Impact of the Spending Review on health and social care Contents

3The impact of the Spending Review on health and social care finances

The Spending Review announcements on health

55.The following two tables show the 2015 Spending Review settlement for health, as taken from the Department of Health’s written evidence to our inquiry. Table 1 sets out the Department of Health’s budget for the 2015 spending review period and table 2 shows the funding for the NHS, allocated through NHS England. The baseline for the Spending Review period stated in these tables, 2015–16, includes the additional £2 billion provided to the NHS in 2015–16, prior to the period covered by the Spending Review, which is included in the figure of £10 billion for the NHS by 2020–21 discussed in para 6 above.

Figure 9: Department of Health budget for Spending Review period, in nominal terms

£ billion

2015-16 baseline

2016-17

2017-18

2018-19

2019-20

2020-21

RDEL (1),(3)

111.56

115.61

118.72

121.31

124.09

128.24

Real terms growth

1.9%

0.8%

0.2%

0.2%

1.1%

CDEL (2)

4.81

4.81

4.81

4.81

4.81

4.81

Real terms growth

-1.6%

-1.8%

-1.9%

-2.0%

-2.2%

TDEL

116.37

120.42

123.53

126.12

128.90

133.05

Real terms growth

1.8%

0.7%

0.2%

0.1%

1.0%

Source: Department of Health (CSR0042) table 1.

(1) The Resource Department Expenditure Limit (RDEL) is the budget authorised by Parliament to cover current spending on the cost of providing services and maintaining assets.

(2) The Capital Department Expenditure Limit (CDEL) is the budget authorised by Parliament to cover investment spending on creating, purchasing and disposing of assets.

(3) RDEL excludes depreciation.

(4) The real term growth figures are expressed in 2020-21 prices, rather than current prices (2015-16 at the time of the spending review).

Figure 10: NHS England’s budget for Spending Review period, in nominal terms

Revenue and capital combined

2015-16

2016-17

2017-18

2018-19

2019-20

2020-21

Total (£ billion)

100.50

105.98

109.34

111.82

114.93

119.04

Real terms increase on
previous year (%)

3.7%

1.3%

0.3%

0.7%

1.3%

Real terms increase on 2015-16 baseline (£ billion)

3.8

5.3

5.8

6.7

8.4

Source: Department of Health (CSR0042) table 2

(1) These figures differ from the NHS TDEL figures announced at SR due to a number of technical adjustments, including transfers of functions. The main transfer of function is the move of 0-5 public health services from NHS England to local government. There are a small number of other transfers including the move of the Leadership Academy to Health Education England. To ensure comparability of numbers, in this table £500 million has been removed from the 2015-16 baseline, representing 6 months of funding for 0-5 public health services between 1 April and 30 September 2015 and these other planned transfers.

(2) The real term increases are expressed in 2020-21 prices, rather than current prices (2015-16 at the time of the spending review).

56.Notwithstanding the Government’s announcements at the time of the Spending Review, the Health Foundation, King’s Fund and Nuffield Trust think tanks assessed the actual increase to NHS England’s budget as £7.6 billion, rather than £8.4 billion. They note that the “additional” £8.4 billion is reported in terms of 2020–21 prices, which is a change from usual practice. If 2015–16 prices are used, as would normally be the case for these reports, NHS England’s budget increases by £7.6 billion between 2015–16 and 2020–21 and by £9.5 billion between 2014–15 and 2020–21.77 Figure 11 below sets out the profile of Department of Health spending, as expressed in 2015–16 prices.

Figure 11: NHS England and Department of Health’s budget for the spending review

Funding in £billion, 2015-16 prices

2015-16

2016-17

2017-18

2018-19

2019-20

2020-21

Change 2015-16 to
2020-21

NHS England

101.3

105

106.4

106.8

107.5

108.9

7.6

Other
Department of Health

15.1

13.4

12.8

12.7

12.2

12

-3.1

Department of Health (TDEL)*

116.4

118.4

119.3

119.5

119.7

120.9

4.5

Source: Nuffield Trust, Health Foundation and King’s Fund (CSR0091)

57.The three health think tanks also pointed out that a substantial element of the additional funding is not extra money, but a transfer from the overall Department of Health budget to NHS England. They explained that previous governments have defined health spending using the whole of the Department of Health’s budget, but the spending review defines ‘NHS spending’ as NHS England’s budget.78 Whilst NHS England’s budget will rise by £7.6 billion in real terms over the period, other areas of health spending, including on public health, education and training, will fall by more than £3 billion. The three health think tanks told us that using the previous definition of health spending, and taking 2015–16 as the baseline, health spending in England will increase in real terms by £4.5 billion by 2020–21.

