Noel Plumridge on resource allocation

The second is worth reading carefully: "The weighted capitation formula is unchanged for 2008-09, with all PCTs receiving the percentage uplift. The introduction of a new weighted capitation formula, including the market forces factor, will be considered when the advisory committee on resource allocation has completed its review of the existing formula and made its recommendations. PCT revenue allocations for 2009-10 and 2010-11 are intended to be made in summer 2008, once the committee's final recommendations have been received and new Office of National Statistics population projections have been published."

This might sound arcane but it is a clear enough signal that the process for distributing NHS funding across England is likely to change, perhaps radically and probably soon.

For those whose practical knowledge of resource allocation is rusty, a recap may be helpful. Each PCT has a target funding level, set according to a national weighted capitation formula, with complex adjustments. The aim is to define nothing less than relative need for health services.

But PCTs don't actually receive their target funding. Actual recurrent funding may differ from target by several percentage points.

In the jargon this is "distance from target". The delicate question of how quickly PCTs can move to their target allocation ("pace of change") has been a matter for ministerial judgement each year. In 2007-08 the regime has been that no PCT should be more than 3.5 per cent under target by year end and none should get less than 8.1 per cent funding growth. Some gainers, no big losers: a happy balance made possible by relatively high annual growth.

But the Department of Health is setting this complex yet essentially transparent mechanism aside for now. At present there is 5.5 per cent for everyone and a new distribution methodology being devised. Presumably what will emerge will be different enough to make the hiatus worthwhile and PCTs are getting anxious about the uncertainty.

There is, incidentally, no consultation process around this and the allocation committee process, as formation of government policy is shielded from Freedom of Information requests. We must wait and see.

So what is likely to emerge and why is it so significant? One pointer may come from Scotland, where a similar process is almost complete. Last October the NHS Scotland resource allocation committee submitted its own proposals for changes to the Arbuthnott formula, which has determined health board funding since 2000. Cities gain, but rural areas lose heavily. The main reason seems to be urban population growth.

Traditionally the core dilemma within the English formula has been weightings. Heavy weightings for deprivation tend to favour the north and urban areas, including London; weightings based on age generally favour rural areas and the south. Examining the mounting NHS financial deficits of recent years, many noted their concentration in the south and east of England and attributed this to the workings of the formula. The trend continues: the biggest projected 2007-08 surpluses are north of the Trent.

The south is now fighting back, arguing that the current formula doesn't fully acknowledge how much longer people are now living, or differences between urban and rural living. In the recent report Taken for Granted the leaders of the south eastern shire counties set NHS funding in a broader context of southern taxpayers subsidising northern public services. When the Daily Mail consequently blamed political bias and listed cabinet members with northern constituencies, it was clear that the knives were being sharpened.

Then there is the sheer scale of the weighting. Wokingham PCT was given£1,050 per head of population this year and North East Oxfordshire got£1,187. Neither is a hotbed of poverty. But Southwark PCT received£1,825 per head; Tower Hamlets£1,862 and Islington£1,970.

To say these are big differences would be an understatement. If most NHS resources are typically used in the first and last six months of life, why such a funding disparity between rich and poor areas? Living and dying do cost more in London, but that much more?

Also there is growing evidence of a mismatch within individual PCTs between health needs and actual use of resources; witness recent Information Centre data on premature deaths from conditions such as coronary heart disease (for more background, click here).

And perhaps there is broader tension within a government keen to address health inequalities, yet needing to appease middle England. Whatever the objective need for health spending, it may be at odds with perceived fairness.

Across Europe, wealthy areas are growing less willing to subsidise their poorer neighbours. In northern Italy there is active opposition to funds flowing south towards Naples, Calabria and other regions long caricatured as lazy and corrupt. In Belgium the Flemish north is reluctant to finance the decaying coal and steel areas of the Francophone south.

Although not on the same scale, could England be moving in the same direction? Or is the reality that if we need to devote more of our national wealth to healthcare but don't relish the prospect of raising taxes, squeezing the relatively affluent in the south into greater self-funding may yield better results than a more transparent approach to co-payments.