HSJ’s weekly email briefing on NHS finances, savings, and efforts to get the health service back in the black

Sign up here to get Following the Money by email every week.

Sweet FA

At first glance, this week’s budget treated health mainly as a means of winning some sweet headlines for George Osborne, and did little to change the funding outlook for the NHS.

The chancellor’s big “rabbit in the hat” – a tax on sugary drinks to take effect from April 2018– was rightly welcomed by health service leaders, but it will take some time for the public health benefits to be felt in the health service’s bottom line.

Beyond that, the chancellor’s only direct nod to the health service was a small chunk of banking fines handed out to four children’s hospitals – possibly the most crowd-pleasing spending commitment ever, but a tiny and insignificant sum of money in the wider scheme of the health budget.

However, there are other implications for the health service in the budget that will make less cheerful reading.

With Office for Budget Responsibility forecasts for economic growth revised sharply downwards, Mr Osborne announced further measures to squeeze public spending and ensure he remains on course for a budget surplus by 2019-20.

Among these, the discount rate for public sector pensions has been reduced, meaning public sector employers’ contributions will rise by £2bn in 2019-20. The Treasury has not said what proportion of that cost is expected to be borne by the health service. However, the Nuffield Trust estimates that if it is in proportion to the service’s share of the liability, it could mean a cost pressure of around £650m on the NHS. Given that real terms funding growth for the NHS is already projected to be very low in 2019-20, the think tank warns that this cost pressure could mean an effective a real terms cut.

In the same year, the chancellor is looking for further cuts to public spending above those announced in the 2015 spending review. He announced that the government would conduct a “departmental spending review, which will help deliver a further £3.5bn of savings from public spending in 2019-20”.

According to the Budget red book, these cuts will be made “while maintaining the protections set out at the spending review”, which means that NHS England’s budget, at least, will be protected. However, there is no reason to assume that other aspects of Department of Health spending – which were controversially left unprotected in the spending review – will be protected from these further cuts.

The broader point here is that the funding growth that has been allocated to the NHS in the current parliament is heavily weighted towards the next two financial years. There are serious concerns about how the health service will cope with the very low levels of growth it is due to receive in 2018-19 and 2019-20.

There are many who have quietly hoped that if the NHS does well on its gruelling efficiency targets in the next two years it will be in a position to go back and ask the Treasury for an increase in funding levels planned for the latter years of the parliament. The bad news in today’s budget suggests that such an increase will be even harder to secure.

Economic wisdom of the week

“What the sofa gives, the sofa can easily take away.”

Robert Chote, chair of the Office for Budget Responsibility, explaining how the £27bn windfall that its forecasts gave George Osborne ahead of the spending review had become a £56bn hole to fill in just three months.

Welcome to Following the Money

This is the latest edition of HSJ’s new weekly email briefing on NHS finances.

Following the Money will feature analysis of the most pressing and novel issues in healthcare finance; track the story of the unprecedented squeeze on NHS finances and the efforts to pull providers back into the black; and cover anything else that matters to those concerned with the funding and finances of the health service.

Please get in touch to let me know how I can improve it, and to tip me off about stories: crispin.dowler@emap.com.

Following the Money replaces our previous finance newsletter, but still includes links to the top stories.