Public expenditure on health and care services - Health Committee Contents

2  Funding for health and social care; the story so far in this Parliament


9.  Health service planning in this decade is taking place against the background of unprecedentedly constrained resources. Furthermore the effect of these constraints on health spending is being compounded by the impact of even tighter financial constraints in local authority social service departments. There is a clear risk that social service spending constraints will impede the development of the community-based services which are required to provide improved care and support within the community; failure to develop such services would critically undermine both the quality of care provided to individual citizens and the ability of the system as a whole to respond to increased demand.

10.  The Committee welcomed the announcement in the 2010 Spending Review that by 2014-15 £1.0 billion of NHS spending per year would be transferred, subject to controls, to social care authorities.[4] This institutionalised resource transfer reflects a system-wide requirement to refocus priorities on care and support and early or preventative interventions. The argument in favour of this resource transfer is sometimes expressed as being a "requirement to save money in the acute sector". This formulation misses the point. It is certainly true that effective early diagnosis and intervention relieves pressures in the acute sector, but such relief comes about through a reduced incidence of acute illness. In other words the case for shifting the focus towards community based services, and safeguarding the development of social care is rooted in the desire to improve outcomes for patients - it is not a crude exercise in "saving money".

11.  As was the case last year[5], however, we received evidence that the money transferred from the NHS to social care authorities was in part used to subsidise the current level of service rather than to provide new services. The NHS Confederation told us that just over 18% of the money transferred in 2011-12 was used to maintain eligibility criteria[6], while the LGA and ADASS quoted the ADASS budget survey showing that "in 2012-13, £284 million [of money transferred from the NHS] has been used to offset pressures and cuts to services, £148 million has been invested in new social care services and £149 million has been allocated to working budgets"[7].

12.  We received substantial evidence from a number of sources about the financial challenges facing NHS bodies in the Spending Review period. The NHS Confederation confirmed that the anticipated pressures on the NHS in that year had materialised: in a survey of 252 chairs and chief executives of NHS bodies represented by the Confederation which was undertaken in April and May 2012, it reported that 28% of respondents had described the current financial position as "the worst they had ever experienced" while a further 46% had said that the position was "very serious".[8] 85% of those surveyed expected financial pressures to get worse in 2012-13.

13.  The Confederation indicated the principal drivers of upward cost pressures:

A significant proportion of the inexorably rising demand for healthcare is caused by demographic pressures. We have both ageing populations requiring more care for longer as they live with an increasing burden of disease and a birth rate which has risen by 22% in a decade. Demographic pressures are likely to cost the NHS around £1.1-1.4 billion extra each year (at 2010/11 prices) up to 2017.[9]

Demand for care would be further increased by "lifestyle risk factors, such as poor diets, and the resulting illnesses; more effective treatments for seriously ill children, meaning some survive to adulthood with multiple disabilities and complex, expensive care requirements; and patients' growing expectations as treatments and technologies advance.".[10]

14.  The Foundation Trust Network reported to us the outcome of a survey of its member Trusts, which found that providers in the foundation trust sector were experiencing "significant" increases in demand and significant pressures from rising costs of pay, drugs and supplies and demand for non-elective treatments.[11]

NHS resources beyond 2014-15

15.  Successive governments have attributed a high priority to the development of health and care services with the result that they now represent by far the largest public service commitment of taxpayer resources, and they are therefore inevitably affected by the political choices made by Government. Although decisions about public expenditure levels and priorities beyond 2014-15 remain open, and will ultimately be the responsibility of the next Parliament, the Committee received no evidence to indicate that there is likely to be any significant increase in public expenditure on health and care services after the end of the present Spending Review period. Financial projections arising from the Chancellor's 2012 Autumn Statement do not indicate any scope for loosening of present fiscal disciplines, and we doubt that any spending review conducted in this Parliament will result in significantly greater allocations to the Department of Health. Equally, we see no evidence for the levelling off of demand for health services and the upward cost pressures on the NHS outlined above.

16.  The present QIPP plans submitted by NHS bodies cover efficiencies to be made - equal or better services to be delivered with fewer resources - up to 2014-15. In our view it would be unwise for the NHS to rely on any significant net increase in annual funding in 2015-16 and beyond. Given trends in cost and demand pressures, the only way to sustain or improve present service levels in the NHS will be to continue the disciplines of the Nicholson Challenge after 2015, focusing on a transformation of care through genuine and sustained service integration.

Our general findings

17.  As we concluded in January 2012, the system will only respond successfully to the Nicholson Challenge if it is committed to making fundamental changes to the way care is delivered. We see no reason to vary this conclusion, and we note that the National Audit Office, in its December 2012 report on progress in making NHS efficiency savings, also observed that "there is a broad consensus that changing how health services are provided is key to a financially sustainable NHS".[12]

18.  The NAO made the following observation on the nature of the efficiency savings being made to date:

Evidence indicates that the NHS has taken limited action to date to transform services. There are a number of challenges to delivering service transformation. Changes take time to implement and may initially cost, rather than save, money. In 2011-12, the proportion of cash-releasing savings reinvested in transforming services varied and there is no evidence of a shift in staff from the acute to the community sector.[13]

19.  The evidence presented to the Committee demonstrates that the measures currently being used to respond to the Nicholson Challenge too often represent short-term fixes rather than the long-term transformations which the service needs.


