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Real-term reductions in NHS funding

NHS leaders face real-term reductions in funding given the highest inflation for 40 years. Difficult choices loom for leaders as they decide which areas of patient care are cut back.

NHS leaders face challenging choices over whether to cut patient care or reduce investment in much needed diagnostic capacity and new technology areas. The difficulty comes after a series of unexpected cost pressures – including a new pay award for staff – left the NHS facing real term cuts in funding. With an already overstretched budget, the news will be hard felt for patient groups already experiencing reduced care and treatment – particularly in oncology where previous targets of diagnosis are slipping.

The Government has confirmed that it will make further investment in the pay of NHS staff of approximately 5% overall. However, only 3% of this investment in pay has been budgeted for. With no extra money coming from the Government to pay for the additional 2% rise, the NHS will have to absorb this within its existing budget. This is around an extra £1.8 billion of costs that were not planned for. Given recent internal turmoil, it seems the Government is going for a needed popular policy without understanding the costs on existing care.

The extra costs of pay are on top of a range of other unexpected cost pressures that are eating into the NHS budget, including the impact of high energy costs and soaring inflation more generally, which is reducing the value of the NHS budget. Furthermore, the ongoing costs from COVID-19, including from providing free lateral flow tests for staff, have made a significant economic impact.

New analysis from the NHS Confederation confirms that these extra costs mean the health service is this year facing a real term cut in funding of between £4 billion and £9.4 billion. This is one of the reasons why the NHS is required to make efficiency savings of 2.2%, which is double the requirement of recent years.

It is in stark contrast to the planned 3.8% annual real terms increase in NHS funding up to 2024/25, which was outlined in the Government’s Spending Review last October.

Impact on care

Local NHS leaders now fear that these extra costs will hold back attempts to reduce the size of the elective waiting list. These are key areas of investment that are required to reduce the elective and cancer care backlog.

Chief Executive of the NHS Confederation, Matthew Taylor warned: “We have been calling for the Government to help NHS and social care staff with the cost-of-living crisis by increasing their pay, but what we did not expect was that these extra costs would have to come from within the current health budget. Put simply, this wasn’t budgeted for and will have unintended consequences for patient care.

“NHS leaders are used to having less money than their local services need, but what we are seeing now is a yawning gap between the funding the NHS needs and what it has at its disposal. The real terms cut this year is at least £4 billion and we think it represents the first real-terms cut in funding since 1997.

“The alternative approach is for political leaders to bury their heads in the sand and wish away the reality. But, as ever, patients will suffer if we don’t collectively grip this challenge. Failure to do so will significantly impact the kind of care that the NHS can provide to the public in the months and years ahead,” he added.

Response from government

The Government seemed unaware of these consequences to the existing NHS budget – instead heralding the pay rise as a progressive. New Health and Social Care Secretary, Steve Barclay said:

“This government hugely values and appreciates the dedication and contribution of NHS staff which is why we will give over one million NHS workers a pay rise of £1,400 this year, on top of the 3% they received last year when pay rises were temporarily paused in the wider public sector.

“We asked the independent pay review bodies for their recommendations and I am pleased to accept them in full.

“We want a fair deal for staff. Very high inflation-driven settlements would have a worse impact on pay packets in the long run than proportionate and balanced increases now, and it is welcome that the pay review bodies agree with this approach.”

Final thought

The news of a real term cut packaged and spouted as increased investment from the Conservatives is really a broken record from their time in office.

Recent scandals of partygate and others – which led to the recent downfall of Boris Johnson – have left the Conservatives in a precarious position. The cost-of-living crisis with record inflation, NHS backlogs and continuous scandals at the top of government have left the Conservatives in need of a win, and fast.

Clearly increasing NHS staff pay was a safe bet to help restore the damaged relationships from austerity and real-term cuts since 2010. However, the pay increase should not be heralded as a progressive and selfless act of the Tories, as other pathways will suffer from reduced finances such as oncology and rare diseases. If the Government financed the pay increase, as they did with the rise of national insurance to pay for much of the botched PPE contracts during the pandemic – maybe then we would applaud them.

The stretched NHS budget in delivering treatment and care whilst tackling the backlog is a worrisome time for patients in the UK. Under this government, it is clear the NHS won’t see a real-term investment, therefore we must seek ways the health and life sciences sector can optimise in the meantime. The NHS Innovation and Life Sciences Commission looks to place innovation as a means to achieving greater health outcomes and reduce inequalities. To view the first inquiry session of the NHS Innovation and Life Sciences Commission on health data with Professor Ben Goldacre, click here.


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