Autumn budget, October 2018

Philip Hammond Budget

Summary from Highland Marketing
Date: 30 October 2018

1.0    Background

Pressure for a funding increase starts in 2017

Last year’s Budget took place against an unusually fraught series of briefings and counter-briefings about the state of the NHS’ finances.

Think-tanks and unions argued that the NHS would not be able to deliver on the 2014 Five Year Forward View plan to close £22 billion of a looming £30 billion a year funding gap through a combination of efficiency, reconfiguration, and new ways of working.

Instead, they argued, the NHS was going to need more money. At the NHS Providers annual conference 2017, NHS England chief executive Simon Stevens came out in tacit agreement.

He argued that former Chancellor George Osborne had not, as he had claimed, “fully funded the NHS’ own plan” because the £8 billion a year he had found for it was back-loaded to the end of the current Parliament, while the social care crisis was not being addressed and the pay bill was going up.

Stevens urged the government to speed up its delivery of the £8 billion and warned that waiting lists could hit 5 million if it didn’t. He also suggested politicians should deliver on the £350 million a week Leave promised during the Brexit debate.

Pause for Budget 2018

Stevens’ intervention drew him into a very public spat with Downing Street. And, on Budget day, chancellor Philip Hammond repeated the Treasury view that the Forward View had been “fully funded.”

However, he recognised that the NHS was “under pressure” and came up with some additional winter funding, revenue and capital support, and measures to cushion the blow of dropping the NHS pay cap.

Think-tanks and unions said this fell well-short of what was required. NHS Providers launched a ‘winter watch’ that chronicled the health service’s struggles with cold and flu at the start of 2018, and used this to resume lobbying for a funding increase.

Build up to 5 July 2018 

The think-tanks and unions joined in as planning started for the NHS’ 70th anniversary on 5 July.

At the start of June, the King’s Fund, Nuffield Trust and Health Foundation published a major report that argued the NHS needed a funding uplift of around 4% a year to cope with an ageing population, rising incidence of multi-morbidity, and drug, tech and pay pressures.

Days later, prime minister Theresa May announced that the NHS in England would receive a “birthday present” of £20 billion a year by 2023 (funding increases for the NHS in Scotland, Wales and Northern Ireland have been announced on top of this).

Although Hammond was by all accounts furious, think-tanks and unions pointed out that this was an average of 3.4% a year; and it was far from clear where the money would come from, how it would be phased, or what it would cover.

Stevens announced that a new plan, variously named the ten-year plan or long-term plan, would be drawn up set priorities; and made an early bid for additional spending on mental health, children’s services, cancer, cardiovascular disease, and prevention.

However, this left unanswered the question of what would happen to acute sector deficits, which have continued to grow even as performance against key targets has decreased.

While the coalition that secured the NHS70 money has more or less held together, NHS Providers and senior managers have started to argue that a substantial amount of the cash must go on wiping out an underlying deficit that could be as high as £4 billion, to get hospitals back on track.

On the eve of the Budget, therefore, there were three big issues for it to address. How would the £20 billion “birthday present” be funded? What would the Treasury want for the money? And how would this align with the many pressures to be reconciled in the long-term plan?

Links: NHS Budget build-up in three stories

  • NHS funding: Theresa May unveils £20 billion boost. BBC take on the NHS70 announcement.
  • The NHS 10-year plan: how should the extra funding be spent? Comprehensive King’s Fund analysis; argues for a focus on public health and reducing health inequalities.
  • Pre-Budget plea for added funds. The British Medical Association breaks ranks and calls for the full 4% a year increase demanded by analysts in June.

2.0    Key announcements

Public net borrowing

When prime minister Theresa May announced the NHS “birthday present” in June, she indicated that at least some of the money would come from a “Brexit dividend”.

This was rubbished by economists, who pointed out that the UK’s “divorce bill” and ongoing EU commitments more than wipe out its current contributions; and the economy has already taken a hit from the leave decision.

With chancellor Phillip Hammond apparently committed to wiping out Britain’s current account deficit by the middle of the next decade, this seemed to leave tax rises as the only option for finding the money.

Over the summer, however, the Office for Budget Responsibility revised up its estimate of how much money the government was likely to collect in tax over the next few years. In his Budget, Hammond spent this windfall and a bit more.

In effect, he gave up on his balanced budget pledge in order to deliver the NHS cash and go some way towards meeting the prime minister’s Conservative Party conference pledge to “end austerity” by injecting some money into Universal Credit and touchstone services like the police and army.

