Andrew Lansley, the new health secretary, has warned Department of Health staff to brace themselves for a significant cut in their budget this year.

Talking to DH staff at the end of last week, Mr Lansley said the coalition government would press ahead with plans to slash NHS administrative costs by a third over four years, starting with the current year.

HSJ has been told all contractors working on DH programmes such as the mixed sex ward programme have been formally told they are “at risk” of redundancy, with the exception of staff working on the pandemic flu and Olympics programmes

He said this would entail cuts at strategic health authorities, primary care trusts, arm’s length bodies and the department itself.

“I make no bones about it; that’s the objective… We need to ensure that we deliver every possible resource to the care of patients and care users; we have to do that,” he said.

The DH’s capital spending has also been hit by the Treasury’s review of all spending commitments signed off by the last government since 1 January.

The Treasury has asked all departments, including the DH, to call back all funding approvals made since the start of the year by either the department or the Treasury.

Neither the Treasury nor the DH could provide HSJ with a list of projects affected but HSJ has collated the details of at least five projects accounting for over £1bn in total capital spending that are under review (see box).

The review came as chancellor George Osborne confirmed he would press ahead with £6bn of public spending cuts this year.

The cuts will include nonfrontline spending by the NHS and DH and is likely to hit temporary staff at the DH first.

HSJ has been told all contractors working on DH programmes such as the mixed sex ward programme have been formally told they are “at risk” of redundancy, with the exception of staff working on the pandemic flu and Olympics programmes.

The DH denied any “staff ” had been told they were at risk of redundancy. But, asked if that also applied to contractors, a spokeswoman said only: “Departmental budgets are still being reviewed. Plans for departmental efficiency savings will be published in due course.”

The DH’s latest accounts show that in 2008-09 it employed 2,179 permanent staff and 712 “other” staff. A further 1,380 “other” staff were employed on its Connecting For Health programme, which has been highlighted by the Conservatives as an area for cuts.

Mr Lansley met DH staff in London last Thursday. A transcript of the meeting has been seen by HSJ.

Speaking to DH staff after Mr Lansley had left the room, DH permanent secretary Hugh Taylor said the new health secretary had been “very clear” about his expectations for the department to reduce its own costs and oversee a reduction of management costs elsewhere in the NHS.

He added that he and NHS chief executive Sir David Nicholson had “offered [Mr Lansley] our view” that DH cuts needed to be seen “in the round as a whole [and] that we don’t do this just by salami slicing away at individual bits of the organisation”.

He told staff Mr Lansley had been “sympathetic” to that perspective, but warned “that won’t mean that we won’t have to get on with things”.

Mr Lansley spoke to staff ahead of final talks with the Liberal Democrat health team to agree the details of their NHS reform programme. Mr Lansley surprised DH officials by arriving last week with a draft white paper setting out his own plans.

That white paper is being transformed into draft legislation to establish an independent NHS board, reform regulation, including the creation of a single economic regulator, and put in place safeguards around practice based commissioning to appease sceptics concerned about conflicts of interest.

A source in the Liberal Democrat health team told HSJ they were resigned to Mr Lansley pursuing an extension of practice based commissioning despite their own concerns it had “not worked in the past”. In exchange the Lib Dems are expecting to secure a commitment the department will pilot various forms of local accountability, including the local health boards they proposed in their election manifesto.

Mr Lansley has told DH staff he wants to create a “more autonomous” NHS with stronger commissioners and a long term regulatory structure that reduced the need for day to day intervention from the department.

The foundation trust regulator Monitor is already preparing itself for a bigger role as the economic regulator for all providers.

It is developing radical changes to tariff policy and an “interventionist” approach to non-foundation trusts.

Lansley’s policies

  • NHS board - to oversee commissioning. Independent if legislation goes through
  • DH to become Department of Public Health
  • Opportunity for “partnership” approach to funding social care
  • New economic regulator - most likely Monitor to license providers
  • Expansion of practice based commissioning with plans to legislate to safeguard against abuse
  • Pilots of local accountability models, including elected health boards

Lansley to slash NHS management costs