58.Chris Hopson of NHS Providers told us that there is uncertainty about how the additional funding will be spent:

If I am honest, we see the £8.4 billion real terms extra increase being spent several times over in a rather confusing way… we welcome the fact that extra money is on the way but we need pinpoint clarity on which priorities are going to be delivered when and, therefore, how much money is coming to the front line to deliver those priorities. At the moment, it is pretty unclear and woolly.79

He added that providers need clarity on where the extra money is going to be spent, on what and with a clear profile across the rest of the spending review period.

59.The three think tanks, NHS Clinical Commissioners and NHS Providers all welcomed the “front-loaded” nature of the settlement. NHS Clinical Commissioners told us it would provide resource to “begin to tackle some of the key systemic issues”.80 Chris Hopson of NHS Providers added that it “provides the beginnings of a good plan. We would describe it as reversing the car out of the financial ditch into which it has been driven.”81 The Chief Executive of NHS England, Simon Stevens, told us the front-loading would “enable people to re-baseline and focus on sorting themselves out this year”.82

60.However, Professor Sutton of the University of Manchester, amongst others, was concerned that most of the front-loading would be “taken up by things like additional pension contributions and the deficits that are already there.”83 Chris Hopson said he considered it unlikely that the front-loading will be sufficient to reverse the deficit position in 2016-17:

Our view would be that, if you look at the sums of money involved and at the likely size of the provider deficit, it will be a struggle to get back to surplus in 2016–17. It is more likely that you will get back to surplus in 2017–18. If you look at the degree to which the financial pressures are building on our members—there is £1 billion extra national insurance related pension cost—if you look at the increases in demand, there are a whole number of different issues that mean that, if you were to ask what would be our best guess for the provider sector’s overall position in 2016–17, we would probably say a £0.5 billion deficit is about as far as we can get. However, if we end the year, as we probably expect, at minus 2.8 billion, there is a lot of progress to have got from minus 2.8 billion to minus 500 million.84

61.Health spending will not increase by as much as expected from official pronouncements. In previous years, spending reviews have defined health spending as the entirety of the Department of Health’s budget, but the 2015 spending review defines spending in terms of NHS England’s budget, which excludes, for example, spending on public health, education and training. Excluding these aspects of spending—which are being cut over the spending review period—is misleading, as these organisations play a vital role in providing front line services to patients, reducing demand through prevention and in training the future workforce. We call on the Government to set out the rationale for changing the definition of health spending. Until there is a clear case for the change, we will continue to use the previous definition of health spending, and we call on the Government to do likewise.

62.Using the original definitions, and taking 2015–16 as the base year, total health spending will increase by £4.5 billion in real terms by 2021. This is a welcome increase, particularly in the context of the financial constraints faced by other Government departments, but is clearly far less than the £8.4 billion implied by the Spending Review announcements and does not in our view meet the commitment to fund the Five Year Forward View.

The Spending Review settlement for social care

63.The Department of Health told us that “social care continues to be a key priority for this Government. It is critical in enabling people to retain their independence and dignity. This is why, against the context of tough public sector finances the Government has taken steps to protect social care services.”85

Figure 12: Additional funding for adult social care announed in the Spending Review

£ billions

2016–17

2017–18

2018–19

2019–20

Potential revenue from ASC precept

0.4

0.8

1.3

1.8

Improved Better Care Fund

0.0

0.1

0.8

1.5

Total additional funding

0.4

0.9

2.1

3.3

Source: Department of Health (CSR0042), table 4

64.The LGA and ADASS both told us that the overall funding settlement for social care was unclear. Specifically, the spending review assumes that all councils will raise council tax by the full 2% in each year of the spending review, but the LGA and ADASS both considered that unlikely.86 The three thinks tanks agreed with this view, reflecting that only around half of councils chose to increase council tax in 2015–16.87 Sarah Pickup of the LGA told us that the funding settlement is likely to mean that social care spending will be roughly flat in cash terms and therefore with “real-term reductions in budgets over the four year spending review period”.88 ADASS estimates the settlement will be broadly flat in real terms.89

