Impact of the Spending Review on health and social care Contents

Conclusions and recommendations

The current financial situation in health

1.The financial situation in the NHS has become increasingly tight. Health spending rose at a historically low rate of 1.1% in real terms between 2009–10 and 2015–16. NHS provider deficits have become so widespread that there is a risk that running a deficit is no longer taken seriously as a sign of poor financial management. The need to manage deficits also risks skewing attention and draining resources from other NHS priorities. (Paragraph 26)

2.We have heard compelling evidence that the current payment system does not drive greater efficiency or support the transformation that is required across the system. The payment system needs to be reformed, so that it does not continue the perverse incentives which can drive inappropriate hospital admissions. It must however ensure that hospitals are paid a fair price, and that the system encourages them to manage their costs appropriately, with care being carried out in the right settings. Whilst we recognise that reforms of this scale cannot be rushed, we note that we and our predecessor Health Committees have been hearing concerns about the payment system for many years. We therefore recommend that NHS England and NHS Improvement set out a clear timetable for reforms to the payment system, and clarify the underlying problems that the changes will address. (Paragraph 27)

Staff costs

3.There is no doubt that spending on agency staff on the scale seen since 2009–10 has been a major contributor to provider deficits. The cap on agency costs and rates has helped to turn the corner, but this may be undermined by the widening gap between NHS pay and that for comparable jobs outside the NHS. Over the previous Parliament, much of the efficiency gain was achieved thanks to a pay freeze, but a long-term pay squeeze has unintended consequences for recruitment and retention, which may drive higher costs. The problems with agency spending are likely to remain until the underlying issues of workforce supply and staff shortages are addressed. We therefore call on the Government to set out its plan for how it will recruit and retain the NHS future workforce, including by making working as a permanent member of staff a more attractive option. (Paragraph 36)

Managing the financial situation

4.We are concerned that the Government has resorted to short-term measures to deal with the financial situation. Capital was transferred to revenue for the second year running in 2015–16 and trusts were encouraged to review their accounting estimates for savings. We are concerned that these measures are masking the true scale of the underlying financial problems facing the NHS. We are also concerned about the consequences of repeated raids on the capital budget to meet current spending, especially as that budget is already set to reduce in real terms over the spending review period. (Paragraph 42)

5.The conclusion we draw from the evidence we have heard is that the proposed strategies for reducing costs—cutting the tariff price (albeit at a lower rate), strict pay restraint, imposing agency price caps and reducing capital spending—are not sustainable ways of securing long-term efficiencies. The NHS will need a new approach if it is to adapt to increasing patient demand and funding constraints. (Paragraph 44)

The current situation in social care

6.We are concerned about the effect of reduced access to adult social care as a result of the cuts to funding and the impact of this on the NHS. Given the evidence of the linkages between health and social care, we were concerned that none of the senior officials giving evidence from the Department of Health, NHS England or NHS Improvement were able to quantify the financial cost of one of the most visible interfaces between health and social care, namely delayed transfers of care as a result of not having adequate social care packages in place. The supplementary evidence sent to us by the Department, NHS England and NHS Improvement following the session was able only to refer us to estimates from a recent National Audit Office report. (Paragraph 53)

7.We recommend that the Government urgently assess and set out publicly the additional costs to the NHS as a result of delayed transfers of care, and the wider costs to the NHS associated with pressures on adult social care budgets more generally. That assessment should be accompanied by a plan for adult social care which demonstrates that the Government is addressing the situation in social care and dealing with its effect on health services. (Paragraph 54)

The Spending Review announcements on health

8.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. (Paragraph 61)

9.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. (Paragraph 62)

The impact of the spending review on future efficiencies

10.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. (Paragraph 74)

11.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. (Paragraph 75)

12.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. (Paragraph 76)

Opportunities for efficiencies in health

13.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. (Paragraph 84)

Opportunities for efficiencies in social care

14.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. (Paragraph 86)

Funding for public health

15.Cuts to public health budgets threaten to undermine key parts of the vision set out in the Five Year Forward View, which are predicated on, among other things, a “radical upgrade in prevention and public health”. Failing to promote prevention with sufficient vigour will mean increasing operational and financial pressure on the NHS. The overwhelming view amongst our witnesses is that the public health cuts will turn out to have been a false economy. (Paragraph 102)

16.Given that even greater responsibility for public health has been transferred to local authorities, monitoring what is spent, how it is spent, and what it has achieved is of great importance. The Government needs to analyse and closely monitor the effects of the public health cuts on the aspirations set out in the Five Year Forward View. The Government should set out clearly, with measurable objectives and milestones, what it expects public health spending to achieve over the next five years, in terms of improved health and savings in NHS expenditure. We will return to this issue in future consideration of the financial situation in health and social care. (Paragraph 103)

17.By the time this report is published, a new Prime Minister will have taken office. We are concerned about the future of the childhood obesity strategy. We call on the Government under Theresa May as Prime Minister to publish and implement the strategy at the earliest possible opportunity, and on the Chancellor of the Exchequer to implement the existing plans for a levy on the manufacturers of sugary soft drinks. (Paragraph 104)

