House of Commons - Health Committee

Public Expenditure - Health Committee Contents

Memorandum by the Department of Health (PEX 01)

1. STRATEGIC ASSESSMENT

1.1.1 What level of commitment is national government making to the NHS, and how does it compare with long term trends of demand, cost and efficiency? (Q1)

Answer

1. The national government commitment to the NHS is set out clearly in its policy document: The Coalition: our programme for government, which states:

"We will guarantee that health spending increases in real terms in each year of the Parliament, while recognising the impact this decision will have on other departments"

2. This commitment to real terms increases must be seen in the context of the Coalition Government's overriding priority to eliminate the structural current deficit by 2014-15 (in 2010-11 forecast to be 4.8% of GDP).

3. Most independent commentators believe that NHS funding needs to increase each year by more than inflation simply to keep pace with long run pressures on the NHS arising from demography, medical advance and rising patient expectations. Indeed, the long run trend in combined capital and revenue funding for the NHS over the past 39 years averages 3.9% per annum above inflation.

4. Table 1a shows a time series of NHS expenditure going back to 1971-72, and table 1b some calculated growths in expenditure across key periods.

Table 1a

NHS TOTAL EXPENDITURE, ENGLAND: 1971-72 TO 2010-11


Year		Net NHS expenditure (5) (9)	% increase	% real terms increase (8)
		£ billion

Cash (1)
1971-72	Outturn	2.000
1972-73	Outturn	2.281	14.1	5.1
1973-74	Outturn	2.508	10.0	2.5
1974-75	Outturn	3.337	33.1	11.2
1975-76	Outturn	4.413	32.2	5.5
1976-77	Outturn	5.032	14.0	0.4
1977-78	Outturn	5.555	10.4	-2.9
1978-79	Outturn	6.273	12.9	1.7
1979-80	Outturn	7.447	18.7	1.5
1980-81	Outturn	9.700	30.3	10.1
1981-82	Outturn	10.854	11.9	2.1
1982-83	Outturn	11.819	8.9	1.8
1983-84	Outturn	12.494	5.7	1.0
1984-85	Outturn	13.407	7.3	1.9
1985-86	Outturn	14.176	5.7	0.1
1986-87	Outturn	15.173	7.0	3.7
1987-88	Outturn	16.668	9.9	3.9
1988-89	Outturn	18.420	10.5	3.5
1989-90	Outturn	19.855	7.8	0.6
1990-91	Outturn	22.326	12.4	4.2
1991-92	Outturn	25.353	13.6	7.2
1992-93	Outturn	27.968	10.3	7.0
1993-94	Outturn	28.942	3.5	0.7
1994-95	Outturn	30.590	5.7	4.1
1995-96	Outturn	31.985	4.6	1.6
1996-97	Outturn	32.997	3.2	-0.5
1997-98	Outturn	34.664	5.1	2.4
1998-99	Outturn	36.608	5.6	3.4
1999-2000	Outturn	39.881	8.9	6.8
Resource Budgeting Stage 1 (2)
1999-2000	Outturn	40.201	-	-
2000-01	Outturn	43.932	9.3	7.9
2001-02	Outturn	49.021	11.6	9.1
2002-03	Outturn	54.042	10.2	6.8
Resource Budgeting Stage 2 (3) (6)
2003-04	Outturn	64.173	-	-
2004-05	Outturn	69.049	7.6	4.7
2005-06	Outturn	75.822	9.8	7.8
2006-07	Outturn	80.561	6.3	3.2
2007-08	Outturn	89.401	11.0	7.9
2008-09	Outturn	94.017	5.2	2.6
2009-10	Estimated outturn	102.076	8.6	6.7
Resource Budgeting—Aligned (4)
2009-10	Estimated outturn	100.204	-	-
2010-11	Plan	103.089	2.9	0.6

Source:
Department of Health (Financial Planning and Allocations Division)

Footnotes:

1.  Expenditure pre 1999-2000 is on a cash basis.
2.  Expenditure figures from 1999-2000 to 2002-03 are on a Stage 1 resource budgeting basis.
3.  Expenditure figures from 2003-04 to 2009-10 are on a Stage 2 resource budgeting basis.
4.  Expenditure figures from 2009-10 to 2010-11 are on an aligned basis.
5.

Expenditure figures are not consistent over the period (1971-72 to 2010-11) and this should be noted when making comparisons between years.
6.  Figures from 2003-04 include a technical adjustment for trust depreciation.
7.  Expenditure excludes NHS annually managed expenditure (AME).
8.  GDP deflator 31 March 2010.
9.  Total expenditure is calculated as the sum of revenue and capital expenditure net of non-trust depreciation and impairments. This is in line with HM Treasury guidance.

Table 1b

NHS EXPENDITURE, ENGLAND: AVERAGE ANNUAL GROWTH RATES FOR KEY PERIODS


	Revenue real terms growth	Capital real terms growth	Total real terms growth

1 Year Period	1.4%	-11.4%	0.6%
(2010-11)
2 Year Period	3.6%	3.8%	3.6%
(2009-10 to 2010-11)
3 Year Period	3.3%	5.9%	3.3%
(2008-09 to 2010-11)
4 Year Period	4.2%	8.9%	4.4%
(2007-08 to 2010-11)
5 Year Period	3.9%	14.3%	4.2%
(2006-07 to 2010-11)
10 Year Period	5.4%	11.6%	5.6%
(2001-02 to 2010-11)
15 Year Period	5.1%	4.9%	5.0%
(1996-97 to 2010-11)
20 Year Period	4.9%	3.8%	4.8%
(1991-92 to 2010-11)
25 Year Period	4.6%	3.6%	4.5%
(1986-87 to 2010-11)
30 Year Period	4.0%	3.4%	3.9%
(1981-82 to 2010-11)
39 Year Period	4.0%	2.7%	3.9%
(1972-73 to 2010-11)

Source:
Department of Health (Financial Planning and Allocations)

5. In order to meet the potential gap between pressures and the expected level of funding, the Department, working with the NHS has developed an efficiency programme—QIPP (quality, innovation, productivity and prevention)—that will deliver £15 billion to £20 billion of efficiencies over the next four years.