65.We heard concerns that any additional funding for social care will be swallowed up by demographic pressures and additional costs for providers of implementing the National Living Wage. Sarah Pickup of the LGA told us “the biggest pressures in adult social care are demographic pressures and they are, in part, due to the rising number of older people in the population and their rising levels of needs.90 But Ms Pickup also said that “what we must not forget is that the number and levels of many people with learning disabilities is as big a financial pressure on council budgets as older people.”91 ADASS estimates that additional cost pressures will leave a funding gap of at least £1.1 billion by 2019–20, with a gap of at least £1.4 billion in 2016–17 and £1.6 billion in 2017–18. This assumes full take up of the council tax precept. ADASS reports that in a scenario where only 50% of councils raise the precept for all four years, the gap would be nearly £2 billion.92

66.Whilst the introduction of the council tax precept has been welcomed, we heard concerns that poorer areas with greater social care needs may be less able to raise revenue in this way. Dr Fernández of the London School of Economics explained:

The challenge of the precept is its impact on perhaps spatial or geographical equity and the fact that a 2% increase in council tax will not translate into the same increased revenue for local councils across the country. This is important because those councils that have the greatest opportunity to raise resources—the wealthier councils and, therefore, those with the highest tax base—are also those that are likely to be faced with the least demand for social care, because there is a very strong correlation between deprivation and demand for local authority supported care.93

67.Ray James of ADASS gave a helpful illustration of the same point:

In the most affluent areas you will raise about two-thirds of your council spend through the council tax. In the most deprived areas you will raise less than 20% of your council spend through the council tax, so 2% on two-thirds versus 2% or less than 20% is quite a marked difference. It is also perhaps not surprising that there is a very strong correlation between increased social care demand and high levels of deprivation. One of the distribution challenges with the precept is that it raises least money in areas of greatest need.94

68.The Secretary of State acknowledged that this was an area of concern and told us the Government would therefore introduce a redistribution mechanism in which additional funding from the Better Care Fund (BCF) will be distributed to those authorities which benefit least from the council tax precept.95 The fact there will be a redistribution mechanism has generally been welcomed, although more detail is needed about the plans for redistribution so that the impact can be better understood. We also note that proposals to use the Better Care Fund for redistribution will reduce the amount available for transformation and integration of care, the purpose for which the BCF was originally established.

69.The LGA, ADASS, Health Foundation, King’s Fund and Nuffield Trust all expressed concern that the additional money provided through the Better Care Fund will not begin to come through until 2017–18. Sarah Pickup of the LGA told us there is therefore “a big gap in funding in those first two years of the spending review”.96 Similarly Ray James told us that “the money that is available in the first two years of the Parliament simply does not meet the increased cost of the living wage and the increased demand for services”.97 Professor Green added that the impact of the National Living Wage and back-loaded settlement means there will be a “big challenge around cash flow”.98

The impact of the Spending Review on future efficiencies

70.In the Five Year Forward View, NHS England estimated that, with no action, meeting rising demand and cost pressures would require an extra £30 billion above inflation for its budget by 2020–21. It forecast that if the NHS had £8 billion more funding, the gap between resource and patient needs would be £22 billion by 2020–21.99 To close the gap, demand and efficiency savings will be required each year, with £22 billion required in 2020–21 alone. NHS Providers told us that it welcomed the Five Year Forward View, which it said provides a “compelling vision of the gaps the service needs to address and the alternative care models the NHS might adopt.”100

71.The Chief Executive of NHS England, Simon Stevens, told us that he did not consider that the size of the funding gap had changed following the spending review.101 However, we heard evidence that the financial situation is more challenging than when estimates were made for the Five Year Forward View. Anita Charlesworth explained:

If you go back to 2014–15, the additional £8 billion was the minimum that NHS England identified as necessary and, as Simon Stevens has said, it was predicated on a number of things. The first was some of that money coming up front, which has happened, but there were two other things that are really important that it was predicated on. One was effective action and a strategy on public health and population health, and, as he has said, there are real questions about that now. The second was an effective, sustainable social care system. Again, although this spending review settlement is more generous for social care than the previous Parliament spending resettlement, the work that we three organisations have done suggests it leaves a very big gap, and while the health settlement is front-loaded the social care settlement is back-loaded.102

