Fiddling while the NHS burns

This time last year, the Institute for Fiscal Studies warned that the NHS would need an extra £20bn a year by 2020. A year later and NHS England is warning that the service will need an extra £30bn a year by 2020. Not to be outdone, the health regulator Monitor predicted a shortfall of somewhere between £28bn and £44bn over a similar period. Just to round things off, NHS England director of strategy Robert Harris told the Health Service Journal that the annual funding gap will be £60bn by 2025.

The stark truth is that ring-fencing the NHS and giving it inflation-linked funding increases was never going to be enough to keep it going. Health inflation has always run ahead of general inflation anyway, simply because drugs, equipment and, in normal years, staffing costs add up. Over the last ten years, health costs have run at around 1.5 percent above inflation.

With an ageing population, this will only get worse. Every year there are a few more old people and therefore a few more people with age-related illnesses and care requirements.  This is not unique to the UK, of course. Almost all developed economies face similar demographic challenges. According to the IMF’s forecast, healthcare costs will take up an extra 3.3 percent of Britain’s GDP by 2030. This is about average for the G7 and for the advanced economies. Allowing for economic growth and for the inclusion of local authority heathcare spending, the IMF projections suggest that the predictions from Monitor and NHS England are heading in the right direction.

Adding to the costs are the knock-on effects of the cuts in other public services. Adult social care and elderly services have been cut and the charities that used to help the addicts and alcoholics have seen their funding reduced. Eventually, the sick, drug-addled and distressed simply turn up at A&E because they have nowhere else to go. As the Telegraph’s Mary Riddell put it:

An NHS designed for an age of quick cures and brief lives is now a makeshift refugee camp for elderly and chronically ill victims of the fight against austerity.

On top of this is the bill for the NHS restructure, already running at 15 percent more than was initially planned. The government says it will cost no more than £1.7bn but once the impact of the disruption and the inevitable performance dip is factored in, it will probably be closer to £4bn.

As NHS England’s report shows, the upshot of all this is that, slowly but surely, the NHS will start to run out of cash.

Screen Shot 2013-07-11 at 17.26.09

The plight of the NHS reflects that of the state as a whole. Even though its funding increases in line with inflation, if it continues on its current course, rising costs and demographic pressures mean that some of its services will collapse by the end of this decade.

Will the government stop up more cash for the NHS? Given that the next government will have to either tax, borrow or print another £25bn just to stop any more cuts, another £30bn for the NHS will be a big ask.

“This can’t go on” say the NHS chiefs. They are clearly right about that. David Nicholson says he wants to start a big conversation with the public about the future of healthcare provision. Not too big a one, though. If his estimates are right, both parties need to be telling us what they will do about this by the next election. After that, if nothing changes, things will just start to fall apart anyway.

Update: This diagram from Roy Lilley neatly illustrates the problem.

Screen Shot 2013-07-13 at 17.52.29

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6 Responses to Fiddling while the NHS burns

  1. Pingback: Fiddling while the NHS burns - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. John D says:

    If we are truly living in an era of austerity – are there is clearly a debate about who is really experiencing it – then it may have to be the case that our political leaders will have to say “This much – and no more”, i.e. the best they can realistically deliver is maintenance of the present NHS system. New facilities and treatments will just have to wait until we are better able as a society to afford them. This will inevitably mean seeing our standards and accomplishments of healthcare slipping against international comparisons but this is all we can afford as a society for now.
    One thing I do not understand – and, I am sure, many others do not understand – is why there is no field of health economics, which focuses on delivering existing standards of healthcare at lower costs. Surely, the costs of treatments which were originally begun in the past must now be very much cheaper to deliver. Why is this not being reflected in current NHS spending budgets?

  3. Neil says:

    You don’t mention the huge burden of PFI costs. Some costs are closing wards and A&E to meet escalating debts generated by these crazy deals. The politicians, of course, loved PFI but gave little thought to the consequences we are reaping now. It is also the same politicians who can legislate to tear up some of these deals, but choose not to as they are too concerned with feather-bedding their chums in finance than to care for the old and sick.

  4. John D says:

    Neil is right in what he says above. What you may not know is that there is a secondary market in PFI contracts, which means that the original financiers can sell-off the contracts and get out with a pile of cash long before the contracts end. They usually also have facilities management contracts added to the PFI deal, which means that the PFI consortia partners – or their successors – receive steady principal and interest payments [in the case of some of the earliest PFI contracts yielding up to 25% ROCE] plus regular additional income from the facilities management contracts which, very often, involve scales of charges which are punitive, to say the very least.
    Even this current coalition government has realised just how unaffordable these PFI deals are and they have replaced them with local asset backed vehicles (LBAVs) which draw in future funding from a number of sources other than just local health authorities.
    My local district general hospital and local health authority wanted to build a brand new shiny hospital using PFI but we ran a campaign against it, with the result that we stopped them from going down the PFI route long enough to ensure that it was effectively gone by the time they were in a position to apply for foundation status.
    Ultimately, it is not enough to just leave these matters in the hands of local and national politicians.
    We all have to be engaged in these situations for our own benefit and for the benefit of others.
    If need be, we all have to get engaged in civic campaigns on these matters.
    Time and again, politicians have shown themselves to be short-termist and downright stupid.
    If we do not protect what is important to us, who else will do it?

  5. Stephc says:

    So – we’re all living longer and therefore cost more in healthcare. Has this been proven? We are living longer but we’re healthier at 65 than folk used to be at 50! Therefore the cost is not spread over more years, just later years, but probably the number of years of ill health is the same. Can someone disprove this? I do wish someone would prove how much more we are costing.

  6. G Solent says:

    1) Run the NHS into the ground.
    2) Publicise the resulting problems. Ie unnecessary patient harm and suffering.
    3) Call in the private sector to magically sort it all out.

    It’s horribly obvious, and a barbaric thing to do to patients in the name of free-market ideology.

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