On Monday 18 January the Public Accounts Committee (PAC) held an oral evidence session on the sustainability and financial performance of acute hospitals in England. The inquiry follows a report by the National Audit Office on 16 December 2015.

We submitted written evidence ahead of the PAC hearing to inform debate on what is a key area of interest and expertise for the Health Foundation. We have set out the key points from our evidence below. Our latest figures on the information below are contained within our submission to the Health Select Committee’s inquiry in to the comprehensive spending review and our recent productivity briefing.

Funding

Following the Comprehensive Spending Review, NHS England’s budget will rise by £7.6bn in real terms between 2015/16 and 2020/21, with a significant increase in 2016/17. While frontloaded funding is welcome; much of this money will be used to deal with deficits among NHS providers and by additional pension costs. With much smaller increases in later years, we argued that the NHS will struggle to maintain services, let alone invest in new models of care and implement seven-day services. This places even more emphasis on the huge challenge of finding £22bn in productivity improvements by the end of the parliament.

We have projected, based on the official economic and fiscal forecasts from the Office for Budget Responsibility, that health and social care budgets will increase by 2.5% a year in real terms from 2020/21, increasing to £210bn by 2030/31. This is based on 2015/16 prices and assumes that tax receipts increase in line with GDP and that the government continues to run a surplus of 0.5% of GDP. Even with the expected additional funding, there is likely to be a gap between the available health budget and the funding required to maintain the quality and range of services. This gap is estimated to be £2bn by 2020/21, rising to £9bn by 2030/31.

Our estimates are based on the government’s ability to hold down pay growth in the NHS for a further four years. This is very challenging given that the NHS is already struggling to recruit and retain staff, particularly in nursing, and is increasingly reliant on expensive agency staff.

Financial performance

To address the deterioration of NHS finances, our view is that the current financial regime needs to be reformed to ensure that providers have challenging but realistic budgets and that the formation of NHS Improvement presents an opportunity to clarify the regime.

Productivity

Our analysis from April 2015 shows that the rate of efficiency improvement averaged just 0.4% a year, increasing by 0.4% and 2.8% in 2010/11 and 2012, but falling by nearly 1% in 2012/13 and in 2013/14. We found that the relative efficiency and productivity performance of individual hospitals changed very little over five years, with 81% of the hospitals that were above or below average in 2009/10 staying above or below average in 2013/14. Our analysis found that small trusts were 3% more productive than the average. London, the North East, South Central and the East Midlands were the least productive regions, whilst the West Midlands, the South West and the North West were the most productive.

We referred to our joint report with The King’s Fund, Making change possible: a Transformation Fund for the NHS, which argued that the NHS needs a new approach to change if it is to achieve 2% a year efficiency savings required to bridge the funding gap. We argued that ring-fenced funding dedicated to transformation between now and 2020/21 should be overseen by a single body.

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