Key points

In this briefing, we analyse the challenges for health and social care following the publication of The NHS long term plan and look at the implications of the plan for activity levels and the workforce in the NHS in England. We set out funding scenarios for areas of health spending outside NHS England’s budget and examine the potential impact on wider public spending.

The funding context

  • In June 2018, the government set out the funding increase that NHS England would receive between 2018/19 and 2023/24. Allowing for the latest inflation estimates, NHS England’s budget is due to increase in real terms by £20.6bn,* an average of 3.3% per year. This rate of increase is below the historic average of 3.7% per year, but above the average growth rate of the last decade (2.1% per year). It is broadly in line with projections by the Health Foundation and the Institute for Fiscal Studies (IFS) that maintaining current standards of care with a growing and ageing population and a rising burden of chronic disease will require total health spending to increase by 3.3% per year.
  • Adult social care has fared worse over this decade, with spending having fallen by 5% in real terms since 2010/11. Even with recent increases, spending was around £1bn less than in 2010/11, at £17.8bn. The government has yet to set out long-term funding plans for social care.
  • The budget for the wider Department of Health and Social Care (including public health, capital and workforce education and training) has not yet been decided beyond 2019/20. Public spending for the next 3 years was due to be set out in the planned 2019 Spending Review. However, the Chief Secretary to the Treasury has stated that it is unlikely to go ahead as planned, following confirmation of the Prime Minister's resignation and because of the lack of an EU-withdrawal agreement. This means that these long-term decisions are likely to be delayed again.

NHS spending and The NHS long term plan

  • The NHS long term plan proposes to achieve better outcomes by focusing the additional funding on the key areas of mental health, and primary and community services.
  • Spending on mental health services will rise by £2.3bn over the next 5 years (4.6% per year), while spending on primary and community health services will rise by £4.5bn (3.8% per year). Funding for these areas will therefore grow at a faster rate than the overall NHS budget.
  • However, this results in a challenge to other areas of NHS activity, which will see lower growth in spending despite having to tackle the needs of a growing and ageing population with increasingly complex health needs.

Activity growth and moderation

  • Acute hospitals have seen the amount of care they provide rise by 3.0% per year on average between 2010/11 and 2016/17, with growth of 3.6% in 2016/17 alone (the most recent year for which comprehensive data are available). This covers all care provided in acute settings, including inpatient and outpatient care.
  • Over the next 5 years, without any improvements in the quality or range of services, Health Foundation projections suggest that acute and specialist hospital activity will need to rise by at least 2.7% per year just to keep pace with demand.
  • The additional funding available for acute and specialist care under The NHS long term plan would be sufficient for activity growth of up to 2.3% per year. This implies a requirement for the NHS to significantly moderate growth in demand for hospital services over the next 5 years or make difficult trade-offs in how the investment is allocated.
  • The amount of activity that can be undertaken within a given budget is critically dependent on pay. The latest pay deal for Agenda for Change staff means that pay for most NHS staff will rise in real terms until 2020/21. Beyond that point we've assumed that to recruit and retain staff, pay will not fall behind the earnings growth across the economy as a whole. Lower pay growth would allow higher activity growth, however it would create a new challenge: after years of below-inflation pay increases, with a high employment rate and ongoing challenges in recruiting staff from overseas, it is hard to see how the NHS could further constrain pay and recruit and retain enough staff.
  • If the rate of growth in demand for hospital care can’t be reduced, there is a real risk
that the planned additional investment in mental health, and primary and community care will not materialise and, once again, funding will be diverted to acute and specialist hospitals.
  • How hospitals might moderate demand is also important. Recent years have seen rapid growth in emergency activity and slower growth in planned care. From 2008/09 to 2017/18, A&E activity saw average annual growth of 4.7%, compared with 2.2% for elective inpatient admissions. The result is that waiting times have increased and the NHS hasn’t met the 18-week standard for planned operations since February 2016 or the 62-day cancer waiting time standard since December 2015. If the NHS is not able to genuinely moderate demand, this could result in continued inability to meet waiting-times standards, as funding fails to match demand for care.
  • This juggling act is made harder by the phasing of the new NHS England funding, which is not spread evenly, let alone frontloaded, over the next 5 years (the biggest increase in funding coming in 2023/24). The backloading of funding runs counter to the needs of the service; The NHS long term plan’s vision for the NHS is predicated on improvements to mental health, and primary and community care services reducing potentially avoidable hospital admissions. But such substitution cannot be instantaneous: investment in these services will take time to have an impact, so a period of ‘double running’ is hard to avoid. Without upfront investment or provision for double running, it will be extremely challenging for the NHS to moderate demand to the extent that would be required to avoid diversion of funding back into acute services or increased waiting times.

