous quote about needing to fight for the NHS needs to be linked with things he said even before July 5th 1948, for example: "We shall never have all that we need. Expectations will always exceed capacity."; and "The service must always be changing, growing and improving: it must always appear inadequate." Bevan and Wilson resigned in 1951 when Attlee's Labour government, squeezed by the Korean War, insisted on bringing in charges for spectacles and dentures. The successor Tory Churchill government then introduced prescription charges, using legislation previously set in place by Labour but not implemented. The NHS remained somewhat on the ropes (especially because of issues with GPs) until the Guillebaud report in 1956 showed what good value the NHS provided as a proportion of Gross National Product. Since then in various financial crises even Tory Chancellors have recognised the value of NHS expenditure. Tony Blair vowed to bring health expenditure as a proportion of GDP up to the level of other countries and briefly did so. It has now dropped back.

The current parliament will have had the lowest rate of growth in health spending across the UK since 1955 (0.6%) In 2012 health spending as a share of GDP averaged 9.9% among the EU-15 nations. Only five EU-15 countries spent a lower share of GDP on health (Greece, Italy, Finland, Ireland and Luxembourg). UK GDP has risen by over 9% since 2010. If NHS funding had been maintained at 2010 levels (9.9% of GDP), the NHS budget for the UK could now be over £150bn instead of £113bn. In 2013 Cameron and Hunt were ordered by the head of the UK Statistics Authority to stop saying they had put extra money into the NHS.

This year for the first time in several years the NHS has ended the financial year in deficit - to the tune of about £2 billion. There is general agreement that it it is working at its limit and that staff morale is low. Within the NHS tariff cuts have severely reduced hospital income . Most Trusts which have financial reserves have raided them to break even. Well respected hospital organisations are beginning to panic at the possibility of financial failure. However the definitions of 'failing' Trusts are not moral judgements but are constructed from arbitrary financial rules. Different ways of assessing financial performance would not lead so easily to the risk of major services being offered to private providers.

Some commissioners - both CCGs and NHS England specialist commissioners are also in deficit. By September, especially as winter planning gets under way, the next government will have to find funding to get the NHS through. This may be under guise of a transformation fund to help accelerate changes. Labour has a plan for this, just about, though it is likely to mean more borrowing at least before the projected tax changes kick in. The Tories and Lib Dems have fluttering promises which are being disparaged by financial commentators.

The required changes should include:

1) Abolition of the market. A minimum real estimate of the costs of the market was made a couple of years ago at £4.5billion per year. The actual cost is likely to be much higher. Since the market was introduced, administration costs in the NHS have risen from aroun 6% to 14%. (The US system runs at over 30% admin costs). Not all of this would be saved by market abolition because other mechanisms would also have a cost, but nothing like as much. (NHS Management is generally scapegoated by anyone dissatisfied but poor management, whether by bureaucrats or clinicians, doesn't mean that the NHS does not need management as long as they are managers committed to the service, not beancounters, accountants and marketing people). In some analyses the NHS actually has fewer managers than comparable private sector organisations and charities (though that may depend on the definition of manager). A King's Fund report in 2011 actually suggested that the NHS might be undermanaged (though they too have a vested interest! This should certainly start off with the external marker but should work towards eliminating the internal market as well (introduced under Thatcher).

3) An attack on the PFI agreements which are bankrupting hospitals, sucking money out of the NHS into big service, construction or property organisations. This is covered in the NHS Reinstatement Bill.

3) A revamped approach to human resources, emphasing human, not resources. This will include proper staffing levels, only to be supplemented by expensive agency staff in exceptional circumstances.

4)Productivity improvements (secured through operational changes, not by squeezing staff still further). These could include service integration (done with an emphasis on meeting need, not with cost-cutting as the prime objective; lots of pitfalls here), further identification of wasteful practice (including the advantages of clinicians having regard to the whole person and not just the specialist symptom with which they are presented), the improvement of systems, and, most fundamentally, an unprejudiced look at how hospitals and community health care should be linked up.

5) Better management of demand (see subsequent post) and understanding that if everything else is cut the NHS will be expected to pick up all the resulting problems.

6) A clearer focus on public and community health but, again, understanding how it should link with curative health care. If the NHS is going to put out all sorts of messages about early recognition of symptoms etc, it has to recognise the demand this will generate. Conversely a reduction in public health measures (and lack of consideration of health impact) will lead to more demand for emergency treatments and consequently greater expenditure (as well as trauma for the patient).

Most of these have been somewhere on the agenda since 2010. Lansley's damaging reforms plus the small state mentality of most Tories and the free trade aspirations of many Lib Dems have proved costly distractions (to use a polite word). Regardless of the actual figures, the government must take the blame for the financial chaos they are leaving.