Public Expenditure - Health Committee Contents


3  Context


14.  Under the 2010 Spending Review settlement the NHS will receive an increase in cash funding of £12.5 billion by 2014-15. Our previous Report and the Government response that followed discussed the question of whether or not this constitutes a real-terms increase in funding.[10] What real terms growth there may be in the settlement is negligible at best. At the same time demand is increasing due to demographic pressures, public expectations and medical advances. In their written evidence the Government set out the consequences of these circumstances:

The Department estimates this increase in cost, demand and relative cost of treatments as adding up to £30 billion of total NHS spending over this four-year period if no action were taken to mitigate these increases. To meet this additional demand, as well as the cash funding, the NHS has been asked to make up to £20 billion of efficiency savings by 2014-15 to reinvest in services, simultaneously making services more productive, driving up the quality of services it provides and the outcomes it achieves. [11]

15.  The figure of up to £20bn of savings was identified by the previous Government; since May 2010 the current Government has adopted the same target, as well as following through the plans initiated by the previous Government in 2009 as the Quality, Innovation, Productivity and Prevention (QIPP) Programme. QIPP is the umbrella term used to describe the approach the NHS is taking at local, regional and national levels to reform its operations and design services in the light of the Nicholson Challenge.

16.  In July 2011, the Department of Health reviewed and signed off integrated plans submitted by Strategic Health Authorities (SHAs), incorporating local and regional proposals for not only meeting the QIPP challenge, but also managing the transition to new structures required by the Health and Social Care Bill. The Government intends the plans to change over time in response to additional requirements on the NHS and the dissemination of best practice.[12]

17.  Because of this timing, we have not been able to evaluate how effective the implementation of these plans has been. Some reporting data has been released and published in The Quarter,[13] but the picture presented is only partial.

18.  At the same time as it is planning its response to the Nicholson Challenge, the NHS is being restructured in line with the Liberating the NHS White Paper and the measures proposed in the Health and Social Care Bill. In our previous inquiry, the Committee heard evidence that the resulting upheaval could severely affect the ability of the NHS to make the required efficiency savings. For example, Dr Peter Carter of the RCN told the Committee last year:

This is a heck of a challenge. The £15 billion to £20 billion on its own [...] is absolutely massive, has never been done before, and that on its own would be a major challenge. The White Paper on its own would be a major challenge. Put the two things together and this is as big and as complex as you could get.[14]

19.  Sir David Nicholson, Chief Executive of the National Health Service, told us in October 2010 that the two processes needed to be "not parallel but mutually reinforcing".[15] At the time these two statements were made, the White Paper process was only beginning to make itself felt: in contrast, our inquiry took place against the backdrop of deep and wide-ranging change in the health service and the uncertainties arising from the continuing passage of the Bill through Parliament.

20.  Management action is, however, being taken to respond to the Nicholson Challenge. In evidence, the Secretary of State told us that although the QIPP programme technically began on 1 April 2011, some £4.3 billion efficiency savings were made in 2010-11, £240m beyond what was intended.[16]

Social Care

21.  The Government has not set targets for efficiency gains for adult social care in the way that it has done for the NHS, but the sector faces the same dual pressures of shrinking resources and rising demand. As the Committee said in its previous Report:

The Local Government formula grant as a whole is being reduced, by an average of 26% in real terms over the Spending Review period. Social care is not funded solely from the Local Government formula grant: it is also funded from revenue from council tax and client contributions. Department of Health figures indicate total local government spending on adult social care was £13.631 billion in 2008-09. This represents 12% of local authorities' total net current expenditure of £113.1 billion. In his evidence the Secretary of State for Health [...] was at pains to emphasise "it is important to understand that the headline overall real-terms reduction in formula grant over four years does not necessarily translate into a corresponding reduction in the resources available for social care.[17]

22.  The Spending Review document stated:

The Spending Review settlement means that while on average, central government funding to councils decreases by around 26 per cent over the next four years, councils' budgets decrease by around 14 per cent once the OBR [Office for Budget Responsibility]'s projections for council tax are taken into account.[18]

23.  In the Spending Review, what was formerly the ring-fenced Personal Social Services (PSS) grant was moved into the general formula grant that local authorities receive. The amount of money notionally ascribed to PSS is to increase by £1 billion (to £2.4 billion) by 2014-15. The Department of Health argued that this is an additional £1 billion for social care, but as the Committee said in its previous Report, this figure needs to be considered in the context of the much reduced overall formula grant (see table below from the 2010 Report).
Personal Social Services Grant and Local Government Formula Grant - Changes in funding levels over the Spending Review period [19]  


2011-12 2012-13  2013-14 2014-15  
PSS Grant1  1.3bn 1.9bn  2.3bn 2.4bn  2.4bn 
Nominal Change   
+ 0.6bn 



Real Terms Change   
+ 43% 



LG Formula Grant2  28.0bn 25.0bn  23.4bn 23.2bn  21.9bn 
Nominal Change   



Real Terms Change   




24.  Our previous Report expressed concern that the removal of the ringfence, at a time when councils must divide scarce resources between competing priorities, could mean that the Government's intended expenditure on social care was not reflected in actual spending by local authorities. The question of the impact of the Spending Review settlement and changes is considered in Chapter 3.

25.  Wider reform of the funding model for social care has been recently raised by the report of the Dilnot Commission on Funding of Care and Support,[20] but even if implemented, the changes recommended by the Commission would have little impact during the Spending Review period. Our current inquiry into social care is considering the recommendations of the Dilnot Commission along with other issues relating to social care, and we will report on these matters in due course.

