Philip Hammond MP. Photo: Oli Scarff

Budget blogs – we need a budget for public services

16 Feb 2017, by Matt Dykes in Public services

In 2018/19, in real terms, NHS spending is going to go down – 10 years after Lehman brothers and austerity began

Simon Stevens, Chief Executive of NHS England, wasn’t pulling his punches at the Public Accounts Committee last month. “There are very clearly substantial pressures and it doesn’t help anybody to try and pretend that there aren’t” he continued, obviously irked by the Prime Minister’s constant reiteration of by now largely discredited claims of record funding announced within current Spending Review plans.

As the UK enters its seventh year of public spending cuts, the pressure on services is intensifying to a point where informed opinion is pointing to a growing crisis of provision across all parts of the public sector.

This has been most evident in key sectors such as health, social care and education. This is particularly significant in that even in relatively ‘protected’ areas, flat-lining funding is failing to keep pace with escalating costs and rising demand leading to unsustainable pressure on services.

The Chancellor will be under significant pressure to use this budget to signal a change in public spending plans, given the outrage that met his refusal to move on NHS or social care funding in last year’s Autumn Statement – outrage that prompted a limited and largely ineffectual response.

There is no doubt that the Chancellor is facing a daunting prospect, given the unprecedented pressure facing services and the departmental plans that he has inherited from his predecessor’s Spending Review. Plans, which the Institute for Fiscal Studies point out, include an escalation of spending cuts after this year, with 4% cuts to departments between 2016/17 and 2019/20.

A quick look at the situation in health, social care and education gives us an idea of the scale of the challenges that we face.

Health and Social Care

As the Health Foundation puts it ““the NHS in England is currently halfway through the most austere decade in its history” with the £4.5bn net increase in Department for Health funding provided in the 2015 Spending Review meaning that real terms annual increases will have been an average of 0.9% from 2009/10 to 2020/21 – “the lowest ever rate of funding growth over a 10 year period”.

These financial pressures mean that providers are struggling to keep pace with demand, as the Health Foundation continues:

pressures on NHS providers grow by around 4% every year, due to a growing and aging population as well as rising costs, expectations and prevalence of long-term conditions. At the levels of funding provided, the NHS is struggling to meet these demands and cost pressures

Social care funding has fared even worse. Between 2009/10 and 2014/15, adult social care received a real terms funding cut of 9%. This has led to a fall of more than 25% in the numbers of people aged over 65 receiving community-based, residential and nursing care services. That’s 400,000 fewer older people getting the paid-for care that they need and forced to turn to over-stretched NHS services or informal care instead. As the Kings Fund point outs, with a 29 per cent increase in the number of delayed discharges in 2016, “the number of patients ready to be discharged but delayed in hospital is at a record level and rising faster than ever before, underlining the impact of cuts in social care on the NHS”.

Feedback from those working in the health service suggests that this is a uniquely difficult time for both health and social care. A YouGov poll of 1,000 NHS workers, commissioned by the TUC, found that:

7 in 10 (69%) NHS workers said that reductions in staffing and resources are putting patient care at risk.

 9 in 10 (88%) NHS staff believe the health service is under more pressure now than at any time in their working lives.

 Three-quarters (77%) of NHS workers think resources and staffing in the NHS have gone down in the past five years

 Two-thirds (60%) of NHS staff say their employer has cut patient services to make financial saving

Despite a combination of bail outs and new control measures, NHS providers may be facing another significant year end deficit, as the Kings Fund reports:

with 47 per cent of trusts overall still fairly or very concerned about meeting their control totals by the end of the financial year and more than half concerned about whether they will be able to meet their cost improvement targets, there is a risk that the end-of-year deficit will worsen further and exceed the £644 million forecast at quarter one.

This presents intense challenges for the health service given the spending profile outlined in the 2015 Spending Review, where front-loading of NHS England funding means near zero growth in coming years, as the chart below indicates:

In line with the aspirations of the NHS Five Year Forward View, the government and NHS England are looking to plug the growing mismatch between funding and activity through very large savings to be made through Sustainability and Transformation Plans (STPs) that are intended to deliver a step change in NHS efficiency and productivity through greater integration and the reconfiguration of services.