The workforce challenge

  • Another major challenge facing the NHS in delivering the goals of The NHS long term plan is the service’s workforce. NHS trusts currently have an estimated staffing shortfall of more than 100,000 full-time equivalent (FTE) staff – around 1 in 10 posts. According to analysis by the Health Foundation, The King's Fund and the Nuffield Trust, this could grow to 160,000 by 2023/24. This includes shortages of 70,000 FTE nurses working in hospital and community services, and 7,000 GPs.
  • The ambition laid out in The NHS long term plan to increase the share of resources going to mental health, and primary and community services means that the NHS needs to grow these areas of nursing at a faster rate. The number of mental health nurses will need to increase by 10,300 (4.6% per year) and the number of community nurses by 7,000 (3.9% per year) by 2023/24. Over the last 5 years, the number of nurses working in mental health and community settings has actually fallen by 1,700 and 500 FTE respectively.
  • The training pipeline for both mental health and community nursing is also a concern due to recent reductions in the number of mature applicants to nursing degrees, who are more likely to study mental health and learning disability nursing.

Other areas of health spending

  • Although the government has committed additional funds to NHS front-line services, it is clear that delivering the ambitions to improve services set out in The NHS long term plan will be a major challenge.
  • Whether the NHS will be able to start to transform care and outcomes over the next 5 years will depend to a large degree on the forthcoming spending for public health, health care capital investment, NHS education, training and staff development – areas of spending that directly affect patient care but fall outside of NHS England’s budget.
  • These budgets should be set alongside that of NHS England due to their interdependency. Initially, the Spending Review 2019 was planned to set day-to-day budgets for 3 years, and capital budgets for 4 years. However, there is considerable political and economic uncertainty due to Brexit, meaning it could cover a shorter timeframe. Decisions about these budgets beyond 2020/21 have been delayed again, seriously compromising the NHS's ability to deliver the goals of The NHS long term plan.
  • Capital, public health and workforce education and training have all been reduced in recent years. For example, the public health grant has been cut by 15%, and Health Education England’s budget by 24%, from their previous peaks in 2015/16 and 2013/14, respectively.
  • Health Education England’s budget covers the costs of education and training clinical staff (including a contribution to the salary costs of doctors in training and clinical placements) and development (including continuing professional development (CPD) courses undertaken by NHS staff).
  • Without investing more in both current staff and the training pipeline of new staff, the NHS’s staffing shortages will worsen. As outlined in our recent analysis with The King's Fund and the Nuffield Trust, investing £900m in Health Education England’s budget would allow national investment in workforce development to return to previous levels, and would allow nurses to be given additional financial support to improve their retention and engagement.
  • In 2013/14, public health services were transferred from primary care trusts to local government. Funding for this forms part of the Department of Health and Social Care’s budget and is allocated to local government through the public health grant.
  • The public health grant allows local authorities to provide services that maintain and improve people’s health, but this has been reduced in real terms by £850m since 2014/15. That equates to a reduction in the grant of 23% in real spending per person between 2014/15 and 2019/20.
  • Reversing these cuts would take the public health grant in 2020/21 to a total of £4.2bn, just over a £1bn higher than that year’s provisional allocation of £3.1bn. Growing the public health grant in line with increases to NHS  England’s budget (so that the share of its spending dedicated to public health is maintained) would require a £1.5bn a year real-terms increase by 2023/24, taking the grant up to £4.6bn a year, with the additional funding phased in over the next 4 years.
  • Day-to-day running costs make up the bulk of NHS funding, but capital investment in buildings, equipment and IT is vitally important to delivering high-quality patient care.
  • Capital investment has been cut in recent years to meet rising pressures on day-to-day running costs, with 6 years of transfers from the capital budget to the revenue budget. Capital per worker in trusts reduced by 17% between 2010/11 and 2017/18. The result is a rising backlog of maintenance and a lack of investment to support innovation. Across the Organisation for Economic Co-operation and Development (OECD), on average, countries spend 0.51% of their GDP on health care capital. In the UK this is just 0.27%. Matching the OECD average would mean increasing the Department of Health and Social Care's capital budget from £5.9bn in 2019/20 to £10.3bn in 2023/24.

Completing the funding picture

  • If health spending beyond NHS England’s budget grows in line with inflation, then the Department of Health and Social Care’s budget will increase from £139bn to £155bn in 2023/24. This would be a growth rate in the overall budget of just 2.9% per year – below the level required to maintain current standards of care. Under this scenario, funding would fail to keep up with growing demand, and the quality of care provided is likely to deteriorate.
  • If the Department of Health and Social Care’s budget were to grow at 3.4% (the real- terms growth rate originally planned for NHS England) then health spending would rise to £159bn. This is roughly in line with estimates from Securing the future for the funding levels required to maintain current standards of care, given a growing and ageing population and a rising burden of chronic disease.
  • If the balance between day-to-day spending and investment in prevention, buildings and equipment, and staff is to be restored, health spending would grow to £163bn – a growth rate of 4.1% per year over the next 5 years. This is roughly in line with estimates from Securing the future for the funding levels required to invest in and modernise the health service. However, when combined with the past 5 years of slow growth, this equates to just 3.0% per year over the decade to 2023/24.