6. The success of the programme will enable the NHS to deliver improvements to the quality of services, while meeting the continuing increases in demand.

7. The QIPP efficiency programme is discussed in detail in response to question 2.

1.1.2 What are the implications of the "£15-20 billion efficiency challenge" described in the Revised Operating Framework for the NHS as "absolutely critical for the future"? (Q2)

Answer

1. The Government has committed to health spending rising in real terms in each year of this Parliament, reflecting the priority the Government places on the NHS. Despite this, the financial outlook for this Parliament is among the toughest the NHS has ever faced.

2. At the same time the NHS faces rapidly rising demands from an ageing and growing population, from new technology and from rising expectations. If these demands are to be met while also improving health outcomes, unprecedented levels of efficiency improvement will be required.

3. The NHS Chief Executive first set out the £15-20 billion challenge in May 2009. The NHS has been developing detailed plans to meet this challenge by looking at areas where it can simultaneously improve the quality of care and release substantial efficiency savings by focusing on innovation and prevention. The QIPP programme (quality, innovation, productivity and prevention) will release substantial efficiency savings for reinvestment in the front line. QIPP is working at a national, regional and local level to support clinical teams and NHS organisations to improve the quality of care they deliver, while making efficiency savings that can be reinvested in the service to deliver year on year quality improvements. The Department of Health is working with partners to provide advice and support to the NHS.

4. The QIPP plans are being revised in response to the direction set out in the White Paper Equity and excellence: liberating the NHS, to outline how the efficiency challenge will be met by the reformed health system.

5. This represents a necessarily very challenging and ambitious efficiency programme and its successful delivery will require fundamental changes to the health system. Over the next four years the NHS will reduce its administrative running costs of non-front-line services by more than 45%, releasing money for the front line. The transition will be to a more patient-focused service, where efficient providers are rewarded for the quality of service they provide, where information is only collected if it contributes to better care, and payment will be based on the most efficient cost of providing the service.

6. It is inevitable that there will be reductions in the size of the workforce, where the reduction in non-front-line services will be the most significant factor. Efficiency plans focus on maximising the impact of natural wastage and a targeted recruitment freeze, to protect the jobs of nurses and doctors wherever possible.

7. The envisaged transformation in the quality and efficiency of services will require changes to the way and the setting in which some services are delivered and the responsibility lies with local clinicians to decide how to best to configure services in meeting patient needs. The Department has published four tests which must be met in order to proceed with any proposed reconfigurations. The tests will require reconfiguration proposals to demonstrate:

— support from GP commissioners;

— strengthened public and patient engagement;

— clarity on the clinical evidence base; and

— consistency with current and prospective patient choice.

8. The financial climate is a reason to accelerate reform, not abandon it. The reforms necessary to release these efficiencies will create a long-term sustainable NHS through cutting bureaucracy and duplication, delivering real autonomy for providers matched by transparency and accountability within a regulated system and creating stronger incentives for quality and efficiency.

1.1.3 What commitment is the government making on capital expenditure as opposed to revenue expenditure? (Q3)

Answer

1. Current plans have only been finalised for 2010-11. Expenditure for following years is subject to the Spending Review, which is due to be published on 20 October 2010. The coalition document makes clear the commitment to "guarantee that health spending increases in real terms in each year of the Parliament".

2. Table 3 shows the planned spend for 2010-11. This shows the level of investment planned is £4.9 billion in 2010-11, 4.6% of the total health resource DEL. The Coalition did not propose any changes to this level of investment in the Emergency Budget on 22 June.

Table 3

CAPITAL BUDGET DEPARTMENTAL EXPENDITURE LIMIT (DEL)


		£000s

	2009-10 estimated outturn	2010-11 plans

National Health Service (NHS)	5,239,879	4,748,999
of which:
Hospital and community health services	5,139,498	4,711,967
Central health and miscellaneous services	80,394	20,032
Departmental administration including agencies	19,987	17,000
Personal Social Services (PSS)	153,039	147,853
of which:
Personal Social Services	13,621	26,433
Local authority personal social services grants	139,418	121,420
Total capital budget DEL	5,392,918	4,896,852

Source:
HM Treasury (COINS database, August 2010)
1.1.4 What level of commitment is national and local government making to Social Care, and how does it compare with long term trends of demand, cost and efficiency? (Q4) Answer

1. Table 4a sets out expenditure by local authorities on social care since 1997-98. The data show that expenditure has risen by around 120% in nominal terms from 1997-98 to 2008-09, equivalent to 68% in real terms. The expenditure has been affected by some changes in responsibility over the period, notably the transfer of former Preserved Rights clients in 2002-03, and the introduction of NHS funding for the nursing care of supported residents in nursing homes in April 2003.

2. The table shows that community-based care has seen above-average increases in expenditure, with residential care rising more slowly. This reflects a long-standing commitment to providing more care to people at home or in their communities.

3. Local authorities are free to allocate the resources they receive from central government how they wish, subject to some limited exceptions, and have been able to raise additional sums through council tax in order to supplement the funding received through central government. Central government does not allocate money to local authorities for particular services. Therefore, while the Department can provide information on overall expenditure on social care services by local authorities, it is not possible to indicate whether this expenditure was funded through central government grants or through local government revenue.

