Mark Britnell: quick fixes for making efficiency gains

The headline figures in the spending review have been well chronicled over the past few weeks. Health funding will rise annually by 0.1 per cent above inflation for the lifetime of the Parliament and that total spend will rise to £114bn by 2014-15. Capital funding will be cut by 17 per cent and £1bn will be redirected towards social care.

But there are other areas in the spending review worthy of comment. The review made it clear that state investment is shifting from social infrastructure (after the massive investment in schools and hospitals) to economic infrastructure (rail, roads and research) to enhance UK competitiveness and stimulate growth. There will also be more competition in nearly every area of state provision and the independent sector will be expected to grow (to create jobs) but also take on more risk as contracts increasingly focus on outcomes in the future.

Finally, the expenditure reductions in local government are profound and there is every chance that the NHS will be expected to provide further support - beyond the £1bn - to its emaciated cousin.

Just putting these three CSR changes into the economic mix will result in less room for manoeuvre in the NHS, just at a time when it faces its greatest ever efficiency challenge. I’d like to emphasise the word “efficiency” as some commentators are starting to interchangeably use the word “cut”. These two words are not the same.

Some people already feel confident that the NHS will be in a very difficult financial position within the next 18 months. In hushed tones, these practitioners and commentators privately believe that extra cash will be found for the NHS as it is a priority for politicians and citizens alike, especially as the next election looms in 2015.

For a number of reasons, I’m not so sure.

Extreme challenges

First, our national financial and structural deficit is unprecedented and the government believes that real-term increases for health were both promised and delivered. End of story.

Second, other spending departments face extreme challenges. A quick selected roll call provides all the evidence you need: Communities and Local Government, real change in departmental expenditure by 2014-15 is -25 per cent; Department for Environment, Food and Rural Affairs (-29 per cent); Business, Innovation and Skills (-26 per cent); Home Office (-20 per cent); and Transport (-14 per cent).

Third, the review is predicated on GDP growth assumptions of around 2.25 per cent next year and around 2.75 per cent thereafter. Some economists think this could be optimistic. There doesn’t seem to be too much room for political manoeuvre.

Some commentators have taken the view that the CSR was too ideological (reduced role for state) while others believe it could have been more ideological (redefined role of state). With the exception of welfare reform and “pay as you go” higher education, my view of the review is that it is deeply pragmatic on a macro level but not pragmatic enough on a micro level.

The chancellor did not choose to fundamentally review the nature of state funded services in relation to the citizen. However, neither did he describe the detailed practical measures that will need to be taken. While these will come, meaningful large scale change in the NHS takes roughly two to three years.

In a sense, the departmental papers that were submitted to HM Treasury over the summer of 2010 should have been submitted in 2008. At that time there were good political reasons for not talking about the problem. But enough of the spilt milk; as we all know, plans are made and broken in implementation. Here are some ideas for quick but demanding efficiency gains which can be implemented in order for the NHS and clinical commissioners to buy time for the more exacting clinical change that will benefit patients.

First, encourage all NHS employers to establish 15 per cent efficiency objectives for all staff under Agenda for Change, and the consultant and GP contracts. Link future pay increases to best practice productivity gains in the private sector which, on average, are 2.2 per cent per year compared with -0.4 per cent in the public sector.

Next, across government, drive 20 per cent efficiency from the £200bn procurement budget. Support commissioners to set contracts and tariffs on upper quartile or decile clinical performance to reduce unnecessary clinical variation and expenditure. Start with elective and unselected emergency care.

Establish on an industrial scale new public/private joint ventures for shared clinical and non-clinical services (making at least 20 per cent efficiencies in the process) and go to market with local government (which employs more than 2.5 million people). Create new property companies and operating companies which treat assets as value creators, not cost centres.

Finally, establish a proper NHS bank facility run on commercial lines to install new disciplines into lending, borrowing and paying investments back. There are examples across the world of such facilities and they do work as long as government takes a back seat. Perhaps a job for the new independent board?