Is the NHS Underfunded?

The past two years have seen the NHS provider sector (NHS trusts and foundation trusts) struggling to cope with increased demand due to a growing and ageing population, and rising costs. As a result, in the 2015/2016 financial year the NHS provider sector reported a combined deficit of almost £2.45 billion, with the underlying  deficit considerably higher at around £3 billion.

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This dire financial situation encompasses the entire NHS provider sector in England; it is not limited to any particular geographical area or type of trust. According to a March 2016 report by the think tank The Health Foundation  – “[the deficit] is a systemic issue, with nearly half of trusts reporting a deficit in 2014/15, and over three-quarters in deficit by quarter three of 2015/16.”.

Yet just two and a half years earlier in the 2012/2013 financial year the NHS provider sector reported a surplus of £577 million.

In the past year the deficit has spread to other parts of the NHS; although the situation is not as severe, clinical commissioning groups (CCGs) are beginning to fall into deficit. In the financial year 2014/2015 19 CCGs reported deficits, but in February 2016 it was predicted that this will have increased to 30 CCGs by the end of the financial year 2015/2016.

The £30 billion funding gap

How did the financial disaster the NHS is faced with today develop so quickly? Indeed how did it develop at all in the face of what the government insists is generous financial settlements and a ring-fenced budget?

First of all the government’s “generous” spending on the NHS from 2010 to 2015 actually only resulted in funding that rose at 0.9% a year in real terms, according to analysts at The Health Foundation and The King’s Fund. In contrast, since the NHS was created in 1948 average real term increases have been 3.7% per year and the average increase between 2001/02 and 2004/05 was 8.6% per year.

At the same time as funding has slumped, demand has increased steadily: from 2009/10 to 2014/15 elective care admissions rose at an average of just over 4% year-on-year and referrals rose at an average of 4.6% year-on-year. It is very clear that funding has not kept pace with demand.

In 2014, the government acknowledged the discrepancy between funding and demand in its Five Year Forward View report; noting that a combination of growing demand, no further annual efficiencies, and flat real terms funding could, by 2020/21, produce a mismatch between resources and patient needs of nearly £30 billion a year.  So armed with this information on a £30 billion funding gap, the government made an £8 billion pledge to funding the NHS from 2014/15 to 2020/21.

£8 billion from the Government

So how did the government decide that what the NHS needed was an extra £8 billion to not only protect the NHS, but improve it as well, when the figure of £30 billion was the funding gap to be filled.

According to the government £8 billion was the figure Simon Stevens, CEO of NHS England, had requested. However, in March 2016 it came to light that the £8 billion might not be all that it at first appeared. The figure of £8 billion was reportedly taken from a report by Simon Stevens; however, David Laws, a former Liberal Democrat MP and chief secretary at the Treasury, has asserted that £8 billion was not the original figure Stevens was seeking.  In Laws’ book, excerpts of which were published in The Daily Mail, he reports that Stevens originally asked for £15-16 billion extra from the government.

The Government is reported to have then exerted pressure on Stevens to amend his report to get it down to the much smaller £8 billion amount. The government wanted to bridge the £30 billion a year funding gap by 2020 by making £22 billion in efficiency savings, leaving the £8 billion a year for the government to make up. Laws notes in his book that this pressure resulted in the supposed possible efficiency savings being increased to “totally unrealistic” levels. So in fact the Conservatives already knew from Stevens’ report that £8 billion would not be enough to protect the NHS and, as Laws noted in an interview the £8 billion pledge was therefore “disingenuous.”

But £8 billion is not £8 billion in real terms

So the government has promised £8 billion for the NHS to fill at £30 billion gap, however it is also now clear that this £8 billion is in reality not actually £8 billion, but a lot less.  NHS England will receive £8 billion, but health spending not covered by NHS England, i.e., public health, Health Education England and several other organisations, is actually being cut by 20%. The net result for the Department of Health as a whole is an increase in spending of only £4.5 billion from 2015/2016 to 2020/21. This equates to an average 0.9% increase in spending per year for the NHS over this period, way below the historical yearly average of 3.7%.

Jeremy Hunt has been insistent that the NHS is receiving generous funding increases – he has even gone as far as claiming that the rise in funding in 2016/17 is the “sixth-biggest” in the history of the NHS. This was thoroughly de-bunked in May 2016 by economists at The Health Foundation and The King’s Fund; Prof John Appleby, the King’s Fund’s chief economist, and Adam Roberts, of the Health Foundation, analysed the last 41 years of funding data, and found that the NHS real spend increase of 1.6% that Hunt is giving the NHS in 2016/17 is the 28th-largest increase since 1975-76.

In a blog on the King’s Fund website, Appleby and Roberts also note that Hunt’s claim that the government are giving the NHS in England an extra £3.8 billion this year is untrue with the true figure being just £1.8 billion.

Funding in 2016/17

Despite the overwhelming evidence of that the NHS is not receiving enough money, 2016/17 will see no let-up for the beleaguered trusts.  In January 2016 Monitor and the NHS Trust Development Authority issued the financial targets for 2016/17; these targets must be agreed if the trusts are to gain a share of the £1.8 billion sustainability and transformation fund. One in three trusts refused to accept these targets and many of those that did accept did so with caveats.

Then in March 2016, HSJ reported that the regulators (Monitor and the TDA) are requiring a major reversal in the financial performances of many of the acute trusts in 2016/17. HSJ obtained figures for the financial targets for 47 of 136 acute trusts; seven of the trusts will have to improve their deficits by more than £10 million compared to 2015/16, even after money from the sustainability and transformation funding is taken into account. To meet these targets the trusts are going to have to make some spectacular savings somewhere.

The finances of hospital trusts are not helped by the system whereby hospitals are fined by Clinical Commissioning Groups for missing key NHS patient treatment targets; this is around £600 million per year. The fines push trusts already in deficit even deeper into debt. The fines are levied by the CCGs but Trusts claim that the fines hinder their ability to meet targets.

Falling behind our neighbours

The government’s inadequate funding for healthcare means that the UK is falling behind other countries in terms of investment in health as a proportion of GDP, according to research by The King’s Fund published in March 2016 based on OECD figures.

In July 2016 the OECD published updated statistics on funding for healthcare; these included a change in health spending accounting for the UK, most notably the inclusion of spending on social care. This change meant that total public and private spending on health jumps from 8.7% of GDP to 9.9% for 2013 and for 2015 the estimate is given as 9.8%. However, there has been no change in the budget for the NHS – it has not suddenly increased.

The change in accounting practice means that the UK can now only really be compared to 12 other countries which use the same standards of accounting. However these countries are many of the ones the UK is normally compared to, including its near neighbours in Europe – France, The Netherlands, Belgium and Germany.  Despite the leap in the proportion of GDP spent on healthcare for the UK in the new OECD figures, of the 13 countries compared, the UK spends less on healthcare as a proportion of GDP than nine of those countries, including Germany, France, Sweden, Canada, Austria and Belgium.  Only Portugal, Hungary and Poland spend less of their GDP on healthcare. So although the figures may have changed, the position the UK is in compared to its neighbours has not and the UK still looks like a “low spender” on healthcare.

In a March 2016 Guardian article Prof John Appleby, lead economist at the King’s Fund, warned  “that Britain’s status as an increasingly “low spender” might mean the NHS cannot deliver improvements in the quality of care and outcomes from treatment that patients want.”.

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