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by GK Strategy 21st November, 2017

Pay or performance? The Chancellor’s NHS budget dilemma

With NHS funding in the public limelight, the Chancellor of the Exchequer is due to face a thorny dilemma on the future of health funding tomorrow. Whilst he will be considering the options at his disposal, any solutions are unlikely to make him many friends.

Despite the Government meeting its pledge to protect and increase NHS funding, with an additional £8 billion committed at the 2015 general election, demand for services is at record levels. This is in a large part due to an ageing population and rising chronic illness, but also a lack of investment in public health and preventative care. The Government has faced growing calls to increase funding on the NHS not least from the Labour Opposition. Jeremy Corbyn’s party made eye-watering spending commitments to give the NHS the money it needs to increase capacity to meet rising demand. Since the Government lost its majority in the general election in June this year, the political pressures due to the condition of the NHS turmoil are having much more of an impact in Westminster. In the hope of holding off a slide in opinion poll ratings – and a Corbyn-led Labour Government – many inside the Conservative Party are pushing for higher spending on public services, with the NHS first in line.

Such calls for greater NHS funding were reflected by the Chief Executive of NHS England himself, Simon Stevens, in a recent speech to the NHS Providers’ conference. Stevens called on the Government to meet the Vote Leave referendum campaign promise of an extra £350 million a week for the NHS, and added that £4 billion is needed next year to prevent the number of people on surgery waiting lists from rising to a record of five million. The funding being proposed would help the NHS to expand capacity with extra staff and facilities so that it can see more patients faster.

However, the fiscal figures do not look good for the Chancellor. The Office for Budget Responsibility has reduced its growth forecast to 1% for the next year, which would double the budget deficit to almost £36 billion by 2021-22 even without an increase in public spending. The non-partisan Institute for Fiscal Studies has warned that Philip Hammond may have to abandon his target for getting rid of the deficit if he wants to increase spending on public services. A significant increase in NHS funding is therefore very difficult within the current fiscal parameters.

Any additional health spending will be complicated by the fact that the Chancellor will be working out how to fund the Health Secretary’s plans to lift the 1% public sector pay cap in the NHS. Media attention has focused on the fact that many workforce bodies and trade unions have argued the minor pay rises suggested do not go far enough. Employing staff has become cheaper in real terms over the last 7 years as the public sector pay cap has suppressed wages. Trade unions have warned that staff will expect a commitment to increase wages to at least match inflation, now running at 3%, and costing more than £1 billion. If the Government does not come up with very significant new pot of investment in the NHS workforce in the Budget on tomorrow, this could force trusts to either make cuts into workforce numbers to make ends meet, or have ever spiralling deficits.

Given the dual demands for funding and pay, the temptation for the Treasury will be to increase funding to the NHS and lift the cap on NHS pay, but not commit additional resources to fund pay and increase capacity. This would be consistent with the Government’s lifting of the pay cap for police and fire services without providing additional funding, leaving it to existing budgets to address the pay. This would provide the superficial political advantage of meeting demands to increase funding for the NHS and lift the pay cap. However, in reality, NHS Trusts would only be able to either increase pay or increase service capacity. The Chancellor may have to decide between the two if he is to avoid completely busting his fiscal targets. Either option will still fall short of expectations.

If you would like advice on workforce information in your sector, please get in touch at edward@gkstrategy.com.

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