Panic and denial won't solve funding issues

The deteriorating state of NHS finances is leading to panic and denial in Whitehall. Panic best describes the mood in the Department of Health, where the prospect of a £2bn deficit among providers is of growing concern.

While some of the forecast deficit may be reduced by commissioner underspends and capital to revenue transfers, it is inconceivable that it can be eliminated by the end of the financial year.

Over the road in the Treasury there is denial about the scale of the problem, in part because of a belief that the NHS is receiving more favourable treatment than most other public services.

‘Denial is also borne of a belief that the chancellor is not for turning’

Why, it is argued, can the NHS not get its own house in order when its budget is not only protected but also continues to increase in real terms? Denial is also borne of a belief that the chancellor is not for turning when deficit reduction is the government’s overriding priority.

The NHS’s national leaders find themselves in a difficult position, with the government having committed to finding the £8bn additional funding identified in the NHS Five Year Forward View by 2020-21.

Health secretary Jeremy Hunt has argued, with some justification, that this commitment means the government is willing to fund “the NHS’s own plan”. The difficulty with this argument, of course, is that the forward view is NHS England’s plan, supported by other national bodies, not that of the NHS itself. It is based on the heroic assumption that £22bn of productivity gains can be made in this Parliament.

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Leadership gulf

Conflict over the tariff and the funding of specialised services in particular is widening the gulf between national and local leaders in the NHS. The result is an uneasy alliance between George Osborne, Jeremy Hunt and Simon Stevens - who came together to put their weight behind the forward view - and growing opposition from NHS providers and the organisations that speak for them.

The unanswered question is where David Cameron is positioned in this debate, given his frequently expressed personal commitment to the NHS but also his close relationships with the chancellor and the health secretary.

The answer may not be known until the conclusion of the spending review in November.

The King’s Fund has argued that the NHS will need an emergency injection of funding this year to deal with forecast deficits, perhaps amounting to £1bn. The spending review would provide an opportunity to announce this funding, but it is more likely that the government will seek to ride out the storm in the hope that controls on the agency staff and management consultants and pressure to increase productivity will bring spending back in line with available funding.

Winter pressures

If more funding is not made available, the turning point will be the arrival of the next NHS “crisis”, most likely during the winter when many hospitals run out of money and all other budgets have been raided to the point of exhaustion.

With NHS hospitals unable to go bankrupt and having to find ways of paying staff and creditors to maintain continuity of service to patients, the Treasury will be forced to intervene or accept a rapid and serious decline in performance. This will pose a personal challenge for Mr Hunt, who has led the drive to improve patient safety and quality of care over the past three years. At that point the prime minister will have to show his true colours.

‘At that point the prime minister will have to show his true colours’

Our submission to the spending review calls on the government to provide adequate funding for both the NHS and social care throughout this Parliament, as well as in the current year.

We also argue that if this is not done the government should be honest with the public about the inevitable fall in standards of patient care as NHS organisations cut their costs to cope with constrained budgets.

There is a need too for greater realism about the time required to realise the opportunities we have identified for improving productivity, and the support NHS staff need to do so.

Honesty and realism, rather than panic and denial, are a better basis for deciding how much funding is needed and when it should be made available. Calm heads and clear thinking are needed now more than ever.

Chris Ham is the chief executive of The King’s Fund