In this piece John Appleby (King’s Fund) argues that the NHS has done reasonably well in the face of a financial squeeze and distracting reforms, thanks to the efforts of its staff, but the shortage of resources is now becoming very serious. A paper on health in the 1997-2010 Labour government (written by other economists for the Oxford Review of Economic Policy) is available, free to download, on the Labour government 1997-2010 page.

Looking back at the thirty bullet-pointed promises on the NHS listed in the coalition agreement thrashed out in the days after the 2010 general election, the second pledge sticks out: ‘We will stop the top-down reorganisations of the NHS that have got in the way of patient care..’ (HM Government, 2010). But plans for the extensive organisational reform of the NHS in fact pervade the coalition’s programme for government and trace their origins to Andrew Lansley’s work when in opposition (Lansley, 2005; The Conservative Party, 2007).

But between Lansley’s 2007 ‘white paper’ and the 2010 general election, there was the small matter of a global financial crisis and the start of what turned out to be the longest recession on record. Aside from the huge amounts of public money used to support the banking sector, the consequences of these events for public spending were somewhat more parsimonious. The coalition’s austerity programme has seen substantial real cuts in budgets across the board. However, as the first commitment in the coalition’s programme for government made clear, the NHS would be guaranteed real increases in funding in every year of the parliament.

For the NHS in England[1] then, two issues have dominated its life over the last five years: organisational reform and funding. Teasing out the coalition’s reform and funding commitments as they affected the NHS, its work, its outputs and its eventual impact on its core business of improving the nation’s health is not an easy task. As other attempts to assess the performance of health systems has shown, this can be a controversial and inexact science (cf WHO, 2000; Davis et al, 2014; Austin et al, 2015). Tracing the cause and effect of policy is hampered by lags between the two, difficulties in attributing changes in health to changes in health care and often poor and patchy data. Population health measures – such as life expectancy – are the product not only of people’s lifetime consumption of health care, but also of their lifetime’s economic experience, their personal lifestyle choices and so on. And while the NHS has traditionally been good at collecting data on work activity in secondary care, for example, in other areas – notably community health services such as district nursing and health visiting, and in general practice – even basic activity data is sparse or non-existent.

With these limitations in mind, any assessment of the coalition’s record on health needs to ask what happened to funding for the NHS (and its consequences, in particular, productivity), and the outcomes of the programme of organisational reform.

 

1. Funding

While the coalition’s programme for government gave a qualitative commitment to increasing NHS spending in real terms, the recognition of the relatively high value the public placed on the NHS was quantified in the coalition’s first spending review (SR) in 2010. SR 2010 set out a plan to allocate to the NHS in England an extra £10.6 billion between 2010/11 (the baseline year) and 2014/15. At the prevailing forecast inflation (GDP deflator) at the time, this was equivalent to a real rise of just under 0.4% over the four years. Real average annual increases of just under 0.1% (equivalent to around £100 million – or the amount of money the NHS spends every 11 hours) met the coalition’s promise, if only just (HM Treasury, 2010).

Nevertheless, even such a small rise compared to deep cuts for other spending departments. On the other hand, it would mean the smallest increase in NHS funding over a four year period since 1948. Compared to the long run average annual increase of around 4% up to 2009, it was clear that while the NHS was ‘protected’ this did not mean business as usual.

But while the plan was parsimonious, the outturn has in some ways been better (and in some ways worse) than expected. One silver lining to the longest recessionary period on record has been lower than expected inflation. The planned 0.1% per annum real increase has turned out to be closer to 0.8%.

On the other hand, SR 2010 also planned for a transfer of around £3.8 billion from the NHS budget over the four years to 2014/15 (close to 1% of its budget each year) to local government to bolster social care spending. While this recognised the financial pressures local government were going to be under and the intimate links between health and social care, nevertheless this represented a not insubstantial opportunity cost to the NHS.

One final complication is the choice of baseline year. Conventionally, 2010/11 can be used as the base year for calculating percentage changes etc. However, this does imply that the coalition had no influence over the NHS budget in its first - nearly full - year in power. Using 2009/10 as the base year instead suggests a smaller average annual rise over the five years to 2014/15 and indeed, a real cut in 2010/11.

Despite these details the larger funding picture essentially remains the same: while the coalition has, more by accident perhaps than design, met the spirit of its real funding promise, however the figures are cut, the sums remain very small.

 

2. Productivity

Importantly, they significantly undershot estimates of how much money the NHS required to meet growing demands. As the global financial crisis unfolded in 2008 and 2009, and the impact on the economy and public finances became clear, a number of estimates were made of future funding needs set against various, fairly bleak (but as it turned out, reasonably realistic) prospects for NHS funding (cf Appleby et al, 2009; McKinsey & Company, 2009). The unavoidable policy option in the face of growing demand but near stagnant budget growth, was for the NHS to fill the funding-needs gap with improved productivity – in other words, extra activity and improved quality of care that could have been bought if funding had increased in line with demand.

