NHS Finance

NHS model isn’t broken, but capital raids are threatening it

The NHS model is not broken, but if capital budgets continue to be raided year after year, trusts will continue to be unable to invest in modern equipment and facilities, leading to an ultimately false economy, the Health Foundation has argued.

In the first of three briefing papers planned for before the snap election in June, the influential think-tank reignited warnings that years of austerity have left the NHS in an “increasingly perilous financial state”.

Its director of research and economics, Anita Charlesworth, said: “Government funding plans are not keeping pace with demand and cost, and, as a result, these vital services are showing increasing signs of serious strain.

“Health and social care are vital public services that all of us rely on in times of need. We’ve seen years of funding volatility – going from feast to famine and back again – which is damaging for the long-term planning of services.”

As a result, NHS providers are now struggling to manage cost pressures and budgets are being increasingly squeezed, she added.

“Capital budgets continue to be raided, meaning three years in a row funds for long-term investment have been used to pay for the day-to-day running costs of the NHS,” lamented Charlesworth.

“As a result, NHS trusts haven’t been able to invest in modernising equipment and facilities. In the longer term it is a false economy, as facilities that are old and in poor repair cost more to run.”

Whatever the outcome of the upcoming general election on 8 June, the Health Foundation emphasised that there are “big challenges ahead” for the health and care system. To deliver the quality of services that people expect, funding will need to rise – not just in the short term, but as a greater share of GDP year on year.

“The NHS model is not broken; all the evidence is that a tax funded system has substantial advantages in terms of efficiency and fairness,” she explained. “But however efficient it is, the health service still has to be resourced properly.

“If we want the NHS to keep up with medical advances and meet the changing needs of an ageing population, spending will need to rise.”

Under current plans, the next two years are expected to be “the toughest years of funding for the English NHS in this Spending Review period, with spending growth on the NHS lower than any other 10-year period” since its founding.

In 2015-16, for example, trusts reported a shared deficit of £2.5bn, with two-thirds of them in the red. Despite this, spending on healthcare per person in England is nevertheless planned to fall in real terms by 0.2% in 2018-19 and a further 0.2% in 2019-20.

NHS pay rises will also have been capped at 1% per year for nine consecutive years by 2019 under current policy, although Labour has pledged to scrap this.

Beyond just short-term fixes, the pace of funding growth for the NHS and social care will need to accelerate beyond 2020, taking a greater share of national spend. The Health Foundation argued this will be imperative to keep pace with an ageing and increasing population, as well as to fund new technologies and medical advances.

With the UK economy expected to grow at a mean rate of 2.4% a year, accounting for inflation, the NHS budget in England will need to increase by at least £33bn to maintain its share of GDP to around £160bn in 2031-32 in today’s prices, the Foundation said.

And when considering the long-term financial pressures facing the health and care sector, the Office for Budget Responsibility’s (OBR’s) central estimate shows funding pressures rising by over 4% a year between 2021 and 2031. This is significantly higher than its projection for UK economic growth, meaning an extra £68bn will be required, explained the charity.

The Health Foundation’s briefing also reignited calls for an independent financial body, similar to the OBR, to be established to lay out the long-term financial outlook for health and social care. The idea was first mooted by a House of Lords Select Committee early last month, and has since been reiterated by the NHS Confederation in its refreshed manifesto.