3.2 Inflation
3.2.1 Could the Department give an explanation as to
the level of funding set aside for inflation in 2004-05? In particular,
can it give the average pay awards to each (subjective) staff
group and the inflation assumptions for non pay including capital
charges? [3.2.1]
HEALTH AUTHORITY
INFLATION
1. NHS funding will rise by £5.6 billion in 2004-05—equivalent
to 6.3% real terms growth. This overall allocation will help the
NHS to meet healthcare pressures reflected in local Delivery Plans.
However, it is for health economies, including strategic health
authorities in partnership with NHS Trusts, Primary Care Trusts
and local authorities to determine how best to use their funds
to meet national and local priorities for improving health and
modernising services. The significant additional resources available
will aid them in this process.
2. 2004-05 is, for the majority of NHS trusts a preparatory
year for the introduction, on 1 April 2005, of Payment by Results
with some Foundation Trusts opting for early implementation from
1 April 2004. The national price tariff underpinning the system
is also adjusted annually for unavoidable cost pressures. The
uplift is based on the same assumptions that underpin the revenue
allocations to PCTs. The uplift includes:
— the expected impact on pay, including Agenda for
Change, consultant contract, European Working Time Directive and
the change in employers' pension contributions;
— increases in the cost of drugs and other technology,
including increases arising from NICE guidance;
— price inflation for goods and services;
— the impact of one-off events (such as change to
National Insurance contributions);
— an overall 1% efficiency gain assumption; and
— a reduction in the return on capital employed
by providers from 6% to 3.5%.
For 2004-05 the total uplift for the national tariff is 7.9%.
Pay
3. The table below shows the settlements awarded to those
staff whose pay arrangements are determined by the Review Bodies.
Table 3.2.1
REVIEW BODY PAY SETTLEMENTS 2004
|
| Group | Settlement
|
|
| Nursing and Midwifery | 3.225%
|
| Allied Health Professionals | 3.225%
|
| Consultants on the new contract | 3.225%
|
| Consultants on the old contract | 2.5%
|
| Juniors | 2.7%
|
| NCCGs | 2.7%
|
| FHS doctors | 3.225%
|
|
Prices
4. The GDP deflator is used as a proxy for underlying
non-pay inflation in the NHS. This needs to be adjusted for assumptions
about the level of procurement and other efficiency savings that
the NHS is expected to make.
Capital Charges
5. At national level, the cost of capital charges paid
by the NHS is a circular flow of funds. The total of the capital
charges estimates made by NHS Trusts forms part of the total cash
resources available through Health Authority allocations.
6. Indices for land, buildings and equipment are produced
for the Department each year by the Valuation Office, in order
that the NHS may calculate capital charges in advance of the financial
year.
7. The aggregate index used to uplift capital charges
from 2002-03 to 2003-04 levels was 8.7%. The index is not yet
available for 2003-04 to 2004-05.
3.2.2 Could the Department please update the information
provided in response to last year's questionnaire in relation
to the components of the health specific inflation indices for
revenue spending on HCHS and Family Health Services respectively,
together with capital spending on HCHS? The tables for the HCHS
should show separate inflation indices for Review Body staff and
non-Review Body staff pay, and whatever other breakdowns of staff
are available. [3.2.2]
HCHS PAY AND
PRICES INFLATION
Prices
1. Increases in the cost of goods and services, ie the
non-pay components of inflation are measured by the Health Service
Cost Index (HSCI). The HSCI weights together price increases for
a broad range of items used by the health service—for example,
drugs, medical equipment, fuel, telephone charges—using
weights derived from expenditure on these various goods and services
reported in financial returns.
Pay
Table 3.2.2(a)
INFLATION FOR SPECIFIC ITEMS OF HCHS REVENUE EXPENDITURE
|
| 2001-02
| 2002-03 | 2003-04
|
|
| %
| % | %
|
| Total staff pay | 8.3
| 5.0 | n/a
|
| Review Body staff | 9.4
| 5.1 | n/a
|
| Non-Review Body staff | 6.0
| 4.8 | n/a
|
| Prices | 0.1
| 1.3 | 2.5
|
| HCHS Total | 5.1
| 3.6 | n/a
|
|
NB: Staff pay figures shown for 2001-02 appear artificially high
by the inclusion of 2% pension increases in employers contributions
from 1 April 2001.
FHS Inflation
3. The components of the Family Health Service (FHS)
inflation index are set out in Table 3.2.2(b). For General
Medical Service (GMS) and General Dental Service (GDS), service
specific inflation is calculated as the increase year on year
in the average cost per practitioner. For both services the changes
in unit costs include volume and quality effects (eg increase
practice staff numbers or the provision of a changing range of
services) as well as pure price effects. For the Pharmaceutical
Service (PhS) and General Ophthalmic Service (GOS), service inflation
is assumed equal to movements in the GDP deflator. GMS cash limited
expenditure has not been included in the calculations. The FHS
inflation index may be affected by a number of changes in primary
care services, including the provision of drug costs in unified
budget, and will need to be reviewed in the future.
