Is the government still ignoring the NHS finance problem?

Edmund Stubbs, 21 July 2015

At Civitas’ lunchtime seminar yesterday, Sir David Nicholson, the previous chief executive of NHS England, offered a thoughtful response to those who claim that the NHS is in a state of constant financial crisis. Part of the reason, he believes, that the government is not addressing the current funding problems of our health system is its belief that the NHS will somehow muddle through as it always seems to have done in the past, that it has always been in a crisis of some kind.

To illustrate the invalidity of this belief, he gave a brief history of the health service, claiming that it had actually, contrary to popular belief, experienced relatively few periods of crisis. Though there may have been instances, such as during the 1970s, when new technology and changing demographics increased pressure on resources, it had nothing of the gravity of the current situation.

During the 2008 financial crisis, Sir David and his team devised the ‘Nicholson Challenge’, essentially a set of mandates to achieve efficiency savings across the service. At the time it was believed that a period of stagnation in government funding would be transient and that efficiency savings would simply tide the NHS over for a number of years. Sadly, in retrospect this has not been the case.

£20 billion worth of efficiency savings were proposed, of which the vast majority were to be achieved through pay restraint, cutting unnecessary management, and logistical alterations in the delivery of services. Hospital treatment tariffs were reduced and increased pressure was put on GP contracts. By these means, considerable savings were achieved without directly affecting patient experience. This is in contrast with the Spanish health service’s efficiency drive at the same period, or Ireland’s where staff pay was actually cut by 20%.

Nonetheless, David Nicholson admits that he and his team found the implementation of changes to service delivery extremely difficult. In reality, most of the savings were achieved by pay restraint and reduced management. Then, as now, Sir David confesses that many people are able to propose good, viable ideas for service improvement, but the system to enable the NHS to implement them is underdeveloped. Connected with this, he suggests, is a lack of strong, courageous leadership within the NHS able to effect service change, exacerbated by problems of allocating responsibility across the service.

Sir David went on to talk about the possibilities which might arise from the NHS using its monopoly of healthcare provision advantageously. An example he cited was where University College London Hospitals used their large buying power to purchase consumables extremely cheaply, but where their suppliers would not allow these prices to be known to other parts of the NHS. This suggests that the NHS needs to become increasingly transparent in revealing what various parts of the organisation pay for goods and services and combine its purchasing power to ensure extremely favourable standard rates for all. At present, the NHS seems neither to be enjoying the benefits of open competition nor capitalising on its virtual purchasing monopoly.

Sir David’s principle concern about the contemporary situation arises from his belief that most of the things thought possible to save money within the NHS have already been done. We are left, he states, with extremely good value for money health services for which we pay £500 per head less annually than in France and £800 less than in Germany. However, he warns that the savings demanded of the NHS since 2008 might actually have started to compromise patient safety due to their sheer scale.

As NHS England looks to at least double its efficiency savings over the next five years, and in the light of Lord Carter’s Recent NHS productivity report only finding £5 billion of such savings possible with difficulty, it now seems that NHS England has been rashly optimistic in claiming that it can effect anything like £22 billion of savings over the next five years.

Sir David’s worst scenario for the future is that the NHS becomes subject to a gradual ‘managed decline’ in the breadth of the services it offers. By providing £8 billion of investment the government may have provided what has been asked of it, but worryingly, probably not the amount that is actually needed.

Edmund Stubbs is Healthcare Researcher at Civitas, @edmundstubbs1