The budget was more positive than expected

When it comes to NHS finances, good news doesn’t come along that often these days, so it is worth pausing to acknowledge that the Chancellor’s autumn Budget was more positive than expected. There is genuine new money for the NHS, and it’s not all jam tomorrow.

In fact, for this year there is quite a bit of money – an extra £337 million for emergency pressures in England, as well as a £506 million increase in capital funding – although as it’s so late in the day, it will be a challenge to spend it well. This is on top of the £425 million announced in the spring Budget.

Altogether, this year’s additional capital increase somewhat mitigates the impact of the inevitable switch of £1 billion capital funding to the resource budget, which was also confirmed by the Budget numbers.

Beyond this year Philip Hammond has tackled the drop in funding growth that made the next two financial years so eye-wateringly difficult. The 2015 spending review’s front loading of funding had the total health budget increasing by less than half a percent in real terms in 2018-19 – not enough to keep up with population growth, let alone the additional costs associated with ageing and other pressures on NHS budgets.

Shot in the arm

Compared to previous spending plans, the Chancellor’s announcement adds almost £2 billion to England’s total health budget in real terms next year and a further £1.6 billion the year after, a long way short of the £4 billion a year we called for but a welcome shot in the arm nonetheless.

It is unrealistic to expect the NHS to significantly outperform the wider economy’s productivity on a long term basis

On top of that there is a commitment of further funding to honour the recommendations of the NHS pay review body for some NHS staff. Although as a reminder that small print matters, note the commitment is only to Agenda for Change staff such as nurses, paramedics and midwives. Any pay award for hospital doctors and GPs will have to come from within the NHS budget.

The Chancellor also said that additional funding for a new pay deal would be linked to progress in agreeing significant contract reforms for Agenda for Change staff. So in reality this “something for something” deal could involve some negotiations over staff terms and conditions.

The big picture of the Budget was a major downgrading of the productivity forecast for the economy as a whole and as a result future GDP growth looks sluggish. The Office of Budget Responsibility calculates that productivity across the economy has increased by an average of around 0.2 per cent over recent years.

The NHS in contrast has averaged 1.7 per cent a year in recent years – close to double its historic average. Further progress can be made but it is unrealistic to expect the NHS to significantly outperform the wider economy’s productivity on a long term basis.

Improving productivity

Moreover, improving productivity requires investment – the cuts to capital funding have slowed transformation and limited spending on maintenance and equipment, meaning staff are increasingly working with outdated and unreliable technology. Even more worryingly, the high risk maintenance backlog is now almost £1 billion – this is important equipment and facilities that are vital to patient safety. Even with the Chancellor’s announcement of extra funding this will take time to put right.

The paradox is that planning more for the long term is much more likely to deliver better and more efficient health services, which would be good news for patients and good news for the exchequer

The Budget makes good on the Prime Minister’s commitment to support the Naylor review’s call for an extra £10 billion in capital investment, although it remains to be seen how much of this ends up being delivered. As well as £4 billion of additional publicly funded capital over the next five years, the Chancellor has also pencilled in £3.3bn of asset disposals.

It is questionable whether the NHS will be able to sell off large amounts of surplus land and assets at a good market value, given the wider economic outlook and impact of Brexit uncertainty on property. The rest of the £10 billion is to come mainly from “value for money” private finance investment such as PFI and PF2.

Overall for the NHS, this Budget was much better than feared but not nearly as good as it needed to be. Over the next few years funding will at least rise at a similar level to GDP – we are not going backwards.

The risk of a short term crisis has reduced (although winter may well still be very difficult). But next year’s increase is about half the amount we estimated the NHS would need to keep up with pressures on the service. Both Bruce Keogh and Malcolm Grant, NHS England’s chair, were clear after the Budget that there would need to be a “debate” about what patients should expect from the NHS in light of funding gaps.

And although accident and emergency and hospital waiting lists have been prioritised for funding next year, the Budget said little about mental health, community services and general practice, all of which urgently need support. Social care did not even warrant a mention, despite our estimate of a £2.5 billion funding gap by 2019-20.

The challenge we set out in our briefing paper before the Budget is that pressures on the NHS aren’t a one-off, and the autumn Budget should signal there is a credible strategy for addressing the rising long term health needs of patients and the public. With a growing and ageing population, medical advances and a highly skilled labour force, health spending is projected to rise by more than inflation and by more than GDP for decades.

While there is some welcome short term relief, the health service can’t continue to live in this hand to mouth way: it needs to be managed for the long term. That requires stable, consistent funding growth with a realistic assessment of productivity – an independent body such as an ”OBR for health and care” could add considerable rigour and value to this debate.

The paradox is that planning more for the long term is much more likely to deliver better and more efficient health services, which would be good news for patients and good news for the exchequer.