The Cost of Decency

NHS Funding

The NHS 5 Year Forward View was based on an assumption that the NHS would need an additional £30 billion of funding by 20/21 and that £22 billion of that would come through efficiency savings. In its spending review the government “promised” the £8 billion. It is timely to revisit the figures and to look again at what the gap might be in 20/21. (Some informed guesses are all that is provided.) What is attempted here is to cost what restoring the NHS and social care to a decent standard might involve.

NHS pic

Since the initial Five Year Forward View we have more information. Recent figures for the growth in demand for services, despite a great many projects that are supposed to be reducing it, casts some doubt on whether the £30 billion is realistic; let’s say its £32 billion.

The promised additional £8 billion pa funding for the NHS by 20/21 was part funded by cuts elsewhere in the overall health budget. Reversing this sleight of hand adds around £3 billion. Costs for announced and worthwhile (?) but unfunded improvements to mental health, GP funding (to allow for longer appointments) and for 24/7 working adds around £3 billion.

The improvements required in funding for Public Health, reversing the cuts of recent years adds a further £1 billion rising to £2 billion to fund the kind of programmes needed to restore longer term financial stability.

Turning to the proposed £22 billion of efficiency savings a far more realistic projection would be £10 billion – ie savings more in line with historic trends in efficiency gains and accepting that pay restraint has limits, there are few new ideas, transition funding has gone to pay off deficits, easy wins have been used up. On the other hand moving away from the market model, bearing down on contracts like PFI, back office integration (NHS and LAs), simplified funding and commissioning (via STPs?) could save around £2 billion.

To that has to be added funding for transformation and implementation of planned changes –shifting to whole person care, a care system rather than an NHS service (or moving to the Berwick style Era 3 model for the NHS). However these are labelled they represent big changes around integration, new models of care, service reconfiguration. In principle all these changes are necessary to establish long term sustainability; they are all worthy enough in their own right – providing improvements in outcomes and/or experience of care. But the case for change is based on improving benefits not reducing costs. And they are hard to do. To get such change implemented will entail some capital investment, major costs of programme governance and some years of double running costs; and winning over a highly sceptical public.

These system changes can be addressed through the established STP architecture with funding made available on a programme basis. This is additional funding. Given the level of ambition such funding could be between £5 billion and £10 billion spread over the next 4 years to 20/21.

Then equally vital is attention to social care. The additional cost of making all needs assessed as moderate and above free is around £12 billion. There are reasonable expectations for other improvements in social care, such as making the other Dilnot changes; all these are also justified through helping integration and assisting savings in the NHS – then a further £2 billion is necessary.

On this back of envelope basis the increased revenue funding for a modern care system (by 20/21) is £34 billion a year, over and above the spurious £8 billion promised. Put another way public spending on care would rise to around 11.5% of GDP bringing it in line with major developed EU countries. Plus up to £10 billion over 4 years for transition.

What would meeting the £34 billion gap entail? One presumption is that improvements will mostly benefit older people who have arguably been shielded so far from the worst of austerity and so greater contributions from better off pensioners are justified. Also, for various well established reasons any form of hypothecation should be rejected – the common pool is fed by general taxation.

One possible set of ideas:-

  • A 1% rise in income tax would raise about £4bn. This would also be totemic – raising income tax to pay for better NHS etc.
  • Increased charges in the NHS have very limited scope but could raise £1bn.
  • Changes to pensioner benefits to remove universality, extending NI to pensioners’ income and modifying the triple lock (all unpopular!) could raise £3 billion.
  • Increasing employee National Insurance Contributions in a staged way, initially by 1% just for those over 40 (or 50) but then increasing scope and level might raise £3 billion.
  • Removal or reduction of benefits in tax treatment of private pension contributions could raise £6bn.
  • There is some scope for looking at the social support system and at benefits such as attendance allowance and to see if pooling that funding might allow better allocation. A proper study is long overdue and this is very hard to put a value on but maybe a gain of £1 billion.
  • Council tax can be raised in level (like the suggested 2% social care levy) and also by adding higher bands (mansion tax etc). Maybe raise £3 billion and put into combined care pot. Some scope also for local authorities to raise other local charges and taxes specifically to fund care.
  • Changes to inheritance tax (death taxes) and/or other forms of wealth tax could raise £10 billion.
  • Sin taxes related to things like sugar might be possible and desirable and could maybe raise £1 billion.
  • The final £2 billion should come from increasing taxes for higher income groups, better tax collection and from reducing all forms of tax avoidance.

Transition funding from the £10 billion pot mentioned above would be allocated based on proper cost benefit analysis and so should be value for money and offer a reasonable payback in terms of extra efficiencies (or cost savings) over the term agreed.

The reaction to changes in benefits and taxes for older people will not be favourable but there is an inter-generational fairness argument to be won. Proper analysis would have to be done on wider economic consequences (better care good for growth) with taxes. And the impact on health inequalities would need to be examined and justified.

So do we want a modern effective sustainable care system of not? If we do here is the bill.