Table 4a

NET CURRENT EXPENDITURE BY CENTRAL AND LOCAL GOVERNMENT ON SOCIAL CARE

												£ million
	1997-98	1998-99	1999-2000	2000-01	2001-02	2002-035	2003-04	2004-05	2005-06	2006-07	2007-08	2008-09
Local Authority Domiciliary Care (1) (2)
Service Strategy (3)	84	96	103	77	68	42	42	51	44	49	86	57
Assessment and Care Management	779	810	881	942	1,043	1,170	1,337	1,536	1,650	1,724	1,739	1,890
Direct Payments	-	10	41	49	56	82	123	187	267	344	437	588
Home Care	1,207	1,258	1,351	1,406	1,484	1,585	1,777	1,993	2,240	2,357	2,375	2,520
Day Care for Older People	171	184	196	235	259	272	285	302	323	335	337	362
Day Care for Other Adults	497	532	572	608	640	693	749	763	823	855	865	900
Equipment and Adaptations	73	65	71	108	122	126	145	163	182	186	198	227
Meals	47	46	51	58	58	57	58	57	56	55	51	51
Other Services	468	497	570	340	353	348	372	463	490	529	552	567
Supporting People (4)	-	-	-	-	-	-	571	644	597	558	559	602

	3,326	3,499	3,836	3,822	4,083	4,374	5,459	6,160	6,672	6,991	7,199	7,764

Local Authority Residental Care for (1) (2)
Older People (Aged 65 or over)	1,982	2,079	2,206	2,204	2,293	2,711	2,882	3,172	3,284	3,325	3,337	3,340
Adults aged under 65 with:
A Physical Disablility or Sensory Impairment	152	164	179	188	200	274	273	295	315	325	342	351
Learning Disabilites	572	623	691	764	828	1,122	1,197	1,371	1,494	1,596	1,688	1,808
Mental Health Needs	153	163	170	192	210	267	271	303	326	344	354	368

	2,858	3,029	3,247	3,348	3,531	4,374	4,624	5,142	5,419	5,591	5,721	5,867


Total	6,184	6,528	7,083	7,170	7,615	8,748	10,083	11,302	12,092	12,582	12,920	13,631

Source: Department of Health (Social Care Finance; RO3 and PSS EX1 returns)

Footnotes:

1. Local authority expenditure for 2000-01 and later years is obtained from the PSS EX1 return; individual service lines include overhead costs. For years prior to 2000-01 it is obtained from the RO3 current expenditure return but with a share of overhead costs allocated to service lines on a pro-rata basis. Figures for 2000-01 and later years are therefore not strictly comparable with those for

earlier years. The RO3 return was redesigned in 1998-99 and equipment and adaptions and meals were made memorandum items leading to some under- recording and consequent inflation of the other services expenditure; data for these items for 1998-99 and 1999-2000 are therefore not strictly comparable with those for earlier years. Expenditure on direct payments was only recorded from 1998-99 onwards.

2. Assessment and care management, although included under local authority non-residential care, also includes expenditure which is relevant to residential care.

3. Up to and including 2006-07 figures are estimates of Service Strategy net expenditure in services for adults. Total net expenditure on service strategy has been apportioned between adults and children's services on the basis of shares of net expenditure.

4. The Supporting People programme was launched on 1 April

2003. Figures only include Supporting People net expenditure for services for adults reported by councils on the PSS EX 1 returns.
5. Expenditure from 2002-03 includes former Preserved Rights clients.

4. Table 4b set out trends in the costs of social care since 1997, as recorded by the Personal Social Services Pay and Prices index. The average increase between April 1997 and April 2009 is 4.1%.

5. The index covers services for children and adults and covers services directly provided by local authorities and services purchased from independent sector providers.

6. Key assumptions underlying the estimates for the period from 2002-03 are:

— On average, social services expenditure is divided between staff costs (80%), capital costs (10%) and costs of other inputs (10%), on the basis of various data and assumptions.

— Changes in staff costs are based on Annual Survey of Hours and Earnings (ASHE) data on the hourly earnings of staff groups working in social services (weighted by their respective share of the paybill).

— Changes in capital costs are assumed to be in line with the BIS PUBSEC Tender Price Index of Public Sector Building Non-Housing.

— Changes in the costs of other inputs are assumed to follow the Gross Domestic Product deflator.

Table 4b

THE PSS INFLATION INDEX


Year	% increase over previous year

April 1997	4.4%
April 1998	4.1%
April 1999	4.8%
April 2000	3.3%
April 2001	4.4%
April 2002	4.4%
April 2003	4.9%
April 2004	4.3%
April 2005	4.3%
April 2006	3.6%
April 2007	4.5%
April 2008	3.7%
April 2009	2.4%

Source: Department of Health (Social Care Strategic Policy and Finance)
DH calculations using data from:
ONS Annual Survey of Hours and Earnings 2003 onwards and New Earnings Survey for earlier years.
HM Treasury's GDP Deflator http://www.hm-treasury.gov.uk/economic_data_and_tools/gdp_deflators/data_gdp_fig.cfm
BERR Tender Price Index of Public Sector Building Non-Housing.
Personal Social Services Research Unit "Unit Costs of Health and Social Care Reports".
Laing and Buisson "Calculating a Fair Price for Care" (2008).
Footnotes:
1. The series is discontinuous between April 2002 and April 2003 as it uses the previous methodology for years to 2001-02 and revised methodology for years 2002-03 onwards.
2. The index for 2003 has been revised slightly to use an improved method of weighting.
3. All figures have been revised to take into account data revisions, but these have not changed the results.
4. This work contains statistical data from ONS which is Crown copyright and reproduced with the permission of the controller of HMSO and the Queen's Printer for Scotland. The use of the ONS statistical data in this work does not imply the endorsement of ONS.
7. Table 4c sets out an index of demographic pressures on adult social services since 1997. The index was produced by the Personal Social Services Research Unit at the London School of Economics, using official population estimates for 1996 to 2008 and their aggregate projections models. It takes account of changes in the population by age and gender but assumes constant prevalence rates of disability (by age and gender).
8. The analysis suggests that expenditure on adult social services would need to have risen by around 12% over the period 1997 to 2008—an average of around 1% per year—to keep pace with demographic pressures alone. These pressures have been greater in the most recent years than in earlier years of the period 1997 to 2008.