Table 3.2.2(b)
COMPONENTS OF THE FHS INFLATION INDEX
|
| 2000-01
| 2001-02 | 2002-03
|
|
| %
| % | %
|
| GMS | 3.7 |
0.3 | 0.8
|
| GDS | 4.0 |
3.6 | 5.0
|
| PhS | 1.9 |
2.6 | 3.4
|
| GOS | 1.9 |
2.6 | 3.4
|
| FHS Total | 2.7
| 2.2 | 3.1
|
|
Footnote:
1. The GMS figures do not include PMS GPs.
4. For 2003-04 to 2005-06 an uplift for unavoidable cost
pressure on the Payment by Results national tariff has also been
calculated. The tariff includes such areas as pay, prices and
capital charges. For 2003-04 the national tariff has been calculated
to be 3.3%. This is substantially lower than the 2004-05 tariff
uplift figure due to a change in the discount rate which reduced
the tariff by nearly 2%.
5. The uplift includes:
— the expected impact on pay, including Agenda for
Change, consultant contract, European Working Time Directive and
the change in employers' pension contributions;
— increases in the cost of drugs and other technology,
including increases arising from NICE guidance;
— price inflation for goods and services;
— the impact of one-off events (such as change to
National Insurance contributions);
— an overall 1% efficiency gain assumption; and
— a reduction in the return on capital employed
by providers from 6% to 3.5%.
3.2.3 Could the Department please update the information
provided in response to last year's questionnaire in relation
to the increases in expenditure on the NHS in cash terms, real
terms (GDP deflator) and real terms (NHS deflator)? [3.2.3]
1. Between 1993-94 and 2002-03, the latest year for which
NHS specific indices are available, net NHS expenditure has increased
by:
49.7% in real terms adjusted by the GDP deflator; and
36.1% after accounting for NHS specific inflation.
2. Between 2003-04 and 2005-06, net NHS resources increase
by:
22.3% in real terms adjusted by the GDP deflator.
Table 3.2.3
CHANGE IN NET NHS EXPENDITURE 1993-94 TO 2005-06
|
| | | Net NHS expenditure(3)
£m
| Percentage Change
%
| Real terms
change(1)
%
| Change after
adjusting for NHS specific inflation(2)
%
|
|
| Cash | |
| | | |
| 1993-94 | Outturn
| 28,942 | —
| — | —
|
| 1994-95 | Outturn
| 30,590 | 5.7
| 4.2 | 3.0
|
| 1995-96 | Outturn
| 31,985 | 4.6
| 1.6 | 0.8
|
| 1996-97 | Outturn
| 32,997 | 3.2
| -0.2 | 0.3
|
| 1997-98 | Outturn
| 34,664 | 5.1
| 2.4 | 2.9
|
| 1998-99 | Outturn
| 36,608 | 5.6
| 2.7 | 1.6
|
| 1999-2000 | Outturn
| 39,881 | 8.9
| 6.6 | 4.1
|
| Stage 1 Resource Basis |
| 1999-2000 | Outturn
| 40,201 | —
| — | —
|
| 2000-01 | Outturn
| 43,932 | 9.3
| 8.0 | 5.0
|
| 2001-02 | Outturn
| 49,021 | 11.6
| 8.8 | 6.5
|
| 2002-03 | Outturn
| 54,042 | 10.2
| 6.7 | 6.5
|
| Stage 2 Resource Basis |
| 2002-03 | Estimated outturn
| 55,724 | —
| — | |
| 2003-04(4) | Plan
| 63,667 | 14.3
| 11.2 | |
| 2004-05 | Plan
| 69,231 | 8.7
| 6.3 | |
| 2005-06 | Plan
| 76,144 | 10.0
| 7.3 | |
|
Footnotes:
1. Change after adjusting for the GDP deflator (30 June 2004).
2. NHS specific inflation index is available of the period
up to 2002-03.
3. NHS Expenditure Figures for the period 1999-2000 to 2005-06
are consistent with Table 2.2.1a and 2.2.1b.
4. NHS expenditure figures for 2002-03 to 2005-06 have been
adjusted for classification changes by HMT. As a result, growth
in NHS expenditure in 2003-04 is distorted. Once these are adjusted
for, real terms growth in NHS expenditure in 2003-04 is 7.3%.
3.2.4 Could the Department please update the information
provided in response to last year's questionnaire in relation
to the construction of the NHS inflation index from main sub-indices
of pay and other factor costs since 1992, and comment on the assumptions
underlying this construct? Would the Department provide the weights
used for each sub-index, for each year? [3.2.4]
1. The NHS inflation is constructed using five sub-indices.
These are:
HCHS pay index: This measures the change
in average paybill per head of those employed within the HCHS;
HCHS price inflation: This measures the change
in the price of goods and services supplied to the HCHS, it is
measured by the Health Service Cost Index;
HCHS Capital Inflation Index: This reflects
the changes in prices experienced in HCHS capital projects and
is calculated using a mixture of the construction price index
and the GDP deflator;
FHS Index: This is produced using different
assumptions for each of the main groups. For general medical services
and general dental services, inflation is calculated as the increase
in the average cost per practitioner. For both services, the change
in unit costs includes volume and quality effects as well as pure
price effects. For pharmaceutical services and general ophthalmic
services, service inflation is assumed equal to movements in the
GDP deflator;
The "other" Index: This comprises
of the revenue and capital expenditure on Central Health Miscellaneous
Services (CHMS) and Departmental Administration (including the
Medicines Control Agency and NHS Estates). The GDP deflator is
used in the absence of service specific deflators.
