The spending review: what does it mean for health and care?

As the excitement around the spending review begins to abate, at least a little, it may be a good time to make a first assessment of where it leaves health and social care.

First off, on the big financial aggregates, the government is providing the Department of Health with an additional £4.5bn in real terms over the years 2015-16 (ie now) to 2020-21. If that’s a difficult number to interpret, it means broadly the same annual real terms growth as was provided by the coalition government after 2010 (at a little under 1 per cent a year).

• Spending review reveals ‘21 per cent cut’ to non-NHS England health budgets

There are two reasons why you may have heard much higher numbers being quoted. First, many of the headlines are actually based on additional money for NHS England. However, this is not the way the coalition or indeed any previous government has defined “NHS” or “health”. It excludes, among other things, training budgets, vaccinations, sexual health and all the money needed to manage deficits among NHS providers.

Perhaps it goes without saying that the growth earmarked for NHS England is higher than for this wider, traditional definition of health spending. Some radical cuts must have been pencilled in for this “other” spending, in addition to those for public health and nurse education which have already been made clear. The second reason is that some of the quoted numbers start from 2014-15 and therefore include extra money provided to the NHS this year. Given we are in November, this is money that the NHS has largely already spent.

‘Before anyone looks forward to a shower of new money in the 2016-17 planning round, think again’

Even if spending growth to 2020 is in the same ballpark as the years after 2010, the context is of course very different. In 2010 the NHS had enjoyed a decade of large spending increases and significant workforce growth. Providers were still healthily in surplus and QIPP plans laid out, at least in theory, a way to shake savings out of the system. The comparison to 2015 is a stark one.

Frontloaded settlement

It is to the credit of the Department of Health and NHS England negotiators that the settlement has been frontloaded into next year. But before anyone looks forward to a shower of new money in the 2016-17 planning round, think again. The spending review provides the Department of Health with some £4bn in extra cash next year. Out of this, the NHS will have to cover additional pension costs of around £1bn.

Also, the spending review assumed the department will balance its books this year, living within the spending limits set out many months ago. With deficits ballooning among NHS providers, the department is likely to try to manage the money by repeating last year’s trick of switching capital funding to revenue. If it does, this will eat into the spending growth for 2016-17. This could easily amount to another £1bn.

‘By 2019-20 the overall health budget manages only 0.1 per cent real terms growth over the previous year’

This is all before the impact of inflation and continued rising demand has been met. Without the frontloading, the NHS would have faced an insurmountable financial challenge in 2016-17. With it, it still looks tough – and of course, we have yet to get through this year. Taken together, this will leave little breathing space for investing in transformation or unlocking hard-to-reach productivity improvements.

No panacea

Relatively more jam today must mean relatively less jam in the later years of the parliament. Indeed, by 2019-20 the overall health budget manages only 0.1 per cent real terms growth over the previous year. Despite this, the spending review also confirmed or reconfirmed a list of commitments for the NHS in addition to seven day services, which was always likely to figure.

While no doubt worthy in themselves, the challenge of delivering the Five Year Forward View while managing the money and maintaining performance was already a tremendous ask. Now combined with a new set of commitments and very low real terms growth by the middle of the parliament, this must raise the probability that the NHS will again run out of money.

For social care, it is harder to draw conclusions at this stage. Partly this is because the spending review signalled a major shift toward local revenue raising at the expense of central funding. New powers to raise council tax to fund social care will leave key decisions at local level. However, with extra funding for the better care fund (not at the expense of the NHS this time) only likely to be significant towards the end of the parliament, a continuation of the cuts to spending and access to services seen over the last five years seems likely for the time being.

Looking to the future, the drive to integrate health and social care by 2020 is welcome but is not a panacea for inadequate funding.

It is argued that the NHS and social care have (and need) a burning platform for change. Well at least on the money, there is certainly no shortage of heat.

Richard Murray is director of policy at the King’s Fund