NHS Reform: A closer look at the £20 billion black hole

17 May 2011

As David Cameron renewed his fight for the Government's proposed reforms to the NHS, one of the most widely quoted figures was that of a £20 billion funding gap facing the health service.

In his speech the Prime Minister said: "If we stay as we are, the NHS will need £130 billion a year by 2015 — meaning a potential funding gap of £20 billion."

The warning echoes in several newspaper headlines, such as The Guardian which reported: "NHS faces funding crisis unless reforms introduced, says David Cameron."

With the £20 billion figure receiving ubiquitous and almost unquestioning coverage it is worth looking at how the estimate is arrived at — particularly after the questions over the last headline-grabbing 'black hole', that in the Ministry of Defence budget.

When Full Fact called the Department of Health it was explained that the figure was arrived at by working on the assumption of an essentially flat funding settlement in real terms and increasing costs and demographic pressures.

But the figure is not a new one nor one that has come into the public domain to coincide with the case being made for the Coalition proposals for NHS reform.

The Department of Health referred us to the 2009 annual report in which NHS Chief Executive Sir David Nicholson set out the challenge facing the NHS of needing to find an "unprecedented" £15-20 billion in efficiency savings by 2014, if it was to maintain service provision and avoid a funding gap.

This forecast is one that was backed up by a joint report by the Kings Fund and Institute for Fiscal Studies (IFS) think tanks. Their report, also from 2009, looked at a range of funding scenarios, and compared these with forecast scenarios for future demand for health case given in the 2002 Wanless Report.

Taking the middle option of from the Wanless report, The King's Fund/IFS calculated that £126 billion would be required by 2013/14 — not too far removed from the £130 billion the Prime Minister said would be required in 2015.

While a wide range of possible figures were offered in the report, there was agreement that efficiency gains "of around £20 billion" would be needed over the course of the current spending review.

So as ball park figures used in headlines and speeches go, the £20 billion seems a reasonable one, given the Nicholoson challenge, and the Kings Fund/IFS research. The only point of contention is, given the length of time the proposed reforms will taken to implement, and thus boost efficiency, the degree to which the proposals will help close the funding gap.

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