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Paying for the pay deals

After a decade of austerity, just getting the NHS back on an even keel is going to swallow most of the government’s additional funding.

Work to develop the long term NHS plan has only just got going, but new commitments have already started chipping into the extra revenue, which starts in 2019-20 with a cash increase of £5.9bn.

The first call on the new money is the Agenda for Change pay deal, for which separate funding was only provided for the current financial year. 

The 1.7 per cent increase in 2019-20 (compared to the 1 per cent baseline already budgeted) is likely to cost providers around £300m more than what they’d already planned for.

An additional one off bonus of 1.1 per cent will add a further £430m.

Next came the pay increases for hospital doctors and GPs, which are expected to cost around £135m and £25m respectively next year.

I’m not suggesting here that it’s unusual for pay increases to be covered from within the NHS budget, as pay uplifts clearly count as part of an overall spending uplift. A better way of looking at it is that pay restraint was delivering significant savings for trusts, and these savings are no longer available. 

Plugging the deficit

The obvious next call on the new money will be the provider deficit, of up to £1bn, as NHS England is no longer holding a risk reserve to offset this.

Many trusts have also maxed out on non-recurrent efficiency savings, with most of the big technical accounting (non-cash) gains already utilised. A further £500m would be eaten up if non-recurrent Cost Improvement Programmes are reduced to planned levels.

So, that’s around £2.4bn of the £5.9bn gone without any sort of recovery on waiting times.

In recovery

It isn’t yet clear what the expectations will be on elective and emergency waiting times, but meeting the national standards will surely be a minimum requirement.

NHS Providers estimated the costs of this earlier this month, reckoning that just keeping up with elective demand would cost around £350m next year, with an additional one off cost of £650m to clear the waiting list.

Just getting started on improving performance against the four hour accident and emergency target (getting back to 95 per cent within three years) would cost around £900m next year.

Meanwhile, providing some urgently required relief to the mental health and community sectors by restoring the nursing workforce to their 2010 levels, would swallow another £350m, the lobby group said.

Leftovers?

The extra cash is running low now (we’ve spent £4.6bn of the £5.9bn) and I’ve probably missed something. But according to my back of the envelope sums, there could be a modest pot of around £1.3bn leftover for transformation.

However, this could quickly come under threat from social care, public health, and health education services, which sit outside the funding settlement and have not yet received any new money.

If adequate/extra funding does not arrive for these services in the Budget later this year, the NHS would surely have to step in and prop them up. This would mean waving goodbye to the entire £1.3bn, with £700m for social care, £400m for public health, and £150m for health education, according to NHS Providers.

OBR projections

The prime minister and chancellor will have been bombarded with all this information for months, but will have been weighing it up with some startling fiscal projections.

The latest report from the Office for Budget Responsibility, published last week, now projects the national debt rising to 282 per cent of GDP in the year 2068, compared to the current 85 per cent.

The projection was 256 per cent prior to the NHS funding settlement announcement.

Policy will clearly have to change to avoid this, but the NHS settlement has sent the numbers even further in the wrong direction.

With the government teetering and Brexit all consuming, these unenviable policy decisions will have to wait another day.