The period of relative austerity facing the NHS in England could run to a decade or more, a new report warns.
And continuing the real freeze in NHS spending to 2017 would mean cutting spending on other public services in England by an average of 2.3% a year, adds the analysis, produced by researchers at the Institute for Fiscal Studies (IFS) and funded by the Nuffield Trust.The real freeze in English NHS spending planned for 2020-11 to 2014-15 would, if delivered, be the tightest four-year period of funding for the Service in the last 50 years, say the researchers.
Because spending on the NHS is so big - accounting for 23% of public service spending in England in 2010-11 - decisions on its funding matter a great deal for all other areas of public service spending.
Increasing NHS spending in line with national income between 2015-16 and 2021-22 would still leave the NHS budget growing less quickly than what the Office of Budget Responsibility (OBR)'s analysis suggests might be needed to keep pace with the costs of an ageing population over that period, the researchers note. This settlement would, under current projections, also leave spending on other public services growing at just 0.6% a year in ream terms over the seven-year period from April 2015.Moreover, increasing NHS spending in line with national income over the seven years from April 2015, whilst also increasing other public service spending by 1% a year in real terms (which is lower than forecast growth in national income over that period) would require increased taxation or borrowing, or further welfare cuts, over and above the £10 billion hinted at by the Chancellor in his Budget speech, equivalent to an increase in the main rate of value-added tax (VAT) from 20% to just over 22%, say the researchers.
The likely squeeze on NHS spending would, however, follow a decade of large real increases under the last Labour government and a particularly big - but largely unintended - rise in NHS spending as a share of national income during the late 2000s recession. This means that even the planned freeze in English NHS spending up to 2015-15 would, if delivered, still leave spending as a share of national income well above its 2007-08 pre-financial crisis level. Indeed, the projected hit to national income from the financial crisis is such that even a continued real freeze would not see English NHS spending fall to represent the same share of national income as it did in 2007-08 until 2017-18, says the report.
"Asking the NHS to take a more equal share of the pain across the public services amounts to an unprecedented productivity challenge," comments Nuffield Trust chief economist Anita Charlesworth. "If the government can increase taxation or borrowing, cut the welfare bill further or generate greater efficiencies in other parts of the public sector then the NHS might be in line for a real terms increase, albeit at a rate that does not keep pace with demographic pressures,” she suggests.However, she adds, if any of those options are judged to be too difficult politically or too damaging to vulnerable groups and other key public services, health spending will have to fall in real terms.
"Whatever happens, the NHS needs to plan a medium-term future based on belt-tightening and it needs to be prepared for future years to be even tougher than they are now," Ms Charlesworth warns.
NHS Confederation chief executive Mike Farrar said the report backs recent calls by the Confederation for the government and NHS leaders to "urgently start the difficult yet necessary dialogue with the public about why the health service needs to change frontline care."