Budget backgrounder – constant, short-term financial pressure impacts the NHS and its capacity for innovation

A series of short-term Budgets have left the NHS with some immediate financial problems: and inflation and strikes have not helped. The Treasury has refused to inject more cash into the system, leaving money for winter projects, waiting list initiatives, and technology at risk. In the second of two analysis pieces, we look at the state of play ahead of the Autumn Statement 2023.

Chancellor Jeremy Hunt is due to deliver an Autumn Statement on 22 November and think-tanks and management groups have been lining up to urge him to inject funds into public services.

The pleas look set to fall on deaf ears. The Health Service Journal has reported that the Treasury has refused to fund the £1 billion bill for this summer’s strikes. Instead, the Department of Health and Social Care and NHS England will inject £800 million into the system from winter funding, waiting list initiatives, capital and digital programmes.

In return, integrated care systems will be “expected” to return to the financial plans that they set out at the start of the year, which had to show a balanced position, this feels unlikely. Before the latest financial intervention, every integrated care system was reporting a deficit: and covering the cost of strike action was just one of the pressures they were facing.

Even if the NHS does manage to break even, there will be a political and patient cost. Prime minister Rishi Sunak has made reducing NHS waiting lists one of his five pledges for government. Yet it now looks as if targets to eliminate long-waits will be allowed to slip as the overall list goes on rising and hospitals that are already starting to declare ‘black alerts’ will be left to struggle through the winter.

In a perilous position

It’s no wonder that Richard Murray, the outgoing head of the King’s Fund, warned before the intervention that Hunt will stand up “at a perilous moment” for health and social care (which is in an even worse state than the NHS, as they’re provided by councils that are going bankrupt or cutting services to stop that happening).

“Given the resources already provided to health and care – as well as the pressure elsewhere in public services and, indeed, the desire for tax cuts – the government might feel aggrieved at once again having to find more money,” Murray admitted.

“Yet the risk to the NHS, to government, and most of all to patients, is that if no more money is forthcoming the NHS may have… a difficult decision: to deliberately overspend, despite being ordered to stop, or to follow orders and watch as services slide further into crisis.”

A crisis years in the making

The crisis has been a long time coming. Ahead of the Autumn Statement, think-tanks, management organisations and oversight bodies have been issuing reports arguing that the NHS is suffering from a long-term shortfall in funding and investment in capital assets.

The lack of capital has left the NHS with £10.2 billion of backlog maintenance. While, on the IT side, trusts are dealing with aging communications infrastructure, the incomplete roll-out of core IT systems, and the patchy adoption of innovation.

The Institute for Government has argued this lack of investment is stopping public services from making the productivity improvements they need to get back on track. However, the origins of the sudden financial crisis that Murray is worried about lie in the Covid-19 pandemic and the political turmoil that has followed it.

Budget, 2021

As chancellor, now-prime minister Rishi Sunak delivered the first Budget after the Covid-19 pandemic in October 2021. The Budget followed a comprehensive spending review and set out the government’s plans for revenue and capital spending until the end of the current parliament, in 2024-5.

The Department of Health and Social Care was scheduled to receive real term increases in funding, but at a lower rate than the historical average. At the same time, a lot of the money was earmarked for specific policy initiatives, such as tackling the waiting list.

And heroic assumptions were made about productivity and efficiency (the NHS was meant to deliver £12 billion of efficiency savings and deliver 130% of pre-Covid productivity to clear the waiting list: NHS England’s latest target is 103%, which is why even long waits will persist). There was nothing for public health, and councils were told to raise their own precepts for social care.

So, things were looking tight before inflation took off. Which it did, following the Russian invasion of Ukraine. In response, think-tanks urged the short-lived administration led by Liz Truss and Kwasi Kwarteng to reopen the comprehensive spending review, but it refused.

Budget, 2022

Instead, NHS England went into a round of budget revisions. And then, in October 2022, another new chancellor, this time Hunt, fronted another Budget. This found an additional £3.3 billion for day-to-day spending and £1.4 billion for capital investment.

The Health Foundation studied this settlement in detail, and pointed out that most of it would be required to cover inflation. In real terms, it left the DHSC looking at a funding increase of just 1.2% this year and next, against a historical average of 3.6%, and a capital spending increase of just 0.2%.

“The 2022 autumn statement committed extra funding for day-to-day health services that will help to mitigate the cost-pressures facing the NHS,” the Health Foundation concluded. “However, the true cost pressures in the health care sector [are not known] and considerable uncertainty remains in areas such as staff pay. This could add to existing challenges around persistent workforce shortages and maintaining and improving NHS buildings and equipment…”

This proved prescient, because inflation has become backed into the economy, while NHS staff costs have risen with a partially unfunded pay settlement this spring and a wave of strikes that the NHS Confederation has calculated to have cost £1.1 billion in the first three months of the financial year.

Impact on technology

The Health Foundation’s concern about workforce, maintenance, and equipment has also proved prescient. Constant Budgets, spring and autumn statements, pre-briefing and revisions make it difficult to keep track of the money available for IT, but few trusts or suppliers would argue there is much available.

In the October 2021 Budget, Sunak made headlines by announcing £2.6 billion for “innovative digital technology.” However, this spring, the Health Service Journal was told this had been cut to “less than £1 billion” because of clawbacks to address cost pressures.

Most of what remains seems to have been spent on the Frontline Digitisation programme to finally get electronic patient records into every NHS trust. Yet the Infrastructure and Projects Authority concluded that its target of March 2025 won’t be met, and the government has put it back a year.

Meanwhile, it looks as if the DHSC and NHS England have decided not to send IT money down to integrated care systems and trusts, but to consolidate what remains of the 2021 and previous Budget allocations into pots for national priorities, such as virtual wards, or portals, or – recently – AI.

In a well-read discussion, the Highland Marketing advisory board argued that this “digital hokey cokey” makes it hard for trusts to spend on infrastructure, or replacing old kit, or updating software. But it also makes it difficult to invest in innovation, because national priorities might not align with their strategies, bidding for funds takes time, money often comes through late, and projects might not be sustainable once it’s gone.  

Stability required, but little of it ahead

There’s lots of agreement that what the NHS needs now is: a stable policy environment; a long-term strategy aligned to a long-term funding agreement and a costed workforce plan; alongside investment in facilities and technology to improve productivity.

However, this is unlikely to happen. Now prime minister Rishi Sunak has just reshuffled his Cabinet, leaving the DHSC with a completely new ministerial team. And a general election is due by January 2025.

So, as the Institute for Government has argued, “whoever forms the next government” is going face “the daunting task of returning services to pre-pandemic levels of performance, never mind those seen in 2010.”

It will be a long job, and there’s not much sign of Labour getting to grips with it. For the moment, one of its firmer policies is a Fit for the Future Fund that “will double the number of diagnostic scanners in use across the NHS” and make more use of AI.

However, while it’s good to see a focus on technology from the opposition, this would create yet another fund for trusts to bid for: and there’s no indication of where the staff would come from or how it would contribute to the “reform” that shadow health secretary Wes Streeting talks about. Meantime, the NHS faces a challenge to get through a winter in which financial balance is suddenly the priority; unless the Treasury has a last minute change of heart.