NHS spending: Rising in real terms regardless?

Published: 3rd Nov 2010

Even if we did not treat up to £1 billion to support social care through the NHS as NHS money - we should treat it as NHS money - but even if we did not, there would still be an increase in the resources available to the NHS in real terms each year. It is NHS money."

Andrew Lansley, Health Secretary, House of Commons, 3 November

Background

The issue of whether health spending is increasing has become something of a totemic issue for the Government, ever since David Cameron made clear he would cut the deficit not the NHS.

So yesterday when the Shadow Health Secretary, John Healey, set out figures which he claimed showed the budget was in fact being cut, a dispute over a few decimal points descended into a bitter row.

Mr Healey claimed research by the House of Commons Library and the Nuffield Trust, showed that when additional money for social care is excluded from the health budget, funding looks set to be lower in real terms by 2014-15.

Yet in the claim above Andrew Lansley dismissed this interpretation, arguing that regardless of the social care money, health spending was still rising in real terms.

Yet Mr Healey was adamant, later calling for the Health Secretary to correct his statement. So are such calls justified?

Analysis

The two pieces of research referenced by Mr Healey were a Nuffield Trust analysis of the impact of last month's spending review, and work by the House of Commons Library commissioned by Mr Healey, specifically on the role of the social care fund — set to account for £1 billion per year by 2014-15 - in the health budget

Both pieces appear to bear out the Labour MP.

While the Spending Review makes clear there will be "real terms increases in each year", the Nuffield Trust report states in its introduction: "The real-terms change in NHS funding, net of the social care support, is therefore a reduction of 0.5 per cent over the next four years."

We were also provided, on request, the information produced by the House of Commons Library, and the table below shows their working.

The figures again suggest that without the social care money, the NHS would see a slight real terms reduction.

Yet Mr Lansley was adamant that the funding was still going up regardless of the social care money, so we put the two pieces of research to the Department.

We received the following statement, issued in response to the initial research from the Nuffield Trust:

"The DH has identified funding of £0.8bn / £0.9bn / £1.1bn / £1.0bn of health capital funding which will be transferred into health revenue. This health revenue will be spent on measures that support social care and benefit health. For example, the funding includes up to £300m for reablement, money which will be spent by the NHS but reduces demand for social care as well as improving health and wellbeing.

"Funding that is spent on social care also has a health benefit: if the social care system fails, the NHS will face costs from increased hospital admissions and bed blocking. For this reason, the support being given to the NHS is not a case of funding being 'taken out' of health care, but of it being used to support health care."

Given that this statement only seems to deal with the issue of whether the social care funding should be counted as health spending, it is impossible judge if, in the Department's view, a real terms rise will occur regardless of the social care money, as Mr Lansley suggested yesterday.

On this specific point we are still waiting for clarification from the Department, although they have told us they will respond as soon as possible.

Conclusion

It is possibly too early to say that Andrew Lansley made an error when he told MPs NHS spending would still rise in real terms regardless of the additional social care funding.

Whether the changes will amount to a real terms decrease of course depends on what inflation turns out to be.

The House of Commons Library research paper notes that given the fine margins between the money being a real terms rise or cut, how the figures are used is largely determined by the inflation forecasts of the Office of Budget Responsibility.

It states: "It is worth noting that the real terms percentage increases in the NHS settlement are so small that whether it amounts to an increase 'as is' hinges almost entirely on the accuracy of the OBR's GDP deflator forecasts".

Given that the the House of Commons Library work uses the OBR forecasts outlined at the time of the June Budget, they appear reasonable.

But the Department of Health is now looking at the figures, and we eagerly await their response.

UPDATE:

We've just heard back from DH. The devil, it seems, is in the detail.

Mr Lansley assured his Labour counterpart that " there would still be an increase in the resources available to the NHS".

While to the layman, this might sound like a flat contradiction of the House of Commons Library research, the figures do just about back him up.

In response to our question, a departmental spokesman told us; "As we announced in the spending review, the NHS budget will rise by 0.1% in real terms after inflation in each of the next four years. That is a total increase of 0.4% over the next four years.

"Within that budget, the money going out to the NHS for resource spending will also increase by 0.3% a year in real terms. That includes an extra £0.8bn / £0.9bn / £1.1bn / £1.0bn for measures like re-ablement which support social care and benefit health, paid for by a reduction in NHS capital. Even were we to omit this extra funding, NHS resource spending would still rise by 0.1% a year in real terms."

With the terms 'resources available to the NHS' or 'NHS resource spending' a distinction is being made between 'resource' and 'capital' spending in the spending review.

Removing the £0.8bn / £0.9bn / £1.1bn / £1.0bn for Resource DEL figures from 2011/12 onwards gives NHS resource figures excluding the social care money.

Putting these figures through the Treasury's GDP deflator, Mr Lansley's take on the figures checks out. The resource budget does still creep up, by approximately 0.1 per cent per year.

What does not go up is the capital spending, which at 2009-10 prices will fall from £4.96 billion to £4.07 billion — a fall of 17.9 per cent.

Therefore we can see that while overall NHS spending as a whole falls in real term when the additional social care money is excluded — backing up John Healey.

However, by referring to the NHS resource spending, Andrew Lansley does not rebut this point, but returns fire with cleverly worded but no less valid claim.

So expect to hear both of these claims repeated again in the future.


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