Integration of health and social care

26.  Better integration and coordination of health and social care is accepted as a vital component of improving the quality of services and making necessary efficiency gains. In its Report last December the Committee said:

Improving the interaction between health and social care will be very important if the necessary cost savings on both sides are to be realised. The potential to make savings in this area has long been acknowledged, but has not yet been properly realised. We believe that it is mission-critical to successful delivery of the Nicholson Challenge to achieve a quantum leap in the efficiency of this interface.[21]

Similarly, in January 2012 a joint report by the King's Fund and the Nuffield Trust noted that "if executed well, moving towards a new model of integrated care will help to create the foundations for sustainable delivery against the quality, innovation, prevention and productivity (QIPP) challenge in the longer term".[22]

27.  The Government has initiated a number of structural changes which it believes will contribute to the integration of health and social care services:

  • The Payment by Results tariff will be amended from April 2012 to require the NHS to pay for reablement and other post-discharge services for 30 days after a patient leaves hospital; and since 2011, trusts are no longer being reimbursed for unnecessary readmissions.
  • Health and Wellbeing Boards established under the terms of the Health and Social Care Bill and consisting of a range of office holders and representatives of local authority and healthcare bodies will, the Government says: "increase the local democratic legitimacy of NHS commissioning decisions and provide a vehicle for NHS and local authority commissioners, along with other key partners, to come together on a geographical basis to improve the health and wellbeing of the people in their area in a strategic and coherent way".[23]
  • Joint Strategic Needs Assessments, analysing local current and future needs, are to be undertaken through the Health and Wellbeing Board and will inform the development of a Health and Wellbeing Strategy that will in turn inform local commissioning plans.[24]
  • The NHS Outcomes framework has been developed to measure success by the quality of outcomes which patients experience. It is acknowledged in this framework that the best possible outcomes will only come from aligning different sectors:

[...] if the outcomes that matter most to people are to be delivered, the NHS, public health and adult social care services need to be fully aligned and in some cases held to account for providing joined up or integrated services.[25]

28.  In addition, the 2010 Spending Review made £1bn per annum (by 2014-15) available within the NHS specifically for measures that support social care and benefit health. The Department of Health has told us that up to £300m of this per annum has been set aside for reablement in order to reduce demand on social care services. The remainder in 2011-12 and 2012-13 will be transferred from PCTs to local authorities, in accordance with joint local agreements, "for spending on social care services which benefit health and improve health outcomes".[26] The table below sets out allocations over the Spending Review period.

£ million (cash terms)  2011-12  2012-13  2013-14  2014-15  
Reablement  150  300 300  300 
Other health support  648 622  759 700  

Source: Department of Health

In January 2012 the Government announced that a one-off additional payment of £150m would be allocated to PCTs for transfer to local authorities on the same basis, aiming to provide quicker discharge of patients and better reablement services in order to alleviate pressure on health services during the winter months.[27]

29.  Our previous Report noted that this spending was a "key opportunity to drive positive change" in the interface between health and social care, but expressed concern that it might end up being used to prop up existing services rather than driving change and better interaction.[28]

10   Health Committee, Second Report of Session 2010-12, Public Expenditure, HC 512, 14 December 2010, paras 48-51 Back

11   Ev 43 Back

12   Further details on the plans can be found in the Government's memorandum (Ev 43) and National Audit Office, Briefing for the House of Commons Health Committee - Delivering Efficiency Savings in the NHS, December 2011, pp11-14 Back

13   The Quarter is a quarterly update from the Deputy Chief Executive of the NHS (David Flory) outlining the NHS financial position. Issues can be found at the following link: Back

14   Health Committee, Second Report of Session 2010-12, Public Expenditure, HC 512, 14 December 2010, Q 243 Back

15   Health Committee, Third Report of Session 2010-12, Commissioning, HC 513, 21 January 2011, Q 92 Back

16   Q 99. Mr Lansley attributed the additional £240m to the reduction in manager and senior management numbers that resulted from the clustering of primary care trusts (Q 111). Back

17   Health Committee, Second Report of Session 2010-12, Public Expenditure, HC 512, 14 December 2010, para 10 Back

18   HM Treasury, Spending Review 2010, Cm 7942, October 2010, p50 Back

19   Source: Committee Office Scrutiny Unit. Personal Services Grant is part of the Local Government Formula Grant. Excludes ring-fenced grants and funding for council tax freeze Back

20   Commission on Funding of Care and Support, Fairer Care Funding: The Report of the Commission on Funding and Support, July 2011 Back

21   Health Committee, Second Report of Session 2010-12, Public Expenditure, HC 512, 14 December 2010, para 35. Back

22   The King's Fund and the Nuffield Trust, Integrated Care for patients and populations: improving outcomes by working together, 5 January 2012. Back

23   Department of Health, Government Response to the House of Commons Health Select Committee Report on Public Expenditure (Second Report of Session 2010-11, January 2011, Cm. 8007, p8. Back

24   Ibid, page 8 Back

25   Department of Health, The NHS Outcomes Framework 2011-12, December 2010, para 1.22 Back

26   Ev 49 Back

27   Department of Health press release, 3 January 2012, Extra money to help people leaving hospital. Back

28   Health Committee, Second Report of Session 2010-12, Public Expenditure, HC 512, 14 December 2010, para 20 Back


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© Parliamentary copyright 2012 
Prepared 24 January 2012