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Spending on healthcare to rise, but funding remains vague

The government continues to increase funding in healthcare. Matt Custance explains why an attitude shift is needed to treat health as an engine for growth and not just a spending department.

Many foundations and hospital CFOs and CEOs in the UK will welcome a continuing increase in healthcare financing. But, there remain significant gaps in the estates, IT, and infrastructure of the sector, while critical supporting services remain underfunded.

Following the chancellor's 2021 spending review, the Department of Health and Social Care (DHSC) budget will increase from £156 billion in 2021/22 to £178.5 billion in 2022/23. This is a 14% increase in nominal terms, after which it settles into a growth rate of 2.5- 3.0% nominal, expected to be just above inflation. Growth in the allocation to the NHS is a little lower (11%) in the first year and a little higher in later years (3-4%).

The capital budget appears now to be stuck at a level of around £9-11 billion a year  - which is significantly more than the depths of the post-PFI period. This is likely to be enough to fund the normal renewal of facilities and some backlog maintenance, but not enough to support the New Hospitals Programme, which will likely cost significantly more than £20 billion over the next 10-15 years.

It's still unclear where all this funding will come from. In addition, the budget documents continue to ignore the additional eight hospitals that the government has promised. It's concerning that the New Hospitals Programme only mentions 40 hospitals.

Whatever the actual number, NHS providers need support to reprofile their estate to minimise risk that emerged from the austerity years.

Keeping social care funding in focus

The further spending increases for social care called for by the Local Government Association and the NHS Confederation have not materialised, which is obviously disappointing for the health service. A shortage of social care leads directly to increased pressure on the NHS and other public services and make hospital activity flow less smoothly, meaning that treatment backlogs – now at record levels – cannot be quickly cleared.

The problem is immediate. Many local authorities are handing back care packages to their NHS colleagues because they cannot staff them. The minimum wage commitment will help, but services will continue to battle against staff availability and the tendency of care work to be seen in many communities as the job of last resort.

Managing workforce supply

There is a global competition for health skills from a diminishing labour market. When 40% of doctors in the NHS qualify overseas there’s urgent need for a plan to address this. Announcements in the budget about boosting numbers in training are welcome, but there is a considerable gap to fill.

At present, workforce planning is handed to the education and training body, Health Education England. They will produce visionary work, but no one should expect that to deliver significant change in the next three years. Without stand-out incentives for workforce growth, many health commitments will be difficult to implement.

Increasing cost pressures

The NHS is facing cost pressures, most notably in the cost of the workforce but also in materials and supplies. To weather the storm, NHS providers need to invest in infrastructure and digital to attract staff and get the most out of them.

The chancellor announced £2.1 billion to fund digital innovation. This is a welcome boost – but we know from the Wannacry attacks that NHS IT systems are well behind other sectors and that few NHS organisations have the kind of digital systems they need to face the challenges of the coming decade. It is likely, again, to require new sources of funding not yet announced.

The slow movement to platforms of NHS data hampers options for using it intelligently as a basis for innovation and service improvement.

Similarly, the announced increases in the national living wage and public sector pay will further pressure NHS spending. However, given the scale of the workforce crisis and the huge day-to-day difficulties in filling roles, these increases will be welcomed by the sector nonetheless.

The budget makes much of the increases in research and development spending and tax breaks. Presumably, much of this will accrue to the health, pharmaceutical and life sciences industries. Companies in these industries should aim to work closely with the NHS, helping it commercialise innovation, attract staff, develop new treatments and increase efficiency.

The budget speech mentioned the "largest-ever uplift for Health R&D", stating that spending by government will rise by £605 million to £2 billion between 2022 and 2025. This should help the NHS eke out some extra cash to fund its operations and improve productivity and effectiveness. We hope that a large tranche of this funding goes to unlocking innovation (of which the NHS and its academic and industry partners produce a lot). The key is to develop the incentives, governance and ecosystems for adoption and spread as normal business.

Treat health as an engine for growth

It's telling that healthcare and the NHS was not mentioned in the 'investing for growth' section of the budget document, which focuses on so-called economic infrastructure. Coronavirus has demonstrated the central role that the health of a population plays in determining economic outcomes. Yet, successive governments continue to treat health as just a spending department.

 The NHS is the largest employer in most towns and cities across the UK, a magnet for life sciences industries and as an enabler of a productive and healthy workforce. It needs to be recognised as a key driver of economic growth and central to the government's levelling up agenda.

And then there's 'build back better'. The New Hospitals Programme needs to be a crucial part of this, but government remains silent on the cost of the programme and how it will be funded beyond the initial schemes.

I hope that we'll soon see a budget that recognises the healthcare sector and the NHS as an engine for economic growth and a lynchpin enabler of economic activity and the reduction of economic inequalities.

It needs to be acknowledged that government has continued to fund the NHS with real-term increases in spending at a time when other departments and local government have suffered. Funding has been announced to help NHS organisations to claw back elective waiting lists, which have ballooned during the pandemic, and additional funding for ongoing vaccinations and coronavirus treatment. However, demand for healthcare has been increasing, even before the pandemic, while the workforce has reduced, so whether this will be enough – only time will tell.

For more insight on healthcare funding, get in touch with Peter Saunders.

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