72.Simon Stevens provided us with a high-level breakdown of where the £22 billion of efficiencies would come from:

£6.7 billion of it will be delivered nationally through a range of measures that the NHS nationally, the Department of Health and wider Government will be able to take, and that leaves us £14.9 billion to secure locally. Of that, £1 billion we already have in hand, so that leaves us just under £14 billion, of which £8.6 billion will come from the 2% provider tariff efficiencies and the rest from service change and the process that is now under way through the local planning processes—the sustainability and transformation plans that are being developed in 44 geographical footprints across the country.103

73.However, other than this high-level breakdown, many organisations observed that as yet, there is no detailed plan for how the £22 billion—or even the £9 billion or £15 billion of which Simon Stevens spoke—of savings will be made. NHS Providers told us that the Five Year Forward View “now needs to be complemented by a clear plan of how this destination will be reached including how the service will fund transformation in the middle years of the settlement”.104 Likewise, the British Medical Association told us “there is still no credible plan to enable this unprecedented scale of efficiency savings to be made. This is even more unrealistic when we consider the fact that this expectation is balanced against the NHS priority for improving performance”.105 Similar views were expressed by a number of other witnesses, including the Health Foundation, Nuffield Trust, King’s Fund and NHS Clinical Commissioners.106

74.We welcome the Five Year Forward View, which provides NHS England’s assessment of the challenge and proposes a way forward for the NHS to be able to meet the widening funding gap.

75.NHS England published further details of where the £22 billion of savings will come from on the day of our final oral evidence session, but we consider that it falls short on detail. It is still not sufficiently clear how or when the stated efficiencies will be achieved, or the contribution that individual organisations and sectors are expected to make.

76.The Department and NHS England now need to set out a detailed plan for realising the savings and demand reductions that are needed to realise the aspirations of the Five Year Forward View, so that bodies understand the contribution they need to make. The plan needs to be seen to be realistic, show the profile of savings and include metrics and milestones for monitoring progress against a trajectory. We will return to this subject on a regular basis through the spending review period to monitor progress against achieving the plan.

Opportunities for efficiencies in health

77.In its evidence, the Department pointed to work led by Lord Carter of Coles, which is helping to identify some of the efficiency savings. His report found that hospitals could save £5 billion per annum by 2020. The report concluded that variation in clinical costs, infection rates, readmission rates, litigation payments and device and procedure selection highlights “huge opportunity” for hospitals to tackle these variations. The Department is developing the “model hospital” which will set out what “good” looks like and provide indicators and benchmarks. Trusts will also be provided with analysis to identify their potential saving opportunities.107

78.The Secretary of State for Health told us that the Carter programme of efficiencies for NHS providers is “motoring”. He added that “there is lots more work to do, but there are some very encouraging signs. For example, as of this year, for the first time, 92 trusts are sharing full data about the 100 products that they purchase the most, so they can see complete transparency on who is spending what”. He added that from the start of 2015–16, the NHS would start collecting monthly data to track trusts’ progress in meeting the efficiency targets. “We are putting together a programme that supports trusts that are struggling to meet their Carter efficiency programme so that they will get better help from the centre.”108

79.We heard mixed views on the extent to which addressing unwarranted variation between providers—such as through the work of Lord Carter—might realise further efficiencies. Professor Sutton of the University of Manchester and the three think tanks were sceptical about the savings that could be made. For example, Nigel Edwards of the Nuffield Trust told us that variation in data is normal and can be explained by systemic differences between areas, such as difficulties attracting staff in rural areas. Nigel Edwards and Professor Sutton both commented that previous attempts at cutting costs by reducing variation had had little impact.109

80.NHS Providers told us it welcomed the approach being used by Lord Carter, but suggested that even if £5 billion of efficiencies are released, it still leaves a significant gap. It acknowledged that further savings may be identified from tackling variation within community, mental health, ambulance, primary care and specialist acute services, but told us work has not yet started within these sectors.110

81.We also heard that there is good practice to build on. Professor Andrew Street of the Centre for Health Economics at the University of York—our specialist adviser for this inquiry—told us that since 2007–08, NHS productivity had outpaced that of the wider economy. He argued that notwithstanding this achievement, there remains scope for improvement. Specifically, he found that productivity has not improved at the same rate across all NHS settings, with the productivity of the hospital sector having fallen by 0.5% between 2012–13 and 2013–14. Research shows that hospital productivity varies substantially across hospitals. In 2012–13, hospital productivity ranged from +31% above to -50% below the national average. Professor Street explained that “for individual hospitals, relative productivity is fairly stable from one year to the next. This persistence over time suggests scope to improve the performance of hospitals with low productivity”.111