Table 4c

INDEX OF DEMOGRAPHIC PRESSURES


Year	% increase over previous year

1997	0.6%
1998	0.6%
1999	0.6%
2000	1.2%
2001	1.1%
2002	0.8%
2003	0.4%
2004	0.6%
2005	1.4%
2006	1.5%
2007	1.4%
2008	1.2%

Source:
Personal Social Services Research Unit, London School of Economics (using Office for National Statistics population projections for 1996 to 2008).
Footnotes:
1. The modelling takes account of changes in the population by age and gender, and assumes that disability rates (by age and gender) remain constant.

9. During the 2004 Spending Review period, councils in England were required to submit Annual Efficiency Statements to report their progress on the achievement of efficiency gains. This set out cashable savings in each significant local government service area. The data collected from Annual Efficiency Statements shows that, between 2005-06 and 2007-08, adult social care achieved 1.3% per annum in cashable efficiency gains. This exceeded the target set for the sector. To help local authorities deliver savings in social care, the Department set up the Care Services Efficiency Delivery programme, which works closely with local authorities to promote and implement cost-effective interventions.

10. Following the 2007 Spending Review, the Annual Efficiency Statement process was discontinued. From 2008-09 to 2010-11, local authorities reported efficiency gains through National Indicator 179. However, there was no longer a requirement to disaggregate savings by service type, so it is not possible to assess the extent to which adult social care services achieved savings since 2007-08.

11. The Association of Directors of Adult Social Services (ADASS) published a report on expenditure in April 2010, based on a survey of its members. It estimated that, in 2009-10, adult social care departments achieved efficiency gains of 2.5%. However, this figure should be treated with some caution, as it includes savings from service reduction and income generation. If only value for money savings are considered, the efficiency rate falls to 1.8%.

1.1.5 What are the implications of the government's plans for the interface between the NHS and Social Care? (Q5)

Answer

1. Partnership working across the NHS and local government is critical to deliver the Government's vision of truly personalised services focused around individuals and not organisations. This was made clear in the White Paper Equity and excellence: liberating the NHS, published by the Department of Health on 12 July 2010.

2. Both systems need to be focused on outcomes, working together in the interests of the people and populations they serve. It is important the Department of Health seeks to support efforts for organisations to learn from each other's experience to deliver high-quality, safe and personalised care and support.

3. A number of White Paper proposals demonstrate the importance of integrated working in the reformed system to support improved outcomes for local people and populations. These include:

— local authorities taking a key role in the future around joining up local NHS services, social care and health improvement;

— strengthening the role of the Care Quality Commission as an effective quality inspectorate across both health and social care;

— extending the remit of the National Institute for Health and Clinical Excellence to social care to support the creation of effective quality standards for all those using health and social care services; and

— establishing HealthWatch to champion the voice of people using services and carers across both health and social care.

4. The White Paper set out a clear strategy and structure for the long-term future of the NHS. The Government is engaging fully with the public on how the proposals will be implemented. As part of this process a number of public consultations, on specific elements of the White Paper, have been launched and further documents will be published later in 2010. The Department of Health will publish a response to the views raised on the White Paper and associated consultation papers prior to the introduction of the Health Bill.

5. In addition, both the revised Operating Framework for the NHS in England 2010-11 and the White Paper highlighted proposals to implement further incentives to reduce avoidable readmissions and encourage more joined-up working between hospitals and social care for services following discharge. This is not proposed to take effect until 2011-12, although organisations have been invited, through the Operating Framework, to come forward and help the Department develop best practice before April 2011. The Department has signalled a strong expectation that its proposals on post-discharge support should encourage more effective joint working and funding of services at a local level, with a particular focus on developing the capacity and effectiveness of re-ablement services.

2. CENTRALLY FUNDED HEALTH SERVICES

2.1.1 What proportion of the health budget is "top-sliced" (ie reserved for central disbursement by the Department of Health or NHS—and not allocated to PCTs)? (Q6)

Answer

1. For 2010-11, 13% (£12.9 billion) of the total NHS revenue budget (£99.5 billion) is planned to be managed centrally by the Department and strategic health authorities. This was after initial allocations were made to PCTs, including dentistry, ophthalmology and pharmacy.

2. For 2010-11, 24% (£1.2 billion) of the total NHS capital budget (£4.9 billion) is planned to be managed centrally by the Department.

2.1.2 What services are procured from this "top-sliced" budget, and how do the government's plans for those services compare with long term trends of demand, cost and efficiency? (Q7)

Answer

1. Tables 7a and 7b show the services procured from the central budgets.

2. Current plans have only been finalised for 2010-11. Expenditure for following years is subject to the 2010 Spending Review, which is due to, be published on 20 October 2010. The Coalition document makes clear the commitment to "guarantee that health spending increases in real terms in each year of the Parliament".

