More medicine needed?


Just after the election, CIPFA concluded, in The Health of Health Finances, that additional upfront funding and new approaches would be needed if the NHS was to deliver to the Five Year Forward View. A consensus developed along those lines. The government recognises the issues and has taken some action in the November 2015 Comprehensive Spending Review and 2016-17 settlement. Meanwhile, policy developments, notably around integration and devolution, are promising but their benefits are likely to impact only in the medium to long term, leaving worrying gaps in the short to medium term. In More Medicine Needed? The Health of Health Finances Revisited, to be published shortly, CIPFA will examine the position now, and ask: what more needs to be done?

There are no certainties, but we believe there will be a shortfall of at least £5bn, quite likely £10bn and in the worst case as much as £16bn by 2020. That’s because we estimate that pressures on health by then will be in the range £35-40bn (compared with the government assessment of £30bn), and the savings achieved will be in the range £16-22bn (and it would be an exceptional and historically unprecedented performance to achieve the Government’s £22bn target). A gap of £13-24bn then remains, against which the government has promised £8bn.

Consequently there is a clear need for more action. The frontloading of promised financial support in 2016/17 and the planned increases in the Better Care Fund are welcome, but too modest. The effect of the actions to date is to maintain the focus on the short term, as illustrated in responses to the projected NHS overspends of 2015/16. Against that background, CIPFA believes that it is a leadership challenge as much as a financial challenge, and concludes that:

  • New methods of prioritisation will be needed if the necessary savings are to be made without affecting services unacceptably. The government has accepted that fewer older people receive support from social care despite the increasing number of older people: can an equivalent approach be applied in health by changing the financial model? That might, for example, include the acceptance of rationing the NHS offer in some areas, moving spend between parts of the system to improve allocative efficiency, and seeking to mirror in the NHS context the local government CFO’s statutory duty to balance the budget.
  • More analysis and honest assessment of the financial pressures and realistic level of savings is needed. There is an urgent need to revisit - and act accordingly on - the £30bn assessment of pressures on which the Five Year Forward View is predicated, accompanied by an assessment of the comparative phasing of pressures and planned savings. CIPFA believes both that the £30bn assessment is understated, and that the NHS will be unable to react quickly enough in the early years to achieve the productivity gains which will be required to achieve even the £22bn target.
  • The government should increase public health budgets and set aside more funds to make up front the longer term investments which will generate savings in the future without undermining the short-term position. Given that this would be ‘virtuous’, value-driven spending to generate future advantage, it would make sense to allow this investment to be funded by borrowing or a bespoke tax.
  • The frontloading of NHS support in the 2015 CSR has not changed the underlying position: it will be necessary either to add further to the NHS budget, charge users more, or reduce services. To choose none of those is not a realistic option.
  • Perhaps the most fundamental question of all is: what should the government be providing in terms of public services, and should it prioritise health above others?

It is vital that those matters are addressed in the right way as part of the realistic long term planning which should form the core of the government’s thinking. Accordingly, CIPFA calls on the government to set up a commission[1] which starts from the consensus that fundamental questions need to be asked of how the NHS can be adequately funded in the long term, and seriously examines the alternative options. We suggest the commission would have two key tasks:

  • To recommend a ‘golden ratio’ for health and social care spending, for example setting it at 10% of GDP, so that its national importance is recognised in long term planning by giving it the same status as already afforded to debt and foreign aid. A figure of 10% (compared with the EU average of 10% for health only) would recognise the premium obtained from what is already a comparatively efficient system. It may be that a subsidiary ratio might also be set for the proportion of spend to be invested for long term benefit.
  • To recommend the best, potentially radical, means of ensuring that the spending implied by such a ‘golden ratio’ is adequately funded. Examples of matters to consider would be the role of charging or co-payment (for revenue raising and incentive aspects), opportunities for bespoke taxation (as illustrated by the recently announced ‘sugar tax’), freedom for providers to seek services in the market, and possible means of raising additional investment funds (eg a more liberal approach to use of capital receipts, bonds or prudential borrowing for health purposes).


[1] This would in large measure constitute a Government follow-on from the work of the Commission on the Future of Health and Social Care in England, known as the Barker Report, published in 2014, which came to conclusions which remain highly relevant. See The Kings Fund.

[2] The Barker Report recommended that ‘the government should plan on the basis that public spending on health and social care will reach between 11 and 12% of GDP by 2025’ without recommending a ‘golden ratio’ as such. A figure of 10% reflects the new reality that health and social care spending is set to fall to 8% of GDP under current Government plans.

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