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This was supposed to be the Budget in which taxes were raised to help fund the additional £20.5bn for the NHS.
But an unexpected fiscal gift offered chancellor Philip Hammond the opportunity to achieve the seemingly impossible: to deliver on the NHS spending commitment while cutting income tax.
The windfall (which came from higher than expected tax receipts) could have been used to wipe out the deficit by 2023-24, but instead has all been spent.
Or as the Office for Budget Responsibility put it, the NHS uplift is being financed “entirely through borrowing” – the government passing up the chance of a £3.5bn surplus in 2023-24, with the deficit instead now forecast to be around £20bn in five years, roughly the same as before the windfall arrived.
The temptation to spend the windfall, rather than save it, would probably have been too strong for most governments, especially one as fragile as this, but it doesn’t sit easily with the chancellor’s claims of taking a “balanced” and “responsible” approach.
As Paul Johnson of the Institute of Fiscal Studies said: “When the fiscal forecasts got worse in 2016 and 2017 [the chancellor] didn’t cut spending or increase taxes in response, he accepted more borrowing.
“But now they have improved he has increased planned spending and maintained expected borrowing. Keep doing that and the deficit can only go one way.”
The longer term outlook for public finances remains terrifying, so the tax bullet will still need to be bitten by an unluckier chancellor in the future.
Don’t despair yet
The Budget didn’t go into detail about health budgets which sit outside the NHS ringfence (the £20.5bn uplift is only for NHS England and its responsibilities) – but it did specify the overall Department of Health and Social Care spending limit for 2019-20.
It showed the non-NHS revenue budget (including training, public health and regulation) dropping by £900m in cash terms, which follows the pattern of recent years – one which has led to serious and growing concerns in the sector about the impact of these cuts.
But it feels premature to despair too much about this for 2019-20.
This Budget was one platform for ministers to finally do the right thing by these areas, but it was always perhaps the least likely, and even more so once it was brought forward to October, decoupled from the NHS long-term plan.
We know the government is about to consider a multi-year funding plan for training places, along with capital plans, and ministers have suggested there will be no more cuts to public health.
While the 2019-20 spending limits have now been set, they could be topped up based on negotiations around the long term plans, whether later this year or at the spending review next March.
Another kink in the published numbers is that inflation has risen since the summer, which means the uplift pencilled in for NHS England next year is now worth just 3.3 per cent in real terms.
Given that the government has committed to increasing the budget by 3.6 per cent in real terms in 2019-20, this will also need revisiting.
The Red Book says: “The NHS will deliver its plan by the end of the year, and the government will confirm the final settlement consistent with that plan, and the £20.5 billion real terms increase by 2023-24, by spending review 2019.”
Lots of things to keep an eye on next year, then.
The chancellor’s announcement on PFI and PF2 (saying there will be no more deals) was an attempt to nullify a big Labour policy, rather than something that will have any real substantial effect.
Labour wants a mass buy out of existing contracts, which researchers at the University of Greenwich believe can deliver huge savings in the long run.
Mr Hammond said a buy out would be too expensive, but managed to grab headlines by announcing the death of an unpopular policy that was in effect already laid to rest. Following Carillion’s collapse, there are no ongoing projects and Hammond has never approved a PFI/PF2 scheme in his two years as chancellor anyway.
This is by no means the end of public-private partnerships either. Indeed, the NHS capital plans will depend on around £3bn of private sector investment. They may not call it PF3 though.
Creating a “centre of expertise” to better manage the existing contracts is a good idea which would formalise work started by Jim Mackey at NHS Improvement, but the savings are likely to be tiny compared to those claimed by the the Greenwich researchers.
Given the chancellor has just splashed out £20bn in recurrent spending in this Budget, wouldn’t it be worth commissioning a full assessment of the buy-out options for existing contracts?
If the researchers are right, then the one off upfront costs of £2.6bn would soon be dwarfed by annual savings of £1.4bn. Granted, it’s probably not as simple as that, but it’s surely worth exploring.