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A sustainable health and care settlement is as far away as ever

Helen McKenna, senior policy adviser at The King’s Fund, analyses what the Spending Review means for health and social care.

A few weeks before the government announced the Spending Review, Simon Stevens, chief executive of NHS England, set out five tests against which he said he intended to judge the settlement. Failure against these tests, he said, would jeopardise delivery of the vision set out in the NHS Five Year Forward View. Now that the Spending Review has passed and the NHS has shifted into planning mode for 2016-17, how does the settlement score out of five? 

1) ‘Front-loaded investment in service transformation’ 

Further detail released since the Spending Review reveals that the amount available to support transformation will be less than first expected. Although the frontloading is welcome, much of it is likely to be swallowed up by added pension costs and provider deficits. Of £2.1bn being made available in 2016-17, through a new Sustainability and Transformation Fund, ‘sustainability’ (i.e. dealing with deficits) will account for £1.8bn of the Fund, leaving just over £300m for ‘transformation’. 

Although the split between the two strands has not been set for future years, the idea is that more money will be available for transformation as providers get back onto a sustainable footing. However, this is clearly a risky assumption. 

2) ‘New asks of the NHS should be consistent with phasing of the new investment’ 

Although the frontloading of the settlement is necessary to help stabilise services in the short term, it leaves less for the remainder of the Parliament – indeed, by 2019-20 the overall health budget manages only 0.1% real-terms growth over the previous year. By that stage of the Parliament, the challenge of delivering the  Forward View while managing the money and maintaining performance will leave budgets stretched to the limit, before the pressures of additional commitments such as seven-day services are taken into account. 

3) ‘Continuing political support for the realistic but broad set of efficiencies that must be made’ 

It will be important that the government backs steps such as those set out by Monitor and NHS England in their forthcoming consultation on the national tariff, which we understand will propose lowering the tariff efficiency imposed on providers to a more achievable 2% (set at 3.5% to 3.8% in 2015-16). However, some of the more radical measures set out in the NHS planning guidance appear more like blanket financial controls than a sophisticated strategy for delivering efficiencies. Publication of a comprehensive plan for tackling the £22bn efficiency challenge might help.  

4) ‘Protection for social care services’ 

While Simon Stevens has welcomed the move to allow councils to increase council tax to fund social care (through a new precept of up to 2%), he has also described this part of the settlement as ‘unfinished business’. Uncertainties make the impact of this move difficult to gauge, with much depending on how many councils decide to use their new freedoms and to what extent this will offset further cuts in financial support from central government. Depending on how much can be raised, our analysis shows that there will still be a funding gap of £2.8bn to £3.5bn by 2020, once the costs of the National Living Wage are included. There will also be wide variation in how much councils are able to raise, given the disparities in local authority income-generating potential between richer and poorer areas of the country. 

It will be important that poorer areas (typically those with the highest needs for publicly-funded social care) are protected through some kind of equalisation formula. 

5) ‘Make good on the public health opportunity’

While NHS England’s public health budget looks intact so far, the cuts to local authority public health budgets mean a real-terms reduction of at least £600m by 2020-21, on top of £200m already cut from the 2015-16 budget. 

As Stevens said, the jury is out on this test until publication of the government’s childhood obesity strategy (due shortly), which he hopes will include “an effective package of credible actions” (i.e. regulatory mechanisms) to deal with obesity. However, recent announcements, including NHS England’s ‘sugar tax’ proposal in hospital food outlets and a similar levy from the mayor of London on soft drinks sold at City Hall, add pressure on the government to take a hard line. 

Conclusion 

Overall, in the context of deficit reduction and cuts to other areas of public spending, the settlement for health and care is comparatively favourable. However, it leaves health and care halfway through the most austere decade in their history – social care funding will continue to fall short of meeting anticipated need; cuts to local authority public health budgets are likely to affect a wide range of services; and the frontloading of the NHS settlement, while both welcome and necessary to keep providers afloat in the short term, will mean little is left for transformation in future years. A new settlement that places health and social care on a sustainable footing for the future is as far away as ever.

FOR MORE INFORMATION

W: www.kingsfund.org.uk/publications/articles/spending-review-health-social-care

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