Anita Charlesworth: The NHS can’t continue to live in this hand to mouth way

anita_charlesworthIt’s a topsy, turvy world—Phil Hammond delivered his autumn budget, the first after the general election, and announced some of the starkest economic news for years. Ten years after the financial crisis the annual average rate of productivity growth for the last decade was the lowest since the Napoleonic war. The government’s official economic forecaster—the Office for Budget Responsibility—has now concluded that this isn’t a temporary problem, but looks structural. As a result it has downgraded the economic forecast for the next five years. The Institute for Fiscal Studies (IFS) reports that the UK’s economic growth forecasts are worse than any other G7 nation over the next five years.   

Low productivity and the resulting low economic growth have big impacts: the Resolution Foundation and IFS don’t expect the value of earnings across the economy to return to their pre-crisis peak in real terms until 2025. That is 17 years with no earnings growth—we are all running to stand still. If this forecast is correct, a child born in 2007 will spend their entire childhood in a household with parents whose pay after inflation is less than before they were born.

Low economic growth and stagnant earnings mean less tax. For public services this has depressing implications, and the government is unlikely to balance the budget until 2030. As a result the Chancellor is planning to spend a falling share of the sluggish GDP on public services up to 2022/23, confirming that there is currently no end in sight to austerity.  

All in all this is a very gloomy picture. So how come this budget seems to have gone quite well politically for the Chancellor? Leaving aside the stamp duty cut, which economists hate, but backbenchers and the public seem to like, the Chancellor’s announcement on the NHS will have helped.

Among the economic gloom the Chancellor managed to find some genuine new money for the NHS. There is an extra £337 million for winter emergency pressures in England this year—although as it’s so late in the day, it will be a challenge to spend this effectively. Philip Hammond has also added almost £2 billion to England’s total health budget in real terms next year and a further £1.6 billion the year after. It is a long way short of the £4 billion a year increase the Health Foundation, Nuffield Trust and The King’s Fund calculated was required to meet growing pressures on the service, but a welcome boost nonetheless.

On top of that there is a commitment of further funding to honour the recommendations of the NHS pay review body for some NHS staff—but this commitment is only to Agenda for Change staff such as nurses, paramedics and midwives. Any pay award for hospital doctors and GPs will have to come from within the NHS budget.  

Health service funding will now rise at a similar level to GDP and as a result the risk of a short-term crisis has reduced, but the problem is far from solved. Sir Bruce Keogh and Malcolm Grant, NHS England’s chair, were clear after the budget that there would need to be a “debate” about what patients should expect from the NHS in light of funding gaps. The government is clearly expecting significant progress on both the A&E four hour target and the 18 week waiting times target in return for more cash, but more is not the same as enough. Social care did not even warrant a mention, despite continuing problems with delayed discharges of care and an estimated £2.5 billion funding gap by 2019/20. The budget said little about mental health, community services, and general practice, all of which urgently need support. The budget was in the same week that new data on the number of GPs was released showing that staffing shortages, while very serious for nursing, are also a substantial problem in primary care with a 5% fall in full time equivalent GPs in England since September 2015. Attempts to alleviate this problem by recruiting 2,000 GPs from overseas over the next three years have been less than impressive so far: just 38 were recruited in the first six months of this year. 

The pressures on the NHS aren’t a one-off. With a growing and ageing population, medical advances, and a highly skilled labour force, health spending is projected to rise by more than inflation and by more than GDP for decades. This is not a new phenomenon and not unique to the UK—all health systems face the same challenge. A challenge the UK met by increasing health funding by around 4% a year in real terms over the decades before the financial crash. While there was some welcome short-term relief in the budget, the health service can’t continue to live in this hand to mouth way. It requires stable, consistent funding growth with a realistic assessment of productivity. Overall the budget painted a picture of a fragile economy facing structural challenges with a government somewhat overwhelmed by the scale of the problem. Uncertain of how to deal with the problem over the long-term, it has focused on the short-term. What is true of the government’s approach to the economy is true for the NHS. The budget postponed the NHS problem, but at some point the government will have to provide a sustainable solution.

Anita Charlesworth is director of research and economics at The Health Foundation. 

Watch our Facebook Live video on the Autumn Budget with Anita Charlesworth, John Appleby, and Siva Anandaciva.