UK: Will New Spending Controls Challenge NHS Transformation

Last Updated: 14 September 2015
Article by Karen Taylor

Most Read Contributor in UK, August 2017

On 17th August the King's Fund published a comprehensive analysis of the Conservative Government's first 100 days in office demonstrating the scale and of the challenges facing the NHS in 2015-16.  With nine out of ten acute hospitals predicting a deficit, unsurprisingly there is a renewed focus on bringing NHS spending back in line with budgets. At the same time, Ministers have also made it clear that balancing the books must go hand in hand with improving quality of care.  This week's blog discusses some of the key financial and operational policy requirements that the NHS now needs to implement over coming months, at a time of relentless increase in demand and a financial fire-storm that feels somewhat out of control.

By far the most immediate and challenging development is the imposition of new financial initiatives intended to bring more control over the NHS budgets, aimed at tackling the predicted £2 billion budget deficit in 2015-16 and, ultimately, the Simon Stevens £22 billion productivity challenge.  The key requirements for NHS trusts are to:

  • Reduce spend on agency staffing (which in 2014-15 was around £3.3 billion). The intention, going forward, is that there will be an agreed maximum hourly rate for agency staff (expected to vary by region and staff group. There is also a requirement that, from 19 October, trusts will only employ staff from agencies on approved frameworks, with a 'ceiling' on agency spend (on a trust-by-trust basis) effective from 1 October.  These individual ceilings are intended, eventually, to bring all providers' agency spending to within 3 per cent of their overall nursing expenditure. However, trusts that currently have the highest rates of agency nursing spend will be given years to reach this target. The controls are expected to save the NHS up to £500m on its agency bill for 2015-16.  However previous attempts to rein in spend on agency staff in 2005-06 had limited impact
  • Cap spending on new management consultancy contracts at £50,000, as part of a package of measures to control spending announced in June. Should organisations need to breach this cap for clinical reasons, they must seek approval from either Monitor or the NHS Trust Development Authority. While the cap is currently mandatory only for trusts and foundation trusts in breach of their license, the majority of trusts consider they are expected to comply, especially as all trusts are being "encouraged" to discuss their plans for using consultants with the Monitor team
  • Implement the findings of Lord Carter's review of efficiency in hospitals including getting a grip on use of resources, improving productivity of hospital 'workflow' and the development of 'sub-acute' services to help facilitate discharge of patients.  However, the Carter review identified only £5 billion in savings by 2020-21. Moreover, many of these have been identified in successive reports by the National Audit Office and the Audit Commission, with limited impact in reducing the wide variations
  • Accept the continuation of constraints on NHS staff pay, limiting pay increases to only one per cent a year for the next four years, while at the same time introducing a new National Living Wage of £7.20 an hour for those aged 25 and over from April 2016 (rising to more than £9 an hour by 2020). These two government policies could well prove counter-productive in relation to NHS and social care budgets, with a number of NHS support staff and thousands of social care staff on or near the minimum wage. Implementing these pay controls at the same time as maintaining the capacity and capability of providers is likely to prove extremely challenging.

Alongside the above financial initiatives, are a number of other policy initiatives that look set to increase pressure on health and social care budgets and increase demand for hospital care.  Arguably the most controversial, is the decision to postpone implementation of the Care Act's cap on care costs until 2020 which is a significant deviation from the position taken by the previous coalition government. This postponement has reinforced concerns about the future of social care, especially given the prospect of a £4 billion gap in social care funding by 2020 and the current reduction in the number of people eligible for social care funding  While the response to these concerns is usually to point to the opportunities provided by the Better Care Fund, there is increasing evidence that this is unlikely to be enough to tackle problem. At the same time increasing evidence demonstrates that cuts in social care increase demand on healthcare, especially for the more frail and vulnerable members of society. The decision on the cap on care costs could well undermine the Government's ambition to get a grip on NHS finances.

Similar concerns are emerging about  public health funding given that one of the first decisions by the Treasury was to reduce such funding by £200 million in 2015-16. This undermines the expressed commitment to improve prevention as put forward in the Five Year Forward View. Most commentators agree that taking money away from public health is extremely short-sighted. It will make it more difficult to moderate the rising demand for care from obesity and life style related challenges, could actively undermine integration and prove to be a false economy for the NHS.

A number of other policy initiatives gathering momentum since the election, such as "Devo Manc" , new models of care, under the new Vanguards programme, the digital NHS, as well as seven day working all require some form of investment or seed-corn funding. They also require full engagement at all levels of the NHS and social care alongside investment in the necessary IT and other technology.  They are also likely to unearth perverse and unintended consequences and only time will tell if these initiatives will finally deliver a high quality health and social care system that is economic, efficient and cost-effective.  Time, however, is not something that is in large supply. Indeed the challenge is whether the financial initiatives described above are likely to undermine these new more ambitious transformation policies, at least in the short term.






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