The monetary value of the funding-needs gap to be filled over the four years to 2014/15 was calculated to be £20 billion. A suspiciously round figure perhaps, but in fact reflecting the inherent uncertainty of such projections. For the NHS, the ‘Nicholson Challenge’ as it was dubbed by Stephen Dorrell, past chair of the Health Select Committee, after the then NHS chief executive, Sir David Nicholson, translated into a need to generate productivity improvements of between 4 percent and 5 percent a year. To put this in perspective, the average productivity gain between 1995 and 2009 for the UK NHS was an order of magnitude less - just 0.5% per year (ONS, 2015). And to add another twist, the challenge in practice was even tougher as not every NHS pound of spending would be available to be squeezed. In the short term at least, a proportion of NHS spending each year is fixed – in long term contracts (such as private finance initiative deals), for example – which meant a higher percentage productivity gain would be required each year than the 4% or so implied by dividing the annual productivity challenge of around £5 billion by the total NHS budget of around £100 billion.

The Department of Health’s productivity plan was mostly a top-down strategy: reducing pay costs, cutting central budgets, cutting management costs mainly through the abolition of regional tiers of management and local commissioning costs and cutting in real terms the prices providers were able to charge under the national tariff system, Payment by Results.

Did it work? Unfortunately there is little direct evidence to answer this question. Restricting pay growth and cutting staff numbers probably reduced costs by around £800 million a year – though this is a very approximate figure (Appleby, Galea, Murray, 2014). Cutting tariff prices implied a productivity gain of just over £2 billion a year – but whether the price cut actually translated into such a gain is moot; little is known as to how hospitals and other providers actually reacted to the price cut they faced. Aggregate productivity estimates from ONS for the whole of the UK (not just the English NHS) suggest that productivity rose by an average per year of 1.6% over the three years from 2010 to 2012 (ONS, 2015).

In the secondary care sector, there’s no doubt that activity – from outpatient and A&E attendances to day cases and emergency admissions – continued rising more or less on trend between 2010 and 2014 (Appleby et al 2015). On the other hand, it is likely that some aspects of quality have suffered. Waiting times, for example, have been increasing since 2012 with some targets, such as the minimum four hour wait in A&E, now unmet by major A&E departments for the last 84 weeks.

There are creaking signs too on finances. The NHS in England could well end the 2014/15 financial year in overall deficit for the first time in a decade as reserves nationally and locally run out, and increasing numbers of trusts choose to blow the budget in an attempt to maintain services, while facing increasing difficulties in making ends meet through their traditional cost improvement programmes (Appleby et al 2015).

 

3. Organisational reform

Just sixty days after the 2010 general election, the government published its White Paper, Equity and excellence: liberating the NHS (Department of Health, 2010). This built on previous Labour and Conservative administration reforms, putting into legislation structures needed to embed a provider market in the NHS. Patient choice and competition were to be enhanced with more direct commissioning control passed to groups of GPs in new commissioning groups, with existing purchasing organisations (primary care trusts) and a layer of strategic health authority management to be abolished. Monitor – then the body responsible for seeing the conversion of trusts to foundation trusts – was to take on an economic regulator role, with a part in setting the existing menu of tariff prices and licensing foundation trusts. The NHS public health function was to be transferred to local authorities (from whence it had come many decades ago). And last but not least, the Department of Health and ministers were to take an arm’s length role, with a new body, NHS England, running the NHS (via the new commissioning groups) under a mandate from the Department setting out broad goals to improve the nation’s health.

At one level these are deeply dull administrative changes. And while they affected every organisation at every level in the NHS, the story or narrative reason for such changes remained murky at best. More fundamentally, it was hard then, and harder now, to see how this organisational shake up connected either with the financial situation facing the NHS or with patients in terms of the volume and quality of care they received.

After some turbulent public debate and considerable opposition, and with a degree of amendment, the white paper was translated into legislation in 2012.

One immediate quantifiable impact of the white paper and the associated public debate was evident in 2011 when the British Social Attitudes survey reported the largest fall in satisfaction with the NHS since the survey began in 1983 (Appleby and Robertson, 2015). Less quantifiable has been the impact of (a greater degree) of competition. In part this is because it is questionable whether this has actually happened, and in part because, with just over two years since the Health and Social Care Act, we would probably not expect much change.

Although the NHS has not been privatised as some had feared, the changes have created a more complex system with confusion about accountability. Ultimately, the government’s organisational changes have proved a distraction – and as such damaging at a time when the really big policy issue to grapple with has been funding (Ham et al 2015).

4. A verdict?

The NHS has done pretty well in the first half to two thirds of this parliament given the financial squeeze coupled with a distracting set of reforms. It’s a big enterprise, spending over £300 million a day. Turn off the money and mess around with the deckchairs and, with a dedicated workforce, it’s perhaps no surprise that it copes with the pressures. But in the last year or so there are increasing signs – financially and on headline performance measures such as waiting times – that the service is reaching its limits. Nevertheless, the NHS will reach May 7^th, somewhat scathed and overspent, but still a tax-funded service functioning reasonably well for most people most of the time – a tribute to the NHS and its staff.

 

Note

[1] Scotland, Northern Ireland and Wales have their own devolved powers of spending and policy making for health. Here, geographically, the record of the coalition government on health means England.

 

References

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• Appleby J, Galea A, Murray R (2014). The NHS productivity challenge: Experience from the front line. London: The King’s Fund. www.kingsfund.org.uk/sites/files/kf/field/field_publication_file/the-nhs-productivity-challenge-kingsfund-may14.pdf
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