Policy ambition and public funding don’t add up in either the short or long term – and the result spells long-term economic trouble, argue Anita Charlesworth and Richard Murray
The chancellor’s Autumn Statement came just two days before ‘Black Friday’ – the recently imported US shopping day that seems to mark the start of the Christmas season.
But anyone looking for some festive cheer should not read the Autumn Statement. It – and the accompanying economic forecast from the Office for Budget Responsibility (OBR) – provides a truly sobering summation of the economic troubles of our time.
The statistics are stark. Since 2008, productivity has stalled. As a result, real incomes have been squeezed and deficit reduction is taking longer and proving more painful than anyone expected. Combine the structural weaknesses with the uncertainty of Brexit and the result is slower economic growth – which means there is likely to be less money in the economy than we expected. As a result, the £10bn budget surplus planned by George Osborne for 2019/20 has turned into a £20bn deficit under Philip Hammond.
The implication of the economic forecasts is that policy ambition and public funding don’t add up in either the short or long term. The Chancellor responded to the current challenges by allowing the deficit to continue for longer and increasing capital spending to boost productivity, but otherwise left spending plans largely unchanged.
As many argued before the Autumn Statement, this leaves the outlook for health and social care for the rest of the Parliament looking very bleak. For the remaining years to 2020/21, the average real-terms growth available for the NHS is a mere 0.6 per cent a year. Yet even this year, it is not clear whether the Department of Health will manage to balance the books, as the provider sector struggles to get back to the planned £580m deficit for the year and CCGs post a net overspend at the half-year that has hit £236m.
This is despite the NHS receiving 1.5 per cent real-terms growth this year – well above what is on offer to 2020/21 – and with a huge effort by the national bodies and NHS organisations to reduce costs.
Some local authorities (or their electorates) may be rather less enthusiastic about using their freedoms to boost social care spending by raising council tax by 2 per cent a year
For social care, bad as it already was, the outlook just got a little worse. While we applaud the rise in the national living wage, the announced increase in 2017/18 from £7.20 to £7.50 an hour will add an estimated £360m to over-stretched social care budgets, which together with revised financial estimates means the funding gap in social care for the next year increases to £2.4bn.
Rising spending on social care pencilled in for later years may also have just become less likely as the deterioration in the economic outlook may mean some local authorities (or their electorates) may be rather less enthusiastic about using their freedoms to boost social care spending by raising council tax by 2 per cent a year.
Taking health and social care together, the government, of course, has the right to set public spending. However, the likely consequences for the NHS and social care of the current financial settlement will become increasingly visible to the public and their MPs and may yet test the government’s nerve over the coming months and years.
Looking beyond 2020/21, the OBR’s analysis shows that health service spending will need to rise by close to the historic average of almost 4 per cent a year in real terms rather than the 1 per cent of this decade. But it’s not just health and social care that want more money. Under the ‘triple-lock’, the basic state pension is uprated every year by the higher of average earnings, inflation or 2.5 per cent, guaranteeing that it will continue to account for an increasing share of GDP.
While surveys show that the British people continue to value the NHS and are worried about its future, the painfully slow recovery from the 2008 recession has put enormous strains on living standards
All that before we get to education, transport and housing – all vital for economic growth. The Treasury recognises we have a fundamental problem beyond 2020 – which is why the Chancellor hinted that the ‘protection’ currently provided to some budgets, including the NHS, will be reviewed at the next Spending Review.
But what are our choices? The fiscal deficit won’t now be clear til well into the 2020s, even with a fair wind after Brexit. So any spending growth above GDP is likely to require tax increases. While surveys show that the British people continue to value the NHS and are worried about its future, the painfully slow recovery from the 2008 recession has put enormous strains on living standards
The IFS has highlighted how real wages in 2021 will still be below their 2008 levels. With many people falling into the so-called ‘Just About Managing’ group, there will be many competing claims on stretched family budgets.
This may make converting the emotional commitment to the NHS into hard cash very difficult, and perhaps impossible for the Cinderella service that is social care. This means there needs to be a debate about NHS and social care funding, as this will impact on the quality and the availability of health and care services. Politicians of all parties need to be open with the public about the services they can expect if adequate funding is not provided.
Anita Charlesworth is director of research and economics at the Health Foundation, and Richard Murray is director of policy at the King’s Fund