20.  The Department told us that in the first year of the efficiency programme £5.8 billion of efficiency gains had been made. The NAO concluded that £3.25 billion of the total claimed savings of £5.8 billion[14] were either generated by reducing tariff payments to NHS Providers or they were the consequence of the public sector pay freeze.[15]

21.  The NAO also calculated that around £520 million of the savings for 2011-12 were one-off savings, meaning "the NHS will have to find replacement savings in future years", as the efficiency target is based on recurrent savings.[16] The Department accepted that this was the case, and did not in its initial evidence to us give a figure for the saving from transformational change for this first period:

NHS performance in 2011-12 was strong, with savings delivered through central actions on pay, administration savings and on improvements in organisational efficiency, levered through the tariff. The NHS always recognised that, in order to sustain the pace of progress, savings in the later years of the QIPP period will need to be increasingly focussed on service transformation.[17]

22.  Since we took evidence from the Secretary of State and Department of Health officials in November 2012, the Department have told the Public Accounts Committee that aggregate efficiency gains attributable to transformational change amounting to £875 million will have been made by the end of the second year of the programme in March 2013.[18]

23.  Although the Department told us that "the Government has been clear that savings from transformational change will be weighted towards the later years of the Spending Review to ensure that appropriate clinical leadership and local engagement takes place",[19] it is not clear to us how sufficient gains can be made in the last two years of the Spending Review period without a significant step-change in the approach of the Department and the NHS to achieving service transformation.

24.  Although it is certainly true that public sector pay restraint has the short term effect of reducing the cost of service provision to the NHS budget, the Committee does not accept that can be regarded as a sustainable form of efficiency gain. Sustainable efficiency gain involves securing improved quality or value for a given expenditure - it is not delivered by simply suppressing staff salaries alone.

25.  Still less is efficiency gain secured for the NHS by reducing the tariff paid by an NHS Commissioner to an NHS Provider. Tariff payments are internal transfers; they only result in efficiency gain for the NHS if the NHS Provider changes the way care is delivered. The Committee is concerned that it has received insufficient evidence of such service change by NHS Providers; it is also concerned that both NHS Management and ministers appear to be convinced that changing an internal transfer payment constitutes a form of efficiency gain.


26.  The one approach that appears to provide an opportunity to make a significant difference, both in the quality of the service delivered and in leveraging the funding needed to provide quality services, is to see health and social care as one service, not two, and commission and provide them accordingly. This is a conclusion the Committee has reached previously and often.

27.  In our January 2012 report on public expenditure, we said:

While the separate governance and funding systems make full-scale integration a challenging prospect, health and social care must be seen as two aspects of the same service and planned together in every area for there to be any chance of a high quality and efficient service being provided which meets the needs of the local population within the funding available.[20]

28.  We pursued this theme, in our February 2012 report on social care. The Committee concluded in that report that integrated services need a fully integrated approach to commissioning in each area, with the precise model depending on local circumstances.[21]

29.  On funding, the Committee quoted the Dilnot Commission's view (specifically in relation to older people) that separate funding streams for heath, social care and welfare mean that resources are allocated inefficiently, and said that:

At a time of scarce resources and rising demand the Committee believes that this structural inefficiency, which has been recognised for decades, can no longer be ducked. Too much is spent treating preventable injuries like falls, which can have a catastrophic impact on the lives of older people, some of whom may never regain independence again. If we are to create a sustainable, high quality support system for older people, commissioners need to rebalance the entire expenditure on services for older people across the NHS, social care, housing and welfare. This will be a process, rather than an event; the purpose of creating integrated commissioners, is to create agents within the system who have both the ability and the incentive to drive the necessary process of fundamental change in service provision.[22]

30.  Our recommendation was made in reference to services for older people, but the principle stands for health and social care provision in general. At a time when steadily rising demand for health and care services needs to be met within very modest real terms funding increases for the NHS and even tighter resource constraints on social care, the Committee remains convinced that the breadth and quality of services will only be maintained and improved through the full integration of commissioning activity across health and social care.

31.  In the sections below, the Committee comments on Government funding for the NHS in 2011-12, evidence of the efficiency gains being made, and on ways of integrating funding and services.

4   HM Treasury, Spending Review 2010, October 2010, Cm 7942, paragraphs 2.10 and 2.14-15, and Table 2.3. Back

5   Health Committee, Public Expenditure, HC 1499, paragraph 85. Back

6   Ev 105 Back

7   Ev 108 Back

8   Ev 100, paragraph 2.2 Back

9   Ibid., paragraph 2.3 Back

10   Ibid. Back

11   Ev 81 Back

12   National Audit Office, Progress in making NHS efficiency savings, 13 December 2012, HC 686, p8 Back

13   IbidBack

14   Ev 60, paragraph 4 Back

15   Progress in making NHS efficiency savings, p6 Back

16   Ibid. Back

17   Ev 70, paragraph 7 Back

18   Evidence taken before the Public Accounts Committee, 14 January 2013, HC 865-i, Q 54 Back

19   Ev 61, paragraph 11 Back

20   Health Committee, Public expenditure, HC 1499-I, paragraph 13 Back

21   Health Committee, Social Care, HC 1583-I, paragraph 36 Back

22   Ibid., paragraph 76. Back

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© Parliamentary copyright 2013
Prepared 19 March 2013