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£22bn in five easy pieces

When you’ve got a really huge job to do, it’s best not to dishearten yourself by thinking about it all at once. Better to break it down into a number of smaller, more manageable looking jobs so you don’t get overwhelmed.

This means that when you’ve got to squeeze £22bn out of a health service that is already battered by the effects of a record-breaking half decade of austerity, it’s better not to let that big, impossible-sounding number hang in the air for too long. Another £22bn sounds like an inconceivable stretch to almost everyone on the ground. And if you ask people to do the inconceivable, you don’t get amazing results.

In evidence submitted to the Commons health committee this week, NHS England made a start at breaking the number down, setting out in greater detail how the savings burden is expected to be spread across the health service in the remaining years until 2021.

It revealed that £6.7bn is expected to come from “nationally delivered” measures like pay restraint, cuts to community pharmacy contracts, central budget reductions and other measures. This leaves £15bn to be delivered locally, of which £8.6bn will be squeezed out of NHS providers through prices, £1bn is expected to come from savings on non-NHS provider contracts and cuts to clinical commissioning group running costs, and the remainder will come through commissioner-led measures to restrain demand such as the RightCare programme and the promotion of self-care.

So, those numbers are all smaller than £22bn. Do they look manageable? That’s highly debatable.

About that £6.7bn…

For starters, let’s take the £6.7bn that’s expected to be delivered nationally. The fact that a saving is delivered through national action doesn’t mean the consequences won’t be felt locally. It’s a racing certainty that the bulk of that estimate is based on chancellor George Osborne’s decision to maintain public sector pay restraint at 1 per cent per annum for the next four years. The saving arises because the Five Year Forward View (from whence the £22bn figure arose) assumed that this would not be possible, and that as the economy picked up the NHS would need to match private sector wage growth or face staffing problems.

It doesn’t take a health economist, therefore, to work out that screwing down pay for that long is going to be problematic when the NHS is already dealing with national shortages of various staff groups. However, we have one. Speaking to Following the Money this week, Health Foundation chief economist Anita Charlesworth warned: “They will not be able to hold that 1 per cent if they aren’t able to train – and therefore recruit – enough staff.” Health Education England has estimated that the supply of nurses will not match demand until 2019. Ms Charlesworth asked: “How is the pay policy going to hold if they haven’t got enough nurses? You can cap agency all you like, but how will the pay policy hold if they aren’t able to very quickly ramp up things like return to practice?

“The current workforce strategy that HEE has outlined is not compatible with this [pay policy], in my view.”

Providers get it in the neck

On top of this, the NHS England document highlights the big increase in efficiency gains that NHS organisations – providers in particular – are expected to deliver this year. As Ms Charlesworth explains, charts included in the document indicate that only £1bn of efficiencies were delivered last year (and that’s in 2020-21 prices, apparently.) This year, the figure jumps to £2.7bn, of which nearly all is expected to come from NHS provider productivity improvements. She argues that people shouldn’t take too much comfort from the fact that the “efficiency factor” in NHS tariff prices has been nearly halved - to 2 per cent – in 2016-17. “It’s clear providers are going to have to do a lot more efficiency improvement this year than last year. I don’t think people have internalised that. There’s a major ramping up of efficiency from last year to this year, and it’s not at all clear that they’ve got a plan.”

And about that agency cap…

NHS competition consultant Andrew Taylor has written a very interesting blog about the agency cap, dissecting NHS Improvement’s claim that the cap has so far saved £300m. I won’t nick all his best lines – you can read it yourself – but one point that hadn’t occurred to me was his observation that savings from the caps are likely to peak within the first year – ie now – after which staffing agencies and trusts will get better at getting around the rules. There are indications – some documented by Mr Taylor – that some are getting the hang of that already.