Analysis provided by Nuffield Trust to the Observer has warned that it is realistic to expect it to take at least five years for the NHS to close the financial gap.
Drawn from forthcoming research, the analysis shows that NHS Trusts in England are on course to spend almost £5bn more next financial year than was anticipated when Theresa May set its funding levels in 2018. The calculation is based on projecting costs and efficiency using figures published by the health service.
NHS Trusts face ending this financial year, which ends in April 2022, with an overspend of £5bn or 5.2% of what was originally planned for, excluding the extra costs of dealing with Covid. Even if efficiency improvements return to planned rates, this will remain at £4.7bn in the 2022/23 financial year (4.8%), and £4.2bn the following year (4.1%).
These figures imply that at the time the NHS Long Term Plan was drawn up it was assumed that NHS England would have around £5bn more to spend this year on new treatments and services, including dealing with the waiting list backlog, than it actually does.
The financial gap is largely a result of intended efficiencies not being delivered, because targets were unrealistically high or because the service has more recently been consumed by the need to respond to the biggest pandemic in its history.
The projections show that the 2021 Spending Review must confront difficult options: giving the NHS billions in extra funding at a time when public finances are strained; dropping some goals from the Long Term Plan; and asking the health service to deliver efficiencies at a rate that has seemed impossible in the past.
Details of analysis
Nuffield Trust will publish its methods of estimating Trust spending in detail in a full analysis. It says its methods are based on: inflation figures defined by NHS England and NHS Improvement through the ‘tariff’ paid to Trusts; increased activity, based on increases assumed in the 2019/20 plan; additional spending pledged by NHS England to meet Long Term Plan commitments on mental health and community services; and efficiency based on the 1.1% rate included in the ‘tariff’ and implied efficiency reflected in the Long Term Plan requirement for the NHS Trust sector to return to financial balance by 2020/21.
Figures for the current financial year take into account the 3% pay rise announced for most NHS staff. The efficiency gap is visible in the publicly available finance reports for 2018/19, 2019/20 and 2020/21, which show that NHS trusts actually began the Long Term Plan period spending £2bn more than had been budgeted for.
Nuffield Trust Senior Policy Analyst Sally Gainsbury, who conducted the analysis, says: “These extra costs beyond what the NHS anticipated will exist even once the onslaught of Covid-19 finally stops. It is crucial that they are recognised in the forthcoming Spending Review. The NHS cannot expect the full gap to be wiped out by extra money, but the Treasury needs to be realistic about where the health service is starting from.
“Closing the gap by 2023-24, for example, would entail annual efficiency savings of around £4bn a year - more than twice the savings rate the year before the pandemic struck. Given providers have to find around £1bn in efficiencies just to stand still each year, it would be more realistic to assume that at best it will take five years to close this gap.”