Borrowing will remain unchanged at around £20 billion a year for the foreseeable future. The Office for Budget Responsibility said: “The significant fiscal windfall… had already been swallowed by the prime minister’s promise of more money for the NHS in June.

“The chancellor has added a further near-term tax and spending give-away. This leaves the medium-term outlook for government borrowing little changed since March.” Of course, all bets will be off in the event of no-deal, hard or poor-deal Brexit.

Headline pledges

  • Digital sales tax aimed at tech giants such as Facebook and Amazon;
  • Review of High Street planning rules; £2 billion to prepare for a no-deal Brexit;
  • £1 billion for the Ministry of Defence;
  • £1 billion to support the introduction of Universal Credit;
  • £420 million to tackle potholes; £400 million capital fund for schools;
  • £160 million for counter-terrorism plus a wider review of policing; business “relief” rate for public lavatories;
  • £19 million to commemorate the centenary of the world war one armistice;
  • £10 million for air ambulance services;
  • Conservative manifesto tax pledges brought forward one year;
  • Duty frozen on fuel, beer and spirits;
  • No tax on disposable coffee cups. 

Health and care pledges

NHS: In the run-up to the Budget, the Treasury was strongly criticised for tweeting that Hammond would deliver “an £84 billion boost” for the NHS; which is only ‘true’ if the additional money over planned spending for each of the next three years is added together.

In his speech, Hammond described the money as a “£25 billion real-terms increase for the NHS”; a sum that presumably includes the uplift for Scotland, Wales and Northern Ireland.

The big question remains how the money for England will be spent: Hammond said the long-term plan will set out what the British people “are going to get for their money”; and indicated that he expected to see cash directed towards “the front-line” and “investment.”

Winter: Unusually, there was no additional cash for winter planning; but the Department of Health and Social Care has made a number of announcements to provide targeted support to the services most likely to come under pressure.

In June, it announced that £36.3 million would be spent on helping ambulance trusts “to prepare for the colder months” and in September it announced £145 million for investment in A&E services; including 900 additional beds.

In October, new health and social care secretary Matt Hancock unveiled an additional £240 million for social care, to buy care home and enablement packages to “get patients home quicker” and release the capacity taken-up by delayed discharges.

Despite this, the NHS is not looking in great shape as it goes into the winter; with performance against A&E targets continuing to slip and waiting lists rising.

At this year’s Health and Care Innovation Expo, NHS England’s deputy chief executive, Matthew Swindells, said the service was still looking “a little bit peaky” and it needed to “get up and battling again.”

Last week, NHS Providers came to the same diagnosis; warning that the service had been “overstretched during an exceptionally busy summer” and that this winter could easily be worse than last.

Mental health: Ahead of the Budget, Hammond gathered some headlines by promising to spend an additional £2 billion on mental health services.

However, the Health Service Journal (£) pointed out that this only implies that mental health will get the 3.4% per year uplift implied by the birthday present (ie: spending will increase, but only in line with spending on other health services).

In his Budget speech, Hammond described this as a “sneak peek” at the long-term plan. He also prescribed what the money should go on, saying it would pay for “a new mental health crisis service” with its own ambulances and A&E presence, plus additional support for children and young people suffering mental health problems.

Social care: Additional funding for social care seems to have taken over from money for winter planning in the Number 11’s “sticking plaster” cabinet.

Hammond announced an additional £650 million of grant-funding for councils to try and keep their services going, while the government puts together its interminably delayed social care green paper. He also found £45 million to set up a fund for independent living facilities for people with disabilities and £85 million for children’s services.

The Association of Directors of Social Services has said social care needs £2.35 billion just to stand still. Labour leader Jeremy Corbyn focused on the social care crisis in his Budget response, claiming the government’s failure to it illustrated how it had “broken promises” to end austerity.

Private Finance Initiative: If there was a surprise in the health and care section of the Budget, it was the chancellor’s decision to effectively end the private finance initiative; once the “only game in town” for building new hospitals and other public facilities.

Hammond announced that he had not and would not sign any PFI or PF2 deals, and that a Centre of Excellence would be set up to manage the deals that existed “in the public interest” – starting with those in the NHS.

However, the Health Service Journal pointed out that, since the collapse of Carillion, no PFI deals have been put into the NHS pipeline, and the government is still exploring other forms of public-private partnership.

Technology: There were no specific health technology pledges in the Budget. In his first speech as health secretary, Matt Hancock announced that the Treasury had confirmed the £412 million technology fund secured by his predecessor, Jeremy Hunt, during the last comprehensive spending review.

