1.The Government’s Spending Review and Autumn Statement 2015 announced that NHS England would receive an additional £8.4 billion above inflation by 2020–21. With the extra funding received in 2015–16, this meant that “the NHS will receive £10 billion more a year in real terms by 2020-21 than in 2014-15”. The additional funding above inflation would be “front-loaded”, i.e. larger increases would come at the start of the spending review period. An additional £3.8bn would be provided in 2016–17, with further increases then spread over the rest of the period.
Figure 1: Cumulative delivery of Spending Review commitment to the NHS
2.Capital spending will, however, remain flat in cash terms over the spending review period, at £4.8bn each year. That represents a real-terms reduction of 9% from 2015–16 to 2020–21.
Figure 2: Capital spending 2015/16–2020/21, in real terms at 2015–16 prices
Source: House of Commons Scrutiny Unit, using figures from written evidence from the Department of Health
3.In social care, the Spending Review announced an additional “£3.5 billion of support for adult social care by 2019-20”. As the graph below demonstrates, this funding will be “back-loaded”, i.e. larger increases will come towards the end of the Spending Review period. The Review announced two new sources of funding:
The distribution of these new funds over the spending review period is set out in the graphic below.
Figure 3: New funding for social care announced in the Spending Review
Source: Written evidence from the Department of Health
4.As the Department of Health’s written evidence notes, adult social care funding is part of wider local government finance. Local authorities are responsible for deciding how much of their income they spend on social care. Alongside the increases in social care funding, the Government announced a reduction in its grant funding to local authorities of £6.1 billion by 2019–20, matched, the Spending Review noted, by projected increases in other sources of income such as council tax and business rates of £6.3 billion by 2019–20. In the meantime, the Government will consult on changes to the local government finance system to pave the way for the retention by local authorities of all the business rate income they raise, 50% of which is currently passed directly back to the Treasury and redistributed through Government’s grant funding to local authorities. The consultation will take into account all the main resources currently available to councils, including council tax and business rates.
5.Health and social care are devolved functions for the UK, and so policy and spending decisions outside England will depend on decisions made by the devolved administrations of Northern Ireland, Scotland and Wales. The UK government uses the Barnett formula to allocate public funding to the devolved administrations and in devolved areas such as health, the devolved administrations receive a proportional share of any changes in funding. As such, funding decisions in England may influence the overall level of funding in the devolved administrations. In the case of health expenditure, we note that these so-called “Barnett consequentials” are calculated on the basis of total health expenditure, not allocations to NHS England. In accordance with our remit, which extends to the administration, expenditure and policy of the Department of Health and its associated public bodies, which as a consequence of devolution have only very limited responsibilities outside England, this inquiry focused exclusively on the spending review decisions for health and social care in England.
6.Our starting-point has been to consider the Spending Review claim that the NHS will receive an additional £10 billion above inflation by 2020–21. There are two reasons why this figure does not, in our view, accurately reflect the impact of the Spending Review on health expenditure. The first is that the £10 billion figure is expressed in 2020–21 prices, rather than the current (2015–16, the time of the Spending Review) prices which would normally be expected to have been used in the calculation of such figures. At 2015–16 prices, NHS England’s budget will rise by £9.5 billion between 2014–15 and 2020–21. The second reason is that the £10 billion figure refers to the additional sum allocated to NHS England, not to total health spending. Part of the increase in funding to NHS England is being funded by reductions in areas of health spending which fall outside NHS England’s budget, such as the public health grant to local authorities, and education and training funded through Health Education England. Those reductions amount to £3.5 billion in real terms, at 2015–16 prices, between 2014–15 and 2020–21. The overall impact is that total health spending—the Department of Health’s budget—will increase in real terms, at 2015–16 prices, by £6 billion between 2014–15 and 2020–21. If the spending review period is considered—2015–16 to 2020–21—that increase is £4.5 billion. We cover this point in greater detail later in this report.
Figure 4: Total health spending, 2014/15–2020/21, in real terms at 2015/16 prices
Source: House of Commons Scrutiny Unit. Note: totals may not match those in para 6 above due to rounding
7.The body of this report is in three sections. In Chapter 2, we assess the current state of health and social care finances. Chapter 3 considers the effect of the Spending Review announcements, and the scope and plans for further efficiency savings in health and social care over the spending review period. Chapter 4 looks in more detail at a number of major initiatives and key policy changes which will have a significant impact on the financial position of the NHS and social care, both in the next few years and in the longer term. Finally, in a concluding chapter, we draw together our assessment of the impact of the Spending Review on health and social care, and set out our intention to examine the subject of the impact of the Government’s spending decisions upon health and social care on a regular basis and hold Ministers, NHS England and NHS Improvement regularly to account over the course of the Spending Review period.
8.Our inquiry took place, and the evidence was gathered, before the vote on 23 June 2016 on the UK’s membership of the European Union. The implications of the decision resulting from that vote have yet to become clear, but will clearly affect health and social care, as we have heard in the evidence we have taken separately on the implications for health of the UK’s membership of the EU. Our future consideration of the impact of the Spending Review on health and social care will be informed by developments resulting from the UK’s expected exit from the EU, and we will be scrutinising those developments very closely in light of the concerns about the impact on the social care system, the National Health Service and research.
1 HM Treasury, (Cm 9162), November 2015, para 1.97
2 CSR 042, para 5.
3 CSR0042, para 29.
4 , paras 2.123 and 2.127.
5 , para 2.126.
6 See para 53ff. The figures quoted here have been calculated with reference to the Summer Budget 2015 deflator, consistent with the way the £10 billion (increase between 2014–15 and 2020–21) has been reported at Table 2.8 of the (Cm 9162). Later in this report, we revert to the Spending Review 2015 deflator, to stay consistent with the figure of £8.4 billion (increase between 2015–16 and 2020–21) quoted in the Department of Health’s written evidence to this inquiry (, Table 2).
7 Available on the Committee’s website: Inquiries >
15 July 2016