Table 7a

REVENUE CENTRAL BUDGETS, 2010-11

Revenue plans	£ billion	Percentage of budget	Description
Centrally managed (including SHA Bundle)	12.9	100%
Of which:
Multi-professional education and training	4.8	37%	Multi-professional education and training (MPET: The Department of Health funds the cost of SHA strategic investment in education, training and development of the health and parts of the social care workforce through the MPET budget.
Central SHA allocations	1.5	12%	SHA administration and NHS Bundle: Various policy initiatives including: revenue support for capital schemes, prison healthcare, clinical excellence awards, NHS Direct, mental health policies, contract fees for dispensing doctors and cancer screening management.
Research and development	1.0	8%	Research and development—R&D Directorate are responsible for commissioning research focused on improving health and healthcare through the National Institute for Health Research, and develop the systems and NHS infrastructure to support world-class research.
EEA medical costs	0.9	7%	EEA medical costs for treatment given to United Kingdom nationals by other member states.
Depreciation	0.8	6%	Revenue cost of assets held. £0.5 billion of this is related to the Connecting for Health IT projects.
Arm's length bodies	0.7	5%	Support the running of various arm's length bodies, including: Health Protection Agency; Business Support Agency; Care Quality Commission; and NHS Blood and Transplant.
Connecting for Health	0.6	5%	Support to the National Programme for IT, including Choose and Book.
Substance misuse	0.4	3%	Substance misuse: The Department of Health is the lead government department for drug treatment policy, guidance and funding. The Department also helps deliver government campaigns on drugs, such as FRANK and sponsors the National Treatment Agency, a special health authority (created by the Government in 2001) with responsibility for the effective delivery of drug treatment services.
Other central initiatives (less than £0.4 billion)	2.2	17%	Includes vaccines, Next Stage Review, Department of Health administration, welfare foods and NHS Litigation Authority.

Source:

Information is consistent with HM Treasury COINS database (as at main estimates) and is on an aligned basis

Footnotes:

1. Figures may not sum due to rounding.

Table 7b

CAPITAL CENTRAL BUDGETS, 2010-11

Capital plans	£ billion	Percentage of budget	Description
Centrally managed	1.2	100%
Of which:
Connecting for Health	0.7	64%	Capital budgets to support the National Programme for IT, including Choose and Book.
Programme capital	0.2	15%	These are budgets that are allocated direct to NHS organisations from the Department of Health. For example: Community Hospitals Programme; capital resource cover for Wave 1 ISTC schemes; drugs misuse treatment strategy; and learning disability.
Arm's length bodies	0.1	11%	Support the running of various arm's length bodies, including: Health Protection Agency; Business Support Agency; Care Quality Commission; and NHS Blood and Transplant.
Other central initiatives	0.1	10%	Central Department of Health initiatives, including: capital grants for improvements to environments in hospices; and the Electronic Staff Record.

Source: Information is consistent with HM Treasury COINS database (as at main estimates) and is on an aligned basis.

Footnotes:

Figures may not sum due to rounding.

3. RESOURCE ALLOCATION TO THE NHS

3.1.1. How is the formula for allocation of NHS resources between PCTs constructed and reviewed? (Q8)

Answer

1. Four elements are used to set PCTs' actual allocations:

— A national weighted capitation formula (a), based on a programme of statistical and economics research, is used to calculate PCTs' target shares of available resources. This takes account of the size of each PCTs' population weighted for:

— the age and gender distribution of the population (the elderly have a greater need for healthcare);

— additional need over and above that relating to age (such as socio-economic characteristics and levels of deprivation) and a separate health inequalities component; and

— unavoidable geographical differences in the cost of providing healthcare services (the market forces factor).

— Recurrent baselines (b)—broadly the current allocations that PCTs receive.

— Distances from targets—which are the differences between (a) and (b) above. If (a) is greater than (b), a PCT is said to be under target. If (a) is smaller than (b), a PCT is said to be over target.

— Pace of change policy—which determines PCTs' actual allocations. PCTs do not receive their target allocation immediately but are moved towards it over a number of years through the differential distribution of funding growth. The aim is to minimise financial instability in the NHS and recognise the unavoidable cost pressures that PCTs need to meet. Pace of change policy is decided by ministers for each allocations round.

2. The Advisory Committee on Resource Allocation (ACRA) continually oversees the development of the weighted capitation formula. ACRA is an independent expert committee made up of academics, GPs and NHS managers. Its current objectives, set under the previous administration, are to develop a funding formula that supports equal access for equal need and the reduction of avoidable health inequalities.

3. ACRA is due to report its recommendations to Secretary of State on the funding formula for allocations post 2010-11. These will be considered for PCT allocations to be announced later in 2010. During the transition to the NHS Commissioning Board, ACRA will continue to provide independent advice to the Secretary of State on the funding formula for the allocation of NHS resources. Allocations will be made to GP consortia for 2013-14 onwards on the basis of seeking to secure equivalent access to NHS services relative to burden of disease and disability.

4. In addition, ACRA will provide advice on the allocation of the ring-fenced public health budgets, which will be allocated to Directors of Public Health at local authority level. The allocation formula for the public health budget will include a new `health premium' to target public health funding towards those areas with the poorest health, to reduce avoidable ill health and health inequality.

3.1.2 What arrangements exist to "cushion" resource shifts implied by the allocation formula? (Q9)

Answer

1. The weighted capitation formula determines the target allocation for each PCT, it does not determine PCTs' actual allocations. PCTs do not receive their target allocation immediately, but are moved towards it over a number of years. The aim is to minimise financial instability in the NHS and recognise the unavoidable cost pressures that all PCTs need to meet. Actual allocations therefore depend on how quickly PCTs are moved towards their target allocation through the differential distribution of funding growth—the pace of change policy. Pace of change policy is set by ministers.

2. The principles of the pace of change policy used in the 2009-10 and 2010-11 PCT revenue allocations round are as follows:

— average PCT growth was 5.5% each year;

— minimum growth was 5.2% in 2009-10 and 5.1% in 2010-11;

— no PCT will be more than 6.2% under target by the end of 2010-11; and

— no PCT will move further under target as a result of above average population growth in 2010-11.

3. While the Government has guaranteed health spending will increase in real terms in each year of the Parliament, healthcare spend is also being looked at as part of the 2010 Spending Review (SR). Pace of change policy will be reviewed in the light of the SR and any change to PCT target allocations. Secretary of State will be responsible for pace of change until the NHS Commissioning Board is in place.