Social care

  • The NHS long term plan makes it clear that the NHS cannot be considered in isolation; an ageing population with complex long-term health conditions needs effective health and social care services. Equally, working age adults are a growing number and percentage of the people needing social care.
  • The NHS long term plan was developed with the clear expectation of a sustainable funding settlement for social care, stating that ‘the government … committed to ensure that adult social care funding is such that it does not impose any additional pressure on the NHS over the coming 5 years. That is the basis on which the demand, activity and funding in The NHS long term plan have been assessed’. Without this funding, the scale of the challenge for the NHS will rise, and the problems in social care will worsen.
  • There are different ways to calculate the funding required to meet The NHS long term plan test. As a minimum, social care funding would need to increase by £4.2bn by 2023/24 (3.6% per year) to prevent falls in access to care or quality. This is £2.7bn more than the projected budget for 2023/24. If social care pay were to grow at the same rate as the NHS pay deal for Agenda for Change staff, in order to improve recruitment and retention, this additional cost pressure would bring the funding gap to £4.4bn in 2023/24.
  • Reinstating access to care and quality to 2010 levels would require adult social care funding in 2023/24 to reach £29.6bn (£11.9bn more than in 2017/18 – an increase of 67%).
  • This is complicated further by reforms to local government financing, with more reliance on council tax and business rates. It is not clear that local councils can support the growing need for adult social care by being dependent on these funding streams, especially without crowding out other services such as public health and housing.

The wider public spending context and health

  • NHS front-line services have been protected relative to other areas of public spending over recent years, which has allowed the NHS to broadly maintain standards of care. But the result of years of short-term funding decisions is that the shift of investment has moved away from areas of investment in the future – the workforce, public health, and capital. Funding is now out of kilter and will need to be rebalanced to ensure that the ambitions set out in The NHS long term plan are realised, and that the NHS can continue to deliver year-on-year gains in productivity and value for money. The phasing for additional spending is also a problem, with NHS England’s settlement being backloaded, rather than allowing greater investment in earlier years. This means the money is at risk of being spent poorly.
  • If the much-needed additional funding for mental health, and primary and community care services is to materialise then a realistic plan for moderating acute and specialist activity is needed now. The risk otherwise is that acute activity is moderated in a haphazard way, which risks leading to unmet need, particularly for the most disadvantaged, or that acute activity growth eats into the money for mental health, and primary and community care. After 10 years of low funding growth, the additional funding is vitally important, but it is not a panacea.
  • To deliver real benefits to patients, the investment in NHS England over the next 5 years needs to be matched with funding to ensure that the NHS has the workforce and facilities it needs, and that social care and public health are able to play their part to support people to live healthy, high-quality lives. This benefits the population as a whole: people being healthy increases their productivity while they are in work, supports them to be in work, reduces the need for informal carers to take time off, and much more.
  • Finding additional funding will be tough. Health spending has grown as a share of GDP and it will continue to do so. Over recent years the government has increased health spending by cutting other areas of public spending – health spending has increased from 16.7% of public service spending in 2009/10 to 19.3% in 2018/19, reflecting the overall constraints on public spending.
  • The current Treasury plans for public spending over the next 5 years would see government-wide spending grow by 7% – less than half the growth rate of NHS England. This would mean extra health spending would put further pressure on other public services. The health of a population is affected by much more than just health spending – it is also determined by the economic and social conditions in which people live and work (the Marmot Review showed in 2010 how important these wider social determinants are to health). It is important that increased NHS spending is not at the expense of the public services and welfare spending that supports health.
  • Securing the future concluded that we face one of the biggest choices in a generation. If we are to have a health and social care system that meets our needs and aspirations, we will have to pay a lot more for it over the next 15 years. The UK is currently a relatively low taxed country – significantly below the EU-15 and G7 average. We can’t, and shouldn’t, rely on cutting spending elsewhere to fund the NHS and care system. At some point we will have to pay more in tax. But it is a choice: higher taxes and a health and social care system that meets our expectations and improves over time, or taxes at current levels and more constrained health and care services delivering less than we have become accustomed to.

* In this briefing, numbers are given in 2019/20 prices using March 2019 deflators for consistency. As a result, some numbers may not match those in official announcements made in 2018/19. We assume that NHS England’s cash-terms budgets are confirmed as alongside The NHS long term plan.

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