Department of Health spending rose by 2.6 per cent in real terms last year – by far the greatest annual rise in health spending of the current parliament, departmental accounts published today show.

However, experts warned that this was accomplished by eliminating in a single year almost the entire underspend the NHS has carried for the past eight years.

This leaves the health service with little “headroom” to manage even greater financial challenges ahead.

The DH’s total departmental expenditure rose in cash terms by £4.6bn in 2013-14, compared with £2.4bn in each of the two previous financial years.

Richard Murray

Richard Murray said the NHS had ‘spent every penny that it had’ in 2013-14

Its accounts said this constituted real terms growth of 2.6 per cent, compared with 1.2 per cent in the previous year and 0.2 per cent in 2011-12.

The King’s Fund’s policy director, Richard Murray, said the growth looked “like it’s been done by the disappearance of the underspend” that the NHS had built up since 2006-07.

He added: “On the good side, well done for not ratcheting up an underspend, but my God, that kind of a growth rate has got to stop, because if you’ve spent all your income you’re back at the 0.1 per cent growth that the NHS was supposed to get out of the coalition government.”

According to the DH accounts, the underspend on its revenue budget – the £106bn pot from which costs such as NHS pay and drugs are met – dropped to just £305m last year. In 2013-13 this stood at £1.5bn.

Before depreciation, which is not counted when measuring the coalition’s commitment to real terms growth in health spending, the DH revenue underspend was just £151m.

Similarly, the department’s underspend against its £4.4bn capital budget was £95m, compared with an underspend of £713m against a £4.5bn budget the previous year.

Mr Murray, who has previously held senior roles at the DH and NHS England, said the rapid growth in NHS spending was likely the result of its drive to recruit extra staff in the wake of the Francis inquiry, and of the difficulty it faced in meeting performance targets in 2013-14.

He added: “What we’re now picking up in these numbers is that the consequence of that recruitment round and that struggle [to hit performance targets] is that they spent every penny that they had.

“That’s the first time we’ve done this since about 2006.

“It means that there’s no headroom left… That headroom the system has carried for coming up to a decade, they spent it last year.”

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