3.1.3 What is the impact of this system on the budget allocations of a representative sample of PCTs? (Q10)

Answer

1. Table 10 shows the result of applying the principles of pace of change policy in 2009-10 and 2010-11, as explained in answer to question 9, for a sample of PCTs.

2. Pace of change policy operated in 2009-10 and 2010-11 by giving different rates of growth in funding to PCTs according to their percentage distance from target (DFT). PCTs were listed in order of their percentage DFT at the start of 2009-10 and every tenth PCT in this list was selected for the sample.

Table 10

PACE OF CHANGE 2009-10 AND 2010-11 FOR A SAMPLE OF PCTS

PCT code	PCT name	2009-10 opening DFT %	2009-10 growth in allocations %	2009-10 closing DFT %	2010-11 opening DFT %	2010-11 growth in allocations %	2010-11 closing DFT %
5ET	Bassetlaw PCT	-10.6%	7.9%	-8.6%	-8.8%	8.6%	-6.2%
5N6	Derbyshire County PCT	-6.6%	6.0%	-6.2%	-6.2%	5.6%	-6.2%
5PA	Leicestershire County and Rutland PCT	-5.6%	5.5%	-5.6%	-6.0%	6.0%	-5.6%
5HP	Blackpool PCT	-4.1%	5.5%	-4.1%	-3.6%	5.5%	-3.6%
5CQ	Milton Keynes PCT	-3.2%	5.5%	-3.2%	-4.8%	7.3%	-3.2%
5QL	Somerset PCT	-2.6%	5.5%	-2.6%	-3.0%	6.0%	-2.6%
5J5	Oldham PCT	-1.9%	5.5%	-1.9%	-1.4%	5.5%	-1.4%
5KM	Middlesbrough PCT	-1.4%	5.5%	-1.4%	-0.6%	5.5%	-0.6%
5NQ	Heywood, Middleton and Rochdale PCT	-0.5%	5.5%	-0.5%	0.0%	5.5%	0.0%
TAM	Solihull Care Trust	0.0%	5.5%	0.0%	0.1%	5.5%	0.1%
5QK	Wiltshire PCT	1.4%	5.3%	1.1%	0.9%	5.3%	0.6%
5P8	Hastings and Rother PCT	2.4%	5.2%	2.1%	2.4%	5.1%	2.1%
5A8	Greenwich Teaching PCT	4.2%	5.2%	3.9%	4.4%	5.1%	4.0%
5AT	Hillingdon PCT	6.6%	5.2%	6.3%	6.7%	5.1%	6.4%
5MX	Heart of Birmingham Teaching PCT	10.6%	5.2%	10.3%	10.6%	5.1%	10.2%
5M6	Richmond and Twickenham PCT	23.8%	5.2%	23.5%	23.8%	5.1%	23.4%
	England average	0.0%	5.5%	0.0%	0.0%	5.5%	0.0%

Source: Department of Health (Financial Planning and Allocations Division)

Footnotes:

DFT stands for distance from target.
2. The column "2009-10 opening DFT" is before 2009-10 growth in allocations is included, and the column "2009-10 closing DFT" is after 2009-10 growth is included.

3. In 2009-10, PCTs with an opening DFT more than 6.2% under target received funding growth above the national average of 5.5%. All other under target PCTs received growth of 5.5%. Over target PCTs received growth of 5.2%, except for those less than 2% over target, which received growth of between 5.2% and 5.5% on a sliding scale.

4. DFTs at the start of 2010-11 will differ from closing 2009-10 DFTs if the PCT's population growth between the two years is higher or lower than national average population growth. Where the population growth in the PCT is above average, the PCT will move further under target or less over target. Lower than average population growth results in the PCT moving less under target or more over target.

5. The column "2010-11 opening DFT" is before 2010-11 growth in allocations is included, and the column "2010-11 closing DFT" is after including 2010-11 growth.

6. In 2010-11 PCTs with an opening DFT more than 6.2% under target received growth above the national average of 5.5%. All other under target PCTs received growth of 5.5%, or higher if their closing 2010-11 DFT would otherwise have been further under target than their opening 2009-10 DFT. Over target PCTs received growth of 5.1%, except for those less than 2% over target, which received growth of between 5.1% and 5.5% on a sliding scale.

4. LOCALLY COMMISSIONED HEALTH SERVICES

4.1.1 What are the implications of the government's top-slicing decisions for the budgets for locally commissioned health services? How do the resulting budgets compare with long term trends of demand, cost and efficiency? (Q11)

Answer

1. The Government will not make a decision on central budgets (top-slice) and allocations to commissioners (currently PCTs) before the outcome of the 2010 Spending Review is known. The final allocation of resources may not be determined before the end of 2010.

2. This decision is informed by an analysis of the scale of central and local pressures in the system. Following PCT allocations an historic comparison of top-slice expenditure will be possible for individual budgets, for example research and development or training. However, for the overall quantum of expenditure comparison is more problematic as the scope of services provided by the top-slice differs from year to year reflecting shifts of responsibility and funds into PCT allocations.

4.1.2 What proportion of locally commissioned health services are absorbed by services which are:

demand-led according to nationally prescribed formulae;

driven by demand for emergency or urgent care; and

available for elective or non-urgent services? (Q12)

Answer

1. The answers to question 8 and question 9 give details of the formula for allocating resources to PCTs. Having allocated these funds, PCTs then have local discretion over their use reflecting local health issues and priorities.

2. At a national level the following broad apportionment of allocation funding is calculated to be:

— Primary care—24%;

— Community care—18%;

— Secondary care—55%, of which about 55% of hospital admissions are driven by emergency or urgent care; and

— Management/administration—4%.

3. Within primary care, most services are demand-led, and in community, significant funding is spent jointly with other agencies on a planned basis for patients with complex needs.

4. All aspects of care are amenable to good management and cost efficiencies, which are fully explored in the QIPP programme.

