Government spending on public services such as education will need to be cut by as much as 4.5 per cent a year if politicians’ promises to give the NHS real terms growth are met.

A report by the King’s Fund and Institute for Fiscal Studies examined the “difficult choices” the government would need to make if pledges by the Labour and Conservative parties to continue “real terms” growth in the NHS after 2011 are fulfilled.

The economists said: “It is hard to see how the next comprehensive spending review could unveil further real terms increases in the NHS budget without significant reductions in spending elsewhere.”

The IFS has already said the scale of government debt interest payments means spending on public services will need to be cut by an average of 2.3 per cent a year in real terms from 2011-12 onwards.

But the prime minister and the Conservatives have said they would prioritise continued real terms growth for the NHS.

If those pledges translate into a 2 per cent real terms increase between 2011-12 and 2013-14 then other areas of spending would need to be cut by 4.5 per cent, the report says.

The alternative might be to give other public services real terms funding freezes, but to make up the difference by adding 1.6 per cent onto VAT - equivalent to £220 per family.

Even if NHS funding was frozen in real terms between 2011-12 and 2013-14, the rest of public spending would need to be cut by 3.4 per cent to balance the books as the NHS makes up such a large proportion of it.

The NHS needs real terms funding increases of 1.1 per cent a year just to keep up with population growth and demographic changes. But bringing the NHS up to international standards through extra investment in public health and prevention would require £3.6bn a year on top of the economists’ most optimistic 2 per cent real terms increase scenario.

Tough choices: What the different NHS funding options mean for other services

 

 Average annual change in non-NHS departmental spending
NHS funding scenario2011-12 to 2013-142014-15 to 2016-17Average over period (2011-12 to 2016-17)
2% real terms cut 2011-12 to 2013-14, then 1% cut 2014-15 to 2016-17-2.5+1.2-0.6
Zero real terms growth-3.4+0.7-1.4
2% real terms growth 2011-12 to 2013-14 then 3% growth 2014-15 to 2016-17-4.5-1.0-2.8