|
| HCHS |
HCHS | HCHS
| | | NHS
|
|
| Year | Pay |
Prices | Capital
| FHS | Other
| Total |
| 1992-93 | 100.0
| 100.0 | 100.0
| 100.0 | 100.0
| 100.0 |
| 1993-94 | 104.2
| 101.4 | 104.4
| 100.6 | 102.5
| 102.7 |
| 1994-95 | 107.7
| 102.3 | 112.9
| 102.9 | 103.8
| 105.4 |
| 1995-96 | 112.5
| 105.6 | 118.0
| 105.5 | 106.8
| 109.3 |
| 1996-97 | 116.2
| 107.2 | 119.7
| 109.0 | 110.2
| 112.4 |
| 1997-98 | 119.1
| 107.6 | 124.7
| 112.2 | 113.6
| 114.8 |
| 1998-99 | 124.9
| 110.3 | 128.5
| 115.6 | 116.7
| 119.3 |
| 1999-2000 | 133.5
| 111.6 | 132.1
| 120.3 | 119.5
| 124.8 |
| 2000-01 | 142.7
| 111.2 | 139.7
| 123.6 | 122.2
| 129.9 |
| 2001-02 | 154.5
| 111.3 | 148.8
| 126.2 | 125.3
| 136.1 |
| 2002-03 | 162.3
| 112.8 | 155.4
| 130.1 | 129.5
| 140.8 |
|
2. The weights attached to each of the elements for each
of the years are shown in the table below.
|
| HCHS
| HCHS | HCHS
| | NHS
| |
|
| Year | Pay
| Prices | Capital
| FHS | Other
| Total |
| 1992-93 | 49%
| 21% | 6%
| 21% | 3%
| 100% |
| 1993-94 | 49%
| 21% | 5%
| 22% | 3%
| 100% |
| 1994-95 | 49%
| 21% | 6%
| 22% | 3%
| 100% |
| 1995-96 | 49%
| 21% | 5%
| 22% | 3%
| 100% |
| 1996-97 | 50%
| 21% | 4%
| 23% | 2%
| 100% |
| 1997-98 | 47%
| 25% | 3%
| 23% | 2%
| 100% |
| 1998-99 | 47%
| 25% | 3%
| 22% | 2%
| 100% |
| 1999-2000 | 46%
| 24% | 3%
| 24% | 2%
| 100% |
| 2000-01 | 46%
| 22% | 4%
| 26% | 2%
| 100% |
| 2001-02 | 47%
| 21% | 4%
| 26% | 2%
| 100% |
| 2002-03 | 48%
| 32% | 4%
| 14% | 2%
| 100% |
|
3. The weights attached to each of the elements have
changed considerably between this year and last year. This is
because between years there has been an increase in the number
of PCTs from 164 to 304. PCTs have progressively taken over the
commissioning of healthcare from health authorities but also the
provision of some services from NHS trusts. The revenue expenditure
for the provider function cannot be accurately eliminated from
the total revenue expenditure hence year on year increases in
total revenue expenditure are not comparable.
3.3 Hospital and Community Health Services
Allocations and Distance from Targets
3.3.1 Could the Department please update the information
provided in table 3.3.1 in response to last year's questionnaire
on expenditure covering HCHS and FHS for each SHA area together
with estimates of distances from target needs based expenditure?
[3.3.1]
1. The information requested is provided in Table
3.3.1. The information is unchanged from that provided in
response to last year's questionnaire, as the allocations announced
in December 2002 cover the period 2003-04 to 2005-06.
2. The table aggregates 2003-04 to 2005-06 PCT allocations
and distances from target at SHA level. These unified allocations
cover hospital and community health services (HCHS), prescribing
(the drugs bill), general medical services discretionary (general
practice infrastucture) and HIV/AIDS.
3. For 2003-04 to 2005-06 the weighted capitation formula
which informs resource allocation also has a general medical services
non-discretionary component. This allows the cash limited unified
allocations to take account of the distribution of GMS non- discretionary
expenditure.
4. GMS non-cash limited baselines and targets are added
to unified allocations baselines and targets to form composite
baselines and targets. Composite distances from target are derived
to inform the allocation of the extra resources for unified allocations.
This is not used to allocate GMS non-discretionary funding which
remains non-cash limited.
5. The Department does not make allocations for FHS non-discretionary
expenditure. This expenditure is non-cash limited and PCTs draw
down funding from the Department as required to meet their expenditure.
Apart from the GMS non-discretionary formula referred to above
there are no formulas to calculate target shares of FHS non-discretionary
expenditure.
6. Following the introduction of a new contract for GMS,
the funding for GMS is now cash-limited and the Department intends
to include the majority of GMS and PMS funding in PCT allocations
from 2006-07.