4.1.3 What scope exists for locally commissioned health services to manage demand, cost and efficiency to increase the resources available, in particular, for elective and non-urgent services? (Q13)

Answer

1. One of the most fundamental responsibilities in the NHS is to decide what services will best meet the needs of patients and local communities and to commission these services in ways that ensure high-quality outcomes, maximise patient choice and secure efficient use of NHS resources.

New model of commissioning as set out in Equity and excellence: liberating the NHS

2. This new model of commissioning draws on the regular contact that GPs have with patients and their more detailed understanding of patients' wider healthcare needs. It builds on the crucial role that GPs play in co-ordinating patient care and committing NHS resources through daily clinical decisions.

3. GP consortia will commission the great majority of NHS services on behalf of patients, including elective hospital care and rehabilitative care, urgent and emergency care (including out-of-hours services), most community health services, and mental health and learning disability services.

4. These arrangements will shift decision-making as close as possible to individual patients. Primary care professionals co-ordinate the services that patient receive, helping them to navigate the system and ensure they get the best care. For this reason, they are best placed to co-ordinate those aspects of commissioning of care that will most benefit from their clinical insight and expertise, while involving all other clinical professionals who are also part of any pathway of care.

Tariff mechanism

5. The tariff is the mechanism for determining prices paid for commissioned services.

6. Each year a tariff uplift is calculated on this activity based on an assessment of cost pressures (eg pay and cost of capital) minus an efficiency target. In the most recent three-year period this has been: 2.3% (2008-09); 1.7% (2009-10); and 0% (2010-11). In 2010-11 pressures including service development are 3.5%, offset by an equivalent efficiency challenge.

7. Guidance suggests non-tariff activity should generally have the same cash uplift.

8. The allocative efficiencies included in QIPP apply to both elective and non-elective care.

Managing demand and improving efficiency

9. The NHS is developing detailed plans for managing demand and improving the efficiency of services in order to deliver efficiencies of up to £20 billion by 2014. This includes a reduction of NHS management costs of over 45%.

10. Guaranteeing that health funding will rise in real terms in each year of the Parliament means that every penny of savings made will be available for re-investing in meeting rising demands and in improving the quality of services.

11. It is the responsibility of the NHS locally to determine how best to invest their resources—including in elective and non-urgent services—in order to improve outcomes. The reforms set out in Equity and excellence will ensure that these decisions and driven by patients and clinicians.

12. The precise scope for managing demand, reducing costs and improving efficiency will vary locally but there is good evidence to show that increasing self-care and harnessing new technology for those with long-term conditions can significantly reduce unnecessary and costly hospital admissions. Initiatives such as the Productive Ward programme can help free valuable clinical and nursing staff time to focus on providing patient care and more efficient procurement and back office processes can release resources for front line services.

5. SOCIAL CARE RESOURCE ALLOCATION

5.1.1 What is the expected impact of the local authority settlement on social care budgets? (Q14)

Answer

1. Spending Review 2010 will be concluded in October 2010, and before then it will be impossible to give a detailed indication of the likely impact upon social care budgets.

2. The Committee will be aware that local authorities have freedom over the resources they allocate to social care, provided that they meet their statutory requirements. The Department of Health agrees with this principle, and believes it is right for local authorities to allocate their resources according to local priorities and needs. The impact of any funding settlement on social care will therefore vary by authority, depending on the priority that each area attaches to care and the extent to which they wish to raise additional revenue through council tax in order to support a more generous service.

3. The Committee will also be aware that this Spending Review will be challenging for all government departments, and local government will need to play its part in realising savings. The Department of Health will be working closely with local government and the broader sector to help identify efficiency savings to support delivery of a more personalised, preventative social care system which is sustainable in the long term. To achieve this the Department will be looking at three aspects of care in particular:

Proactive crisis response and prevention, helping people to stay independent for as long as possible

Ensuring people receive care and support in the most appropriate and cost-effective way to meet their goals

Reducing unit costs

4. Making efficiency savings in these areas will help to ensure that the maximum possible amount of public funding goes towards front-line support for those who are poor and vulnerable.

5.1.2 How does the local government funding formula reflect differential demand for social care services in different areas? (Q15)

Answer

1. There are two formulae within the calculation of the Communities and Local Government (CLG) Formula Grant which reflect each local authorities relative need to provide adult social care. One for younger adults' social care and another for older people. They are based on independent research which aimed to recommend formulae that would take account of differential need or demand for adult social care in different areas. The formulae take account of:

— the number of people in each age group in each local authority;

— a basic amount per head;

— top-ups containing population characteristics associated with need for local authority supported adult social care; and

— cost factors, for example wage costs and the sparsity of the population in the area, which increases the cost of homecare.

The adult social care relative need formulae (RNF) are below.

Younger Adults Social Care Relative Needs Formula

2. The formula used to calculate the Younger Adults Social Care RNF is:

— (a) projected population aged 18-64 multiplied by the result of:

— younger adults' basic amount; plus

— younger adults' deprivation top-up.

— the result of (a) is multiplied by area cost adjustment for children and younger adults PSS (Personal Social Services).

3. The younger adults' deprivation top-up is calculated using data on the proportion of people in each local authority who are:

— aged 18-64 receiving disability living allowance;

— aged 18-64 who are long-term unemployed or have never worked; and

— aged 18-64 who work in routine or semi-routine occupations, in households with no family.

4. The area cost adjustment takes account of differences in the cost of wage and business rate costs between areas.

Older Peoples Social Care Relative Needs Formulae

5. The formula used to calculate the Older Peoples Social Care RNF is:

— (a) projected household and supported residents aged 65 years and over multiplied by the result of:

— older people's basic amount; plus

— older people's age top-up; plus

— older people's deprivation top-up.