STPs offer the chance to bring NHS and local government providers together, working collaboratively across different parts of the system for a more integrated service, addressing some of the dysfunctional fragmentation brought about by the government’s 2012 reforms. And the stated priorities – a focus on integration, prevention and better primary, community and social care – are to be welcomed.

But there is a danger that this will be undermined by the requirement to find large scale savings that could, in many cases, lead to cuts and reconfigurations driven by financial not clinical imperatives. We are already seeing the impact of this in some of the STP plans, with controversial community hospital closures and loss of beds in Devon and job losses in others such as Nottingham where there may be a 12 per cent cut in Band 5 nursing posts.

Schools

Education is another ‘protected’ area where the funding squeeze is beginning to impact on service provision. The Department for Education tells us that “the 2015 spending review recognised that transforming education is central to the government’s commitment to extending opportunity and delivering social justice. It therefore protected the national schools budget in real terms for the duration of the Parliament”.

This line has been repeated by schools minister Nick Gibb MP in parliament. Responding to a parliamentary question in December 2016, he reiterated that “we have protected the core schools budget in real terms overall”.

However, the National Audit Office shows that “funding per pupil will, on average, rise only from £5,447 in 2015-16 to £5,519 in 2019-20, a real-terms reduction once inflation is taken into account”. They conclude that the government’s attempts to deliver educational excellence everywhere must be set “against a budget that provides little more than flat cash funding per pupil over the five years to 2019-20. This means that mainstream schools need to find significant savings, amounting to £3.0 billion by 2019-20, to counteract cost pressures” which “equates to an 8.0% real-terms reduction in per-pupil funding between 2014-15 and 2019-20”.

As Emma Knights, Chief Executive of the National Governors Association puts it:

The organisations who speak for school leaders, including business leaders, are saying the same thing as we are: there simply is no longer enough money in the total pot to sustain adequately all schools in England.

This is certainly the case for Secondary schools where the number spending more than their income doubled to over 60 per cent in the last five years.

This having an impact in the classroom. The NAO report shows that schools are increasingly cutting their spending on school staff, stating that they “found that across all maintained schools spending on teaching staff, as a percentage of total expenditure, fell from 56% to 51% from 2010-11 to 2014-15. Similarly, academies’ spending on teaching staff, as a percentage of the total, decreased from 55% to 52% between 2011/12 and 2014/15.”

There has already been significant growth in class sizes. The BBC reported last month that the number of state secondary school pupils being taught in large classes had trebled in the last five years. Their report found that according to the latest school census in 2016 there were 17,780 state secondary school children in 2016 being taught in classes with 36 or more pupils. This is the highest number for a decade.

The implementation of the new National Funding Formula (NFF) from April 2018 will, according to the government’s own figures, lead to 49 per cent of schools in England losing funding, with over 2 million children in schools losing the upper limit of funding in the region of 2.5 – 3 per cent in the first two years.

The impact of the NFF will be felt most obviously in large cities such as London – London Councils report that 70 per cent of schools across Greater London will face budget cuts in a climate when school finances are already struggling. However, analysis by the NUT indicates that nearly all schools across England, around 98 per cent, will ultimately be net losers as a result of the combination of flat cash settlements at a time of rapid escalation of costs and responsibilities that schools face.

Room for manoeuvre?

While public finances are clearly facing pressure as a result of anticipated slowing of GDP growth, the IFS state in their Green Budget 2017 that there may be some room for manoeuvre, “the new Chancellor has abandoned his predecessor’s fiscal framework and introduced a new set of targets that allow him more leeway”. They calculate that, on current forecasts, the Chancellor could loosen fiscal policy by more than £25bn in 2020/21 and still meet the revised targets.

In launching his review of HM Treasury, Lord Kerslake stated that austerity had proven to be “counterproductive” and a “quite extraordinary” policy failure. The damage to our public services in pursuit of this failed policy is hard to underestimate.

With this budget, the Chancellor has an opportunity to change course and start providing the investment in our social infrastructure that might go some way to supporting the Prime Minister’s vision of an economy and society that works for all.

He must rise to the challenge.