82.Professor Timothy Briggs, author of a national review of adult elective orthopaedic services in England, told us his review showed there are opportunities to both make efficiencies and improve the quality of care by tackling variation. Following his 2012 report, Professor Briggs initiated a national pilot to look at variation in practice across the country:

We got 12 different datasets together on every single trust. We got that together into a unique dataset—the first time it has ever really been done—sent that to every single trust and then went to visit them. In the past two years, I have been to 248 hospitals in England, Wales and Scotland to look at data, which tell a very compelling story about how we can reduce variation, improve quality, do things better and make some savings.112

Professor Briggs added that tackling variation works best where it is driven by clinicians who work “shoulder to shoulder with managers”.

83.Similarly, Julie Wood of NHS Clinical Commissioners said that there are opportunities for commissioners to identify where tackling variation across the whole system can lead to efficiencies. She said that data published by the NHS Atlas of variation shows there is variation in practice across the country and between clinical commissioning groups. She argued that the data helps initiate conversations about the cause of variation and the extent to which it might point to areas for efficiencies.113

84.We are encouraged by the progress that has been made to build on good practice in the NHS, including through the work of Lord Carter and Professor Briggs. We heard mixed views on whether addressing unwarranted variation can realise sufficient efficiency savings but we are hopeful about what might be achieved with the engagement of providers and clinicians. The NHS must now set out how it will tackle variation within community, mental health, ambulance, primary care and specialist acute services. We recommend that the NHS publish details of the profile of saving targets within each sector so that we can assess progress when we next return to this subject.

Opportunities for efficiencies in social care

85.The Secretary of State for Health acknowledged to us that the funding for social care “is not going to be enough if we do not make the challenging efficiency savings that we all know we need to make”. He elaborated: “it will need to be combined with imaginative thinking and efficiency improvements at a local level that improve patient care rather than detract from it.”114 Sarah Pickup of the LGA was sceptical about the scope for efficiencies, explaining that “I would never say there is no more room for efficiencies because there always is, but I think in some cases they have pretty much gone as far as they can go”.115

86.Cuts to social care funding over a number of years have now exhausted the capacity for significant further efficiencies in this area. We have heard that the savings made by local councils in the last parliament have gone beyond efficiency savings and have already impacted on the provision of services. Based on the evidence we have heard we are concerned that people with genuine social care needs may no longer be receiving the care they need because of a lack of resource. This not only causes considerable distress to the individuals concerned but results in significant additional costs to the NHS.


77 Nuffield Trust, Health Foundation and King’s Fund (CSR0091), section 1

78 Nuffield Trust, Health Foundation and King’s Fund (CSR91) para 1.2

79 Q134

80 NHS Clinical Commissioners (CSR65) para 4.2

81 Q88

82 Q386

83 Q28

84 Q88

85 Department of Health (CSR42) para 13

86 Local Government Association (CSR15) para 8.5; ADASS (CSR86) para 33

87 Nuffield Trust, Health Foundation and King’s Fund (CSR91) para 42

88 Q197

89 ADASS (CSR86)

90 Q195

91 Q195

92 ADAS (CSR86) para 29

93 Q34

94 Q197

95 Q333

96 Q197

97 Q200

98 Q197

99 Five Year Forward View, pp. 35-36. See also supplementary evidence from NHS England (CSR107), Chapter 4.

100 NHS Providers (CSR36) para 4

101 Q299

102 Q70

103 Q299

104 NHS Providers (CSR36) para 4

105 BMA (CSR63)para 2.1

106 Health Foundation, Nuffield Trust, King’s Fund (CSR91) para 2.1; NHS Clinical Commissioners (CSR65) para 4.6

107 Review of Operational Productivity in NHS providers: An independent report for the Department of Health by Lord Carter of Coles. Interim Report June 2015, p. 3

108 Qq 311–12

109 Q9, Q62

110 NHS Providers (CSR36) para 4

111 Professor Andrew Street (CSR94) para 16

112 Q90

113 Q106

114 Qq 333, 335

115 Q207




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15 July 2016