— (b) the result of (a) is multiplied by low income adjustment;

— (c) the result of (b) is multiplied by sparsity adjustment for people aged 65 and over; and

— (d) the result of (c) is multiplied by area cost adjustment for older people's Personal Social Services (PSS).

6. The older people's age top-up is calculated using data on the proportion of people in each local authority who are aged 90 and over.

7. The older people's deprivation top-up is calculated using data on the proportion of older people in each local authority who are:

— receiving attendance allowance;

— living in rented accommodation;

— living in one person households; and

— receiving pension credit guarantee/income based jobseeker's allowance.

8. The low income adjustment takes account of councils differing ability to raise income from fees and charges.

9. The sparsity adjustment reflects the fact that it costs more to deliver homecare services in rural areas, because homecare workers need to spend more time travelling between clients.

10. As with the Younger Adults formula, the area cost adjustment for older people takes account of differences in wage and business rates costs between areas.

11. The needs elements of the adult social care relative need formulae are based on analysis of a survey of local authorities in 2005. Further information is available in the technical guide to the adult social care formulae: www.local.communities.gov.uk/finance/0809/methpssa.pdf and the Local Government Finance Report: www.local.communities.gov.uk/finance/1011/lgfrs/index.htm

5.1.3 What is the impact of this system on the budget allocations of a representative sample of social service departments? (Q16)

Answer

1. It is not possible to analyse the impact of changes in the adult social care relative needs formulae on the budget allocations of a sample of social services departments.

2. There are three main reasons for this:

— the way that social care is funded;

— the way that the Communities and Local Government (CLG) Formula Grant is calculated; and

— local flexibility in the provision of social care.

3. Social care is funded from a number of different sources: CLG Formula Grant; Department of Health social care revenue grants; council tax; and client fees and charges. The majority of this funding supports general council expenditure and has no conditions or spending targets attached. In 2010-11, the exception for social care funding is the £240 million Social Care Reform Grant which is issued with conditions by the Department of Health. In general, councils are free to set their own priorities for the funding they receive.

4. Formula Grant is an un-hypothecated (non-ring-fenced) block grant. This means that an authority is free to decide how they allocate the formula grant that they receive to the services that they provide, providing they meet their statutory responsibilities. The distribution system does not provide an assessment of how much has been provided to an authority for any given service.

5. In addition, Formula Grant takes into account the relative needs and the potential to raise council tax (resource) relative to all other authorities. There is also a central allocation and the floor damping mechanism. The two adult social care formulae are just part of the relative needs component, which also include relative needs formula for other services such as children's services and highways maintenance. The floor damping mechanism ensures that councils receive at least a minimum percentage change in grant each year, to provide stability. In order to fund the cost of the floor, the Department of Health scales back by a constant factor the increase above the floor for other authorities.

6. Finally, local authorities have flexibility about the levels of care they provide and the way they provide it. Local policy decisions, about eligibility criteria and care packages, affect the budget for social care in a local authority.

7. In summary, it is possible to illustrate how a change in the relative need formulae would affect the distribution of Formula Grant, with nothing else changed. This is how the effects of formula changes for discussion and consultation with local government are illustrated. However, it is not possible to analyse the effect of a formula change on local authority social care budgets, because of all the other factors which affect local authority funding and local authority budget decisions.

6. SOCIAL CARE SERVICES

6.1.1 What scope exists for social care services to manage demand, cost and efficiency within constrained budgets? (Q17)

Answer

1. Local authorities have freedom and flexibility over how funding is prioritised between different service areas and what resources they allocate to social care, provided that they meet their statutory requirements. The Department of Health supports this principle and believes it is important for local authorities to be able to allocate their resources according to local priorities, demand and costs to maximise the level of support going towards those greatest in need.

2. To support local authorities and regions to manage demand and resources effectively, the Department of Health set up the Care Services Efficiency Delivery (CSED) programme in 2004. During this current Spending Review period (CSR 2007) CSED has worked closely with local authorities and regions to help identify and deliver efficiencies in a range of areas which will help to manage demand and cost in the long term, these are:

— Homecare Re-ablement/Crisis Response—to help reduce the need for long-term high intensity care to manage future demand;

— Telecare/Support-related housing—to deliver more effective in-house care at a reduced cost;

— Care pathway planning—to ensure the appropriate care is provided at the right point, delivering more cost-effective care that meets the desired outcomes;

— Community equipment—supporting people to continue to live in their homes, reducing the future need and cost for residential care;

— Outsourcing of services— using the private and third sector to provide quality care at a more cost effective rate; and

— Referral, assessment and care management process -streamlining and rationalising processes to deliver more integrated and effective support at a reduced cost.

3. The forthcoming Spending Review (SR 2010) due to conclude in October 2010 will be challenging for local and national government. Local authorities and regions will be expected to build upon the work of the 2007 CSR to deliver further efficiencies and ensure greater productivity within the social care system to maximise the amount of public funding being allocated to front-line services.

6.1.2 What are the implications of social service budgetary pressures on the interface between health and social care services in a representative sample of areas? (Q18)

Answer

1. There is no evidence to suggest within the current Spending Review (CSR 2007) that social service budgetary pressures have impacted on the interface between health and social services. The forthcoming Spending Review (SR 2010) will be concluded in October 2010, and before then the Department of Health is unable to predict the likely implications of budgetary pressures on the interface between the two systems.

2. The Department knows that some local organisations have already seized opportunities to use integration to improve services for their local populations. Arrangements are locally developed so that they best meet local circumstances, including both statutory measures such as lead commissioning arrangements and pooling funds and non-statutory arrangements such as aligning budgets to meet agreed outcomes.

3. Given that the forthcoming SR 2010 is likely to be challenging for all areas of public spending, it will be more important than ever for local partners to work together to deliver effective and efficient services that are tailored to the needs of individuals and help people achieve the outcomes they want.

September 2010



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