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Healthcare spending: behind the headlines

The Chancellor’s autumn Spending Review was seen as positive by many. George Osbourne confirmed the Government’s intention to increase spending on healthcare, announcing that NHS England will receive an extra £10 billion a year in real terms by 2020 than in 2014-15.  This extra money will be used to fund more diagnostic tests, more operations and 7-day access to GP and hospital services.  But are the figures all that they seem?

The Autumn Statement also revealed that the Department of Health’s capital budget, which covers spending on building as well as equipment and IT, would hold at £4.8bn a year in cash terms until 2020/21.  Scotland, Wales and Northern Ireland will receive extra cash for infrastructure projects, and in excess of £500m will be spent on building new state-of-the-art facilities in Brighton, Cambridge and Sandwell.

Richard Threlfall, KPMG’s head of infrastructure and building construction, commented at the time that the Spending Review “….is good news for infrastructure.  The Government has again prioritised capital spending.

However, in the weeks following the Spending Review, views have become tempered as the Government figures have been analysed and new information has come to light.

In the week after the spending announcement, Construction News reported that the Department of Health and Treasury have agreed to transfer £1.2bn out of the £4.8bn capital budget in order to make up for a shortfall in its own revenue budget.  Why? This is because the increase in NHS England spending has come at the expense of other areas of health spending.  At the Spending Review the Government redefined NHS Spending as ‘NHS England’s budget’ not the whole of the Department of Health’s budget, which has been the definition used previously.  So although NHS England’s budget will rise, the healthcare budget for other areas under the Department of Health will in fact fall by £3bn, representing a 20% cut.  The Department of Health has looked to ‘plug’ some of this shortfall by transferring money from the capital budget.

So is the Chancellor’s increase of £10bn a year for NHS England all what it seems?  Not according to a combined independent assessment by The King’s Fund, Nuffield Trust and The Health Foundation.  According to them, the increase in spending will only amount to a rise of £4.5bn in real terms between 2015/16 and 2020/21.  This figure takes into account the rising costs of healthcare and the £3.1bn loss in revenue across other areas of the Department of Health.  Looked at over the whole parliament the increased spending will therefore, according to their analysis, only result in an increase of 0.9% a year, which is almost identical to the rate of increase over the last Parliament.

It appears, despite the increases in healthcare spending announced in the autumn Spending Review, the NHS still faces a very difficult future.  A future in which it is required to invest in new models of care and implement a 7-day a week service, whilst also trying to make £22bn in efficiency savings – all before the end of the next Parliament.

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