Transformation, integration and devolution

18.We expect the Government to clarify the situation for CCGs wanting to adopt integrated commissioning with local authorities including through “most capable provider” approaches. During the passage of the Health and Social Care Act, the then Secretary of State assured our predecessor committee that integration would trump competition where that was in the best interests of patients. All those working towards the goal of providing an integrated service need clarity about the legal avenues open to them in order to do so. (Paragraph 116)

19.We heard some impressive evidence of the work going on to integrate health and social care services, and to incorporate other public services in ways that meet the needs of patients better and improve the local population’s health. These initiatives for integration have great potential. In many areas, patients are already benefitting from better integration and other transformation initiatives. This will however not necessarily save money in the short term, as this approach also identifies more individuals who could benefit from services. (Paragraph 126)

20.Integration and devolution do not offer a quick solution to the financial problems facing the NHS and social care services. Such projects require substantial investment in preparation and during the early years of operation, and may in some cases add to costs in order to deliver long term savings. The Government needs to take a long term view in assessing their financial benefits and should define how the success of the vanguards will be evaluated. (Paragraph 127)

21.With much of the upfront investment in the Spending Review being used to plug deficits, there is a real danger that greater integration and the move to the new models of care set out in the Five Year Forward View will be jeopardised by the shortage of transformation funds across the wider NHS outside the vanguards. At present the Sustainability and Transformation Fund is being used largely to ‘sustain’ in the form of plugging provider deficits rather than in transforming the system at scale and pace. If the financial situation of trusts is not resolved or, worse, deteriorates further, it is likely that the overwhelming majority of the Fund will continue to be used to correct short-term problems rather than to support long-term solutions. We call on the Government to set out how it will protect the Transformation element of the Fund to ensure that the ambitions of the Five Year Forward View are realised. (Paragraph 128)

Health education funding

22.The failure to train and retain an adequate supply of clinical staff is causing great strain in many parts of the NHS. This is undermining patient care, driving up the use of more expensive agency staff to fill rota gaps and diverting resources away from other important priorities. We expect Health Education England to set out their strategic plan and state whether they expect it to be achievable, and whether it will deliver the staff needs of the NHS, within their current budget. As we return to this subject through the spending review period we intend to examine the progress which HEE is making in improving workforce planning and effecting the transformation of the workforce at the heart of achieving the aims of the aims of the Five Year Forward View. (Paragraph 139)

23.We have heard concerns about the potential impact of the proposed abolition of NHS bursaries on the supply of nursing staff and other allied health professionals. We recommend that the Government review the impact on those training as a second degree and examine a transitional approach to support this section of the future workforce. We welcome the introduction of new routes to Associate Nurse and degree level nursing for those working as Health Care Assistants. We plan to return to this issue. (Paragraph 140)

The Government’s aspirations for service improvement

24.The Government and NHS England have now produced a clearer account of their intentions for seven-day services in hospitals and GP surgeries. We welcome the more realistic vision for seven-day hospital services, focussing on urgent and emergency care. We will continue to monitor progress on seven-day services across the Spending Review period, with the aim of assessing whether the Government’s ambitions are achievable and delivering value for patients given the constraints on available resources and the risk of displacing measures which would be more cost effective. (Paragraph 153)

Funding for mental health

25.Delivery of the funding commitments the Government has made for mental health is crucial to the delivery of meaningful parity of esteem. As we return to this subject through the Spending Review period, we will be looking for clear, verifiable evidence that the additional funding for mental health is being delivered to the front line, as well as evidence of sustainable progress towards the culture change across the NHS, from commissioners to providers, necessary to deliver genuine parity of esteem. (Paragraph 166)


26.New models of care and the measures to achieve demand reduction which are crucial to the achievement of the Five Year vision are not being embedded across the whole system. These changes are not happening at sufficient scale and pace across the wider NHS and social care. The integration of health and social care—not just the integration of funding, as in the Better Care Fund, but getting commissioners and service providers in each sector to work more closely together to deliver a service to their local population—is not proceeding at the required pace. Furthermore, there is a risk that cuts to funding outside NHS England, such as public health and social care, will put the achievement of the Five Year vision at risk. (Paragraph 170)

27.The Forward View needs to be accompanied by strategic thinking from Ministers about what priorities will best support achievement of the vision when resources are constrained. They should be prepared to set out the evidence as it develops on the value delivered by seven-day services and how that compares with other priorities such as action on prevention and public health. (Paragraph 171)

28.Given the scale of rising demand and costs we are not confident that the efficiency challenge is achievable. We are concerned about the failure to plan for the consequences if the current plan for savings is not achieved. (Paragraph 172)

29.We believe it is time for the Government and NHS England to set out how they will manage the shortfall in NHS and social care finances and the decline in services to patients if the measures proposed in the Forward View fail to bridge the funding gap. If the funding is not increased, there needs to be an honest debate about what that will mean for patient care. (Paragraph 173)

30.We expect to return to the subject of the impact of the Government’s spending decisions on 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. (Paragraph 174)

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15 July 2016