Written evidence submitted by the Nuffield
Trust
Thank you for your letter of 22 October 2010
inviting the Nuffield Trust to submit written evidence to the
Treasury Committee's inquiry on the Spending Review. I am attaching
a briefing the Trust has prepared on the 2010 Spending Review
and Government White Paper Equity and Excellence: Liberating
the NHS.
The Committee specifically asked to receive
comments on the decision to ring-fence and partially ring-fence
particular areas of public spending. The Nuffield Trust welcomes
the ring-fence provided to health funding. We would highlight
the following factors in support of the ring-fence:
— Comparative international data on
the resources and outcomes achieved for Health. Health spending
as a share of GDP, and per capita, is just below the OECD average
and on a number of measures of the real resources available (beds,
doctors per head, MRI scanners) the UK remains relatively low.
More importantly than inputs, measures of performance and outcomes
are mixed. Research shows that the NHS has many strengths and
it has improved substantially (1). However, for health outcomes
the UK performance is weaker, with relatively high rates of mortality
amenable to healthcare and in critical areas such as cancer survival
rates (2).
— Increasing pressures on the health
service. The NHS faced pressures from the demographic change
and health specific inflation. The population is growing and ageing
by 2020 1 in 5 people in the UK will be over 65 (3). Previous
research suggests that meeting these demographic challenges will
add around 1% a year to the cost of the NHS. The Treasury calculates
real terms increases based on economy wide inflation measured
by the GDP deflator. To assess the buying power for health allocations
we need to understand healthcare-specific inflation. In the decade
preceding the financial crisis healthcare-specific inflation was
on average, 1.5% higher than whole economy inflation measured
by the GDP deflator (4). The Government has announced a pay freeze
for public sector workers earning above £21,000 for 2 years
which will mitigate some of the inflationary pressures on the
NHS. But it is not clear what will happen for the last 2 years
of the Spending Review and the incremental structure of health
service pay systems means that a freeze on settlements does not
mean that average pay will not increase.
— The scale of the productivity challenge
the settlement presents and risk that a lower settlement would
have had a negative impact on access to services and quality of
care. Productivity in the NHS has average -0.2% between 1998
and 2008 according to figures compiled by the ONS. This compares
to productivity growth of around 2% in the economy as a whole.
Research suggests there is scope for substantial productivity
savings across the NHS—of around £3 billion a year
(5). Realising the productivity potential of the NHS will determine
whether the Spending Review settlement is sufficient to achieve
the Government's goals for the NHS—improved outcomes and
results that are amongst the best in the world. This will require
major changes in services across a large number of hospitals and
community services (the productivity calculations are based either
on all hospitals achieving the performance of the top 25% or of
all regions achieving the performance of the most productive—the
South West).
The Spending Review recognises that there will
be significant pressures on social care services through this
period. Analysis at Leicester University (3) shows that with no
alteration in the prevalence of diseases or the age-specific rates
of becoming disabled or recovery, there will be a 67% increase
in the numbers with disability over the next 20 years. Work undertaken
by the Nuffield Trust confirms that there is some substitution
between social care and health services in the last year of life
(6), that emergency admissions are rising faster than illness
levels and a large proportion of emergency admissions are in older
people (7). The Trust welcomes the announcement in the Spending
Review that £1 billion a year of NHS spending is earmarked
for social care.
The Treasury, and now Office for Budget Responsibility,
publish long-term fiscal projections (8). These highlight the
growing pressures that will arise from an ageing population. The
Pre-Budget Forecast's assessment shows demographic pressures leading
to an increase in health spending from 8% of GDP in 2009-10 to
8.5% of GDP by 2019-20. For long-term care, the increase is from
1.2% of GDP in 2009-10 to 1.4% of GDP in 2019-20.
Meeting the needs of an ageing population to
ensure that people are able to enjoy as much of their life in
good health as possible and providing them with dignity and respect
is one of the key challenges facing health and social care systems
over the next decade. Achieving this goal will require an increasingly
integrated approach to services. This is important for quality
of care but also for the efficient use of resources (9)(10). Without
appropriate provision of care services there is a risk of rising
rates of avoidable hospital admissions and inappropriately long
stays in hospital.
In future, we would encourage the Treasury to
consider the impact of an ageing population across a range of
services explicitly as part of the Spending Review. The Treasury's
long-term fiscal projections provide quantified estimates of the
pressures from demography over the longer-term. This is welcome
since it aids transparency and informed public debate. In principle,
we see no reason not to replicate this for the medium term planning
undertaken as part of a spending review. We would ask the Treasury
to undertake an assessment of the impact of demographic pressures
across a range of public services, including health and social
care, and publish this assessment alongside the Spending Review.
November 2010
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