Flory: NHS should prepare for further deep savings drive after Qipp

The risks associated with the government’s deficit reduction plan meant the health service – which is attempting to make £20bn efficiency savings by that date – could be pushed straight into another round of deep savings programmes, he said.

Other public services were now experiencing such radical spending cuts that they might not be able to sustain further losses after the current government spending review period, he suggested.

Addressing foundation trust finance directors at a Healthcare Financial Management Association conference this morning, he said: “Health has always done better than other parts of the public sector.

“Over the last 30 years, typical spend in health has been 2 per cent above spend across the whole of public service. Now with all of that reduction of expenditure in other services, is that 2 per cent margin going to be able to be preserved beyond this spending review period?”

On the other hand, if the government did not achieve its planned elimination of the structural deficit by 2015 and the UK’s interest costs were higher than anticipated, that “really [would] change the prospects for public spending thereafter”, he said.

If these risks were avoided, Mr Flory added, it was possible to see how the NHS could cope with the 4 per cent a year increase in costs it was facing “as far as the eye can see” into the future.

If the deficit was eliminated by 2015, the UK economy was forecast to grow by 2 per cent a year after that point, he said. If that happened, and the proportion of gross domestic product spent on the public sector stayed at 40 per cent, public spending would then rise by 2 per cent a year.

If the health service then received its usual settlement of 2 per cent more than the rest of the public sector, “you can make the numbers start to come together”, he said.

“But if those risks that I highlight start to knock us off course on that number, then a gap opens which is going to require us to continue to deliver very, very significant efficiency improvements, greater productivity, reducing our input costs, reducing our activity in the acute sectors well beyond this spending review period.

“And that’s what, prudently and cautiously, we need to be planning to do as we take forward our [quality, innovation, productivity and prevention] work this year.”

Mr Flory added that as NHS organisations were facing hard choices this year about how to cut spending the service needed to remind itself of lessons from the crisis at Mid Staffordshire Foundation Trust.

“There are times when we’re just going to have to pause more, and consider the consequences and implications of some of the decisions we’re making,” he said.

Speaking of those who were responsible for the oversight of Mid Staffordshire during its crisis period, he said: “At every stage we relied too much on the normality of the headline numbers – the reference cost number, the cost improvement number – without really getting underneath how this is going to work, what the implications could be.”

In the future, financial regulation of the health service needed to be based on a more-refined risk assessment of individual organisations, he suggested.

Organisations which had consistently demonstrated excellent financial management needed to be “regulated in a very different way to those who haven’t got that track record”, he  said. “We need to develop a system which is more appropriate and more responsive. For some that means less regulation, for others it means a different kind.”