Spending review: Tackle funding and reform challenges in tandem

The chancellor must prioritise funding for the social care system, and for reform across the NHS, in next month’s spending review.

It’s just over a month until he will set out his spending review for the current Parliament. At its core will be the Conservative Party’s election pledge to eliminate the deficit (the gap between overall public spending and revenues) by 2019-20.

This pledge will require him to make extraordinarily tough choices on the future of public services and the welfare state. His decisions will shape Britain well beyond the bounds of this Parliament.

As such the Institute for Public Policy Research has undertaken a piece of work setting out how the chancellor can make good progressive choices while adhering to the tight fiscal rules he has set himself (albeit ending the period with a slightly smaller surplus than currently planned).

‘You can’t have a strong NHS when social care is financially decimated’

At the heart of our proposal sits plans for a well funded and reformed system of health and social care.

Delivering on this requires the chancellor to make two bold decisions.

First, he must commit that any further funding - over and above the £8bn already promised to the NHS - should be raised through higher taxation rather than further raids on unprotected departments.

Second, the chancellor must recognise that you can’t have a strong NHS when the social care system is financially decimated and therefore should promise to protect funding to local authorities for health and care.

• NHS ‘needs at least £1.5bn a year’ for transformation
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Funding the NHS

The upcoming spending review must tread a fine line between recognising that the NHS needs to be well funded, and ensuring that the NHS’s insatiable demand for money doesn’t put unnecessary pressure on unprotected departments.

As such the government must stick by its pledge to Simon Stevens, chief executive of NHS England, to fill the NHS’s £8bn funding gap by 2020-21, on top of the £2bn of funding already promised for 2015-16. However, it must also recognise that this pledge may not be enough.

‘To keep the funding gap at £8bn, productivity will need to rise to levels unprecedented in any healthcare system’

This is partly because, since the figure of £8bn was calculated last year, the government has committed to delivering a “seven day NHS”. This will likely increase the cost of the NHS over the period and therefore the funding gap, with estimates suggesting that these reforms could add a further 1.5 and 2 per cent to the total spending of most trusts.

But it’s also because, it is unlikely that the NHS will be able to achieve the productivity increases necessary to deliver Stevens’ plan. The NHS has historically seen productivity of 1-1.5 per cent. However, to keep the funding gap at £8bn, productivity will need to rise to 2-3 per cent. Such an increase would be unprecedented in any western healthcare system.

However, while the chancellor should recognise these risks, he should also avoid pledging more funding to the NHS at the expense of the number of already beleaguered unprotected government departments. Instead, he should pledge to meet any further need by raising tax revenue, either through general taxation or through the creation of an NHS tax.

Funding social care

Furthermore, if this heroic attempt to properly fund the NHS is to really deliver consistent or better care, the chancellor must also recognise that the social care system will need more financial support as well.

This is because the two systems - the NHS and social care - are interdependent. As capacity in social care declines, so does the ability of the NHS to move the frail and elderly out of hospital beds. The result is a crisis in accident and emergency and a rise in the cost of the health and care system, as a hospital bed costs more than a bed in social care, which costs more than a bed in the community.

‘The chancellor should protect the better care fund over the spending review period’

Indeed, this is what has increasingly been happening over the last five years. The Department of Communities and Local Government has seen its budget for local government cut in half in real terms. This has impacted on social care funding, even though most local authorities have chosen to protect it in cash terms. This is because, given our aging and growing population, real spending on social care has gone down, with a resulting backlog in the NHS (hence increased waiting times).

With further cuts to the department expected in this next Parliament, this is likely to worsen. For example, if the 48 per cent cut to the department was repeated and passed down to local authorities - on top of the chancellor’s pledge to raise the minimum wage, which significantly impacts on social care - fully funding social care would imply cuts in the grant to local authorities for non-social care spending of 23.6 per cent. This seems simply untenable.

Instead the chancellor should look to protect social care spend further, leaving more financial wiggle room for other services. Notably, he should protect:

• the better care fund, or an equivalent amount, over the spending review period; and
• the revenue support grant to local authorities over the spending review period;

This should enable local authorities to meet the rising costs of care and still have sufficient non-ringfenced funding left to allow a 1.5 per cent rise, in cash terms, in spending on other services (which would still represent a real terms cut of 5.7 per cent).

Funding is not enough

However, the chancellor must also recognise that simply funding health and social care for the here and now is not enough. Reform is needed to make the service financially sustainable in the long term.

The link between the NHS and social care discussed above shows this most clearly. The two services must be integrated so that people can receive holistic care in the best possible setting, both in terms of quality and cost to state.

‘Face up to funding and reform challenges in tandem to create a sustainable health and care system’

Furthermore, patients must also be empowered to manage their own care in the community, as highlighted in a recent IPPR report, and we must also “get serious about prevention” and public health.

Only by undertaking these reforms can we sustainably reduce demand on the acute sector. Indeed, these steps have already been set out in the NHS Five Year Forward View. However, there is a growing recognition that in order to deliver on this reform agenda, significant funding will be needed for transformation. It is therefore also crucial that the chancellor assigns some of the extra £8bn promised to a transformation fund.

Only by facing up to the funding and reform challenges in tandem, can we really create a sustainable and high quality health and care system for the 21st century.

Harry Quilter-Pinner leads the Institute for Public Policy Research’s research on health and wellbeing