The real implications of ‘efficiency savings’
Civitas, 13 May 2010
The news is in. The new coalition government are sticking to the Tory pledge of increasing spending on the NHS in real terms in each year of the new parliament (even if the use of the word ‘should’ increase, rather than ‘will’ leaves a little room for manoeuvre). But don’t think that this gets the NHS out of the woods.
When the Tories say ‘real terms increase’, it gives an impression that all is fine. But the increase won’t be more than one per cent. If that. What does this mean? Mr Lansley, the new Secretary of State for Health, was honest enough to concede on the Today Programme – consistent with the predictions of the King’s Fund and Institute for Fiscal Studies – that this, accounting for increasing demand for care etc., will still mean the NHS will have to achieve productivity improvements in excess of three per cent per annum. The true figure is probably nearer five per cent.
What no politician yet seems to appreciate, however, is what this really means: that every year for the next three, four, or five years, the NHS will have to take somewhere between four to five per cent out of its cost base. This cannot be achieved by just cutting fat. It might be possible to do this in the first year. Maybe in the second one, too. But then, after five per cent has been taken out of a system that is already five per cent leaner, can it really be done again? After all, average productivity increase across private sector industry – which does not come with all the institutional baggage of the NHS and inflexibilities created by national pay arrangements etc. – has only been 2.3 per cent per annum over the past decade. And the NHS is, predominantly, in the service sector, where productivity gains are more difficult still: achieving productivity gains at the expense of quality will not be stomached.
The implication is this: to just maintain existing standards of care, the NHS will have to start commissioning radically different models of care.