In August, a prospectus for spending this money was issued to sustainability and transformation plan leaders, saying that the money will be allocated to them on “fair shares” basis for spending on digital projects over the next three years.

The prospectus acknowledged that this would mean “difficult decisions” would have to be made about investing in hospital digitisation or integrated care and population health management projects. The global digital exemplar programme is also due to spend another £200 million; mostly on community exemplars.

Further technology investment now depends on the long-term plan, which Swindells has said will be “digitally enabled at its heart.”

3.0    Reaction

John Appleby, chief economist, The Nuffield Trust

“Confirmation that the government will give £20 billion more to NHS England by 2023 will bring a measure of relief to the hard-pressed service. But we must not get carried away. After a financial squeeze lasting many years, much of this new money will be needed just to get the basics back on track… and our calculations show that after meeting commitments already made to patients, only £500 million will be free next year for any improvements.

“Troublingly, we heard no guarantees today about the budgets for hospital buildings, IT investments, training or public health. We did hear a guarantee of no new PFI deals – but let’s be realistic; there were none on the horizon anyway. The uncertainty of Brexit also hangs in the air. The government believes that a no-deal exit would put an £80 billion annual hole in the public finances that pay for the NHS. If that happened, austerity might come to an end only to start all over again.”

Richard Murray, director of policy, The King’s Fund

“The social care system cannot continue to get by on last-minute, piecemeal funding announcements. The Budget highlights the need for a long-term plan for how social care will be funded and structured so it can meet additional demand. Successive governments have dodged tough decisions on social care and the forthcoming green paper must ensure it gets the long-term plan it so desperately needs.”

Chris Hopson, chief executive, NHS Providers

“We welcome the confirmation from the chancellor of the £20 billion increased funding commitment made to the NHS over the next five years, which will underpin the NHS long-term plan. The allocated money for mental health sends the right message… however, while this money is directed at specific, new programmes it is vital that we also see more support for core services for people with severe and long-term mental health problems.

“Total social care funding will continue to fall well short of what is needed to keep up with extra demand. It is vital that the forthcoming green paper and the spending review provide a long-term, sustainable resolution for social care funding, rather than forcing local authorities to rely on an endless series of short-term, stop-gap solutions.”

4.0    Commentary

Chancellor Philip Hammond joked that “one of the bunnies” he might have pulled out of his Budget hat had “escaped early” when prime minister Theresa May announced an additional £20 billion for the NHS in England in June.

In the Commons on Monday, he tried the trick again; confirming the additional money, describing investment in the NHS as “the historic choice of the British people”, and delivering some specific pledges on mental health.

He duly secured applause in the form of newspaper headlines. But, as ever, what he didn’t say was probably more significant. The NHS “birthday present” does not cover many areas that are traditionally counted within the health budget; including training and public health.

Nor does it cover social care. This matters, because the Five Year Forward View assumed that investment in both public health and social care would pick-up to address the major sources of demand pressure on the NHS; the increasing incidence of illness correlated with inequality and the ageing population.

The government’s decision to focus spending on the health service, while continuing to bear down on benefits, public health and social care (the £650 million sticking plaster for social care notwithstanding) means the NHS runs the risk of becoming a “service of last resort.”

This will leave it precious little money for spending on other things, including buildings or technology; even when new facilities and IT are clearly needed to underpin the new ways of working that NHS England chief executive Simon Stevens has argued can put the NHS back onto a long-term, sustainable footing.

On technology specifically, the only significant sources of technology funding available to trusts from outside their own resources are the £412 million distributed to sustainability and transformation partnerships and the £200 million still to be allocated by the global digital exemplar programme.

Everything now rides on the long-term plan, which is being promised in “late autumn” and the social care green paper, which has been promised “shortly” since the start of the year. IT directors and vendors will be looking out for what the ten-year plan has to say about technology; and how it will be funded.

The present government’s fondness for wrapping money into specific, eye-catching programmes was on show in the Budget, with Hammond’s pledge to spend £2 billion of mental health funding on a crisis service; rather than existing services.

Future technology funding is likely to be allocated the same way. Whether this approach will put the NHS in a position to address its day to day running and capital investment problems is an open question. One Hammond conjured away for another day.

5.0    Useful Links

What do health tech leaders want from the general election campaign?
Secrets from the algorithm: insights from Google’s Search Content Warehouse API leak
What will the general election mean for the NHS and health tech?
Back to (business school) basics
NHS finances: cuts get real