Awful

As Jim Mackey, the new Chief Executive of NHS Improvement, said of the latest providers' finance data, they are ‘awful’. Today TDA and Monitor announced that NHS providers overspent their budget by £1.6bn in the first 6 months of this financial year. Over three quarters of NHS providers are now in deficit. This is a significant deterioration of financial performance compared to the same half year point last year when providers’ deficit was £636m (in 2015/16 prices), with 58% of trusts in deficit after 6 months into 2014/15.

NHS providers are now on track for an overall overspend of as much as £2.2bn. This chart shows how the finances of NHS providers have deteriorated over the last 3 years.

Next week the government will publish its spending review, unveiling how much of the £4tn of taxpayers’ money is planned to be spent on the NHS up to 2019/20. Whether it will stick to the plan of increasing the NHS budget by £8bn above inflation and address social care funding, which is so profoundly connected to health, remains to be seen. These are critical issues for the NHS at a time when demand and cost pressures for health care are expected to rise faster than the increase in the national budget.

Following NHS England’s Five Year Forward View, the government committed to give the NHS annual increases rising to £8bn over the course of the parliament. This extra funding will be sufficient if the service can deliver efficiency savings of £22bn - 2-3% per year. But none of these estimates factored in a starting position where NHS providers were in deep financial trouble. The latest survey by the Healthcare Financial Management Association shows that about nine out of 10 NHS finance directors doubt that their organisations can deliver efficiency savings in the range of 2-3% per year and almost all of them agreed that the injection of the £8bn in the NHS would need to be in the next 18 months in order to cope with the growing pressures. 

These problems will be even deeper if part of the funding for the additional £8bn comes from redefining and shrinking the NHS. There is much speculation that the government is looking to cut public health and education budgets to increase the NHS England budget. But Health Education England isn’t a back office function; it provides around £3.5bn of funding to NHS hospitals to help meet the cost of the junior doctor workforce. Junior doctors are the front line of care. Similarly public health is responsible for vaccinations, sexual health services and since October health visiting for children under five – all core NHS services.

Our latest report, Filling the gap, looks at health and social care funding on a UK-wide basis. It shows that even with the expected additional funding, if the NHS manages to deliver tough efficiency savings and hold down pay pressures, there is likely to be a gap between the available budget and the funding requirement for the UK health system of around £2bn by 2020/21.

The outlook for social care is even bleaker. The estimated social care gap by 2020/21 is £6bn rising to £13bn by 2030/31. That’s a combined gap for health and social care (despite additional funding) estimated to be £8bn. This leaves the government with a number of options including: either unlocking some resources from its planned budget surplus to close the health and social care funding gap, and or raising funding through increased tax. Different tax options are possible - each of them have different social and economic impacts and consequently have implications for wider socio-economic goals. Our new online calculator allows you to examine the impact of amending different tax options on households from different income groups.

Our report concludes that while there are tough times ahead and difficult decisions for the UK health care systems, the NHS model is fundamentally sustainable. However, for social care the challenge is an existential one: we almost certainly can’t carry on with the system we have. There needs to be a fundamental re-examination of the model of social care funding. We need the Chancellor to recognise that and set in place a process to review social care as part of the wider system of support for older people (pensions, benefits and services) to build political and public consensus on a new approach. An approach which is financially sustainable and which meets the needs of an elderly and vulnerable population who deserve to live with dignity and compassion.

This blog was co-authored by Anita Charlesworth, our Chief Economist. Sarah Lafond is an Economics Analyst at the Health Foundation.