Outlook for NHS and Adult Social Care Funding

1. The outlook for NHS and Adult Social Care funding John Appleby September 2010

2. The Coalition Emergency Budget outlines tax rises and spending cuts…

3. …which imply between 25% and 40% real cuts in all unprotected spending departments…

4. Adult social care funding will be under terrific pressure. Historically, the 50% real increase in total public since 1997 spending has not kept pace with demand, expectations and desire for higher quality care An increasing proportion of care funding borne by council tax – up to 39% now, but as high as 80% for some councils. Eligibility/access criteria now pretty tight too. Plurality of funding contributing to social care: £4.4 bn AA; £9.8 billion DLA; £2 billion user charges; £5 billion (?) out of pocket spending.

5. Councils planning real total spend reductions of 25% over three years Social care services could be protected – but only up to a point, and depends on financial positions of individual councils. Little room for manoeuvre financially. Expectation is higher user charges, even tighter eligibility criteria, some efficiency savings/productivity gains(?) Inevitable implications for health care….delayed discharges? Higher avoidable admissions? Pressure too on the benefits side: switch to CPI from RPI for benefits uprating; tightening of medical criteria for DLA (to reduce claims by 20%)…. But, some expectation that NHS may transfer funds….

6. …but the NHS is protected from cuts The Spending Review will reveal how much the NHS gets – but it is unlikely to be anything like the 6% to 7% real increases it has received over the last nine years… We will guarantee that health spending increases in real terms in each year of the Parliament, while recognising the impact this decision will have on other departments

7. If the NHS got 1% real increase each year… 1% pa real increase implies falling share of GDP for health

8. Although protected from real cuts, the NHS will face increasing demand and cost pressures over the next few years… If we want to meet these and improve the quality of services the NHS will have to improve its productivity – and hopefully its efficiency With no real rise and no productivity improvement, meeting Wanless’s aspirations for the NHS in 2013/14 requires productivity improvements to the value of around £21 billion – around 20% of the current English NHS budget.

10. But why improve productivity… to do what, precisely? £126billion NHS funding needed in 2013/14 to meet Wanless NHS ‘vision’ Real pay and prices Improve quality £12 Bn £3.5 Bn Waiting times £21billion Shortfall if no real rise for next 3 years and noproductivity improvement £1.6 Bn £1.8 Bn £1.4 Bn £0.4 Bn Capital Clinical governance Demand drivers

11. Year on year productivity gains of around 6% is a hugely daunting task for the NHS. But there is some relief… £21billion ..around 6% productivity gain each year for three years.. Funding gap with no real increase in spending and no productivity gains.. £14 billion ..around 4.5% productivity gain each year for three years Productivity gap with pay and capital spend freeze and no further investment in reducing waiting times.. £11 billion ..around 3.5% productivity gain each year for three years Productivity gap with pay and capital spend freeze, no further investment in reducing waiting times…and 1% real spending increase each year to 2013/14

12. Although with some tough decisions on pay, capital and waiting times, together with a modest real increase in funding, the productivity challenge will be less daunting, it is still significant. The question now is what, in practical terms, the NHS needs to do. The questions for social care are much more difficult….

13. Thank you • John Appleby • Chief Economist • j.appleby@kingsfund.org.uk