The long-term plan settlement

In current (2019/20) prices, the average real-terms funding increase for NHS England announced by the Prime Minister in June 2018 will increase its funding from £116.9bn in 2018/19 to £137.5bn in 2023/24  an increase of £20.6bn. The NHS long term plan confirms this ambition.

In the 2018 Autumn Budget, HM Treasury made it clear that ‘the government will confirm the final settlement consistent with [The NHS long term plan], and the £20.5bn real-terms increase by 2023/24, by Spending Review 2019’. Alongside The NHS long term plan, NHS England set out this settlement in cash terms. The exact real-terms increase that it equates to will change as estimates of future inflation change (these are officially updated 6 times per year); the latest estimates released by HM Treasury imply an increase for NHS England of 3.3% per year in real terms, due to projections of inflation being slightly higher. This does not include the cost of meeting any pressures on the health budget from additional pension costs, which will be met by a reserve held by HM Treasury and are expected to cost around £2.85bn this year.

However, the profile of this spending has changed since the Prime Minister’s initial announcement. The publication of The NHS long term plan in January 2019 and subsequent changes to expected inflation mean that the second year of growth will be 3.2% rather than 3.6%, and the final year of growth will be 4.0% rather than 3.4%. This essentially means that the budget for NHS England is expected to be lower in all but the final year than what was announced in the Prime Minister's NHS funding announcement (see Figure 1).

Figure 1: Phasing of real-terms growth in NHS England’s budget

Source: HM Treasury; NHS England.

Shifting the balance of funding

The NHS long term plan sets out ambitions to improve NHS care and outcomes, and allocates funding to achieve those ambitions. The aim of the plan is to shift the NHS model of care further upstream: more preventive care, closer integration of services in the community for people with chronic conditions, better coordination of urgent care to reduce demand on emergency departments and outpatient visits reduced by a third. Improvements are promised in priority services, including mental health, maternity and cancer, and there is an emphasis on the NHS’s role in tackling health inequalities.

The plan explicitly commits to increasing spending in two areas: mental health, and primary and community care. For mental health it confirms that ‘mental health services will grow faster than the overall NHS budget, creating a new ringfenced local investment fund worth at least £2.3bn per year by 2023/24’. Primary medical and community services are also ‘guaranteed’ to grow faster than the overall NHS budget. This creates a ‘ringfenced local growth fund worth at least an extra £4.5bn per year in real terms by 2023/24’.

There are other costs that will need to be met within the additional £20.6bn of funding. One such cost is associated with the ongoing review by the national medical director into clinical standards. While this review is not yet completed, we have assumed that the cost of accepting its recommendations will be broadly cost-neutral compared with the cost of meeting current NHS constitutional standards. Finally, the plan commits to providers and commissioners reaching financial balance. This is likely to cost around £2bn – the amount reported by NHS Improvement as the net ‘underlying deficit’ in the sector as well as a portion of the Provider Sustainability Fund. Without committing this spending, whether directly to trusts or through the tariff, the provider sector will remain in deficit.

The plan confirms that the NHS needs to deliver annual productivity gains of 1.1% per year over the next 5 years, but also builds in a further £600m (in 2019/20 prices) of administrative savings over and above productivity savings.

Figure 2: Planned and assumed allocation of NHS England funding growth 2018/19 to 2023/24

Source: Authors' calculations; The NHS long term plan; NHS England board papers and accounts.

What care will the extra funding buy?

Since 2008/09 activity in acute services has grown by 3.1% per year on average (as shown in Figure 3). But acute activity is made up of a number of different components. This overall rise includes increases of more than 50% in outpatient and A&E attendances. Even areas of relatively slower growth, such as elective and emergency inpatient admissions, have increased by more than 20% over the last decade (2.2% per year on average).

Figure 3: Growth in components of acute activity since 2008/09

Source: Hospital Episode Statistics (HES).

As specified in The NHS long term plan, between 2018/19 and 2023/24 funding will grow faster than the overall NHS England budget for mental health (4.6% per year, on average), and primary medical and community services (3.8% per year, on average). This means that funding for other services will need to grow at a slower rate (3.0% per year, on average). The level of funding for different areas of care determines how much activity (units of care) a service is able to provide, given a certain level of productivity and growth in costs such as pay.

There is a consensus around the benefits of moving the balance of care away from the acute sector when that care can, and should, be provided in the community. Recent policy has focused on this, ‘with the aim of providing better health care for patients, cutting the number of unplanned bed days in hospitals and reducing net costs’. However, as this paper and other evaluations report, the evidence is mixed on the impact that this can have on avoiding acute admissions and reducing costs. There are examples of where commissioners have successfully moderated demand for acute care. For example, in Ruschliffe, Nottinghamshire, a package of enhanced support for residents in nursing and care homes was linked to a 23% reduction in emergency admissions when compared with a control group. However, the success of schemes like this require sustained investment of time and resources, as well as careful evaluation to ensure they do not result in unintended consequences. Similarly, not all interventions are successful in moderating demand (and some may increase demand, although they may be worthwhile in other ways) and so expectations around the ability of the NHS to moderate acute demand at scale and pace should be based on realistic assumptions, informed by this mixed evidence base.

Even if implemented successfully at scale, this change will take time and is unlikely to be able to fundamentally change the growth of acute activity over the next 4 years. Therefore, for services provided by acute and specialist hospitals (the largest single area of spending in the NHS) this relatively lower funding growth will present a real challenge as it will have implications for how much activity can be provided.

The amount of activity that can be undertaken within a given budget is critically dependent on pay. The latest pay deal for Agenda for Change staff means that pay for most NHS staff will rise in real terms until 2020/21. Beyond that point, we've assumed that, in order to recruit and retain staff, pay will not fall behind earnings growth in other sectors and across the economy as a whole.

If acute funding grows in line with the remainder of the budget (excluding mental health, and primary and community services) over the next 5 years, acute activity will be able to grow at an average annual rate of 1.6%. As set out in Figure 4, this is just half the historic rate.

If other areas of spending (such as prescribing) grow more slowly, as set out in Figure 2, then acute activity growth would be 2.3%. On prescribing, this is would be partly driven by switching to generics as well as the latest reimbursement scheme with industry. Under this scenario, NHS providers would achieve 1.1% productivity growth per year and NHS staff earnings would rise in line with the wider economy after the current pay deal to prevent deterioration in recruitment, retention and engagement. This is still significantly below the rate that acute care has grown by over recent years (see Figure 4). If pay growth is lower, this may allow acute and specialist activity to grow at a rate similar to that of recent years. However, it would create a substantial new challenge and it is hard to see how the NHS could successfully recruit and retain sufficient numbers of staff if it chooses to return to the low (relative to the rest of the economy) pay growth of recent years.

Figure 4: Estimated acute activity growth and recent growth rates from The NHS long term plan

Source: Authors' calculations; Castelli et al. Productivity of the English National Health Service: 2015/16. University of York; 2018.

Either scenario represents a significant moderation of acute activity growth, compared with the most recent year for which we have good data (3.6% between 2015/16 and 2016/17). It would also be below the levels of historical and future acute activity pressures (around 2.5%) reported by NHS England in their recap on the Five year forward view. This estimate combines demographic (the change in the population by age and sex) analysis and non-demographic assumptions (using historic activity trends). Similarly, work by the IFS and the Health Foundation suggested that, just to maintain services at their current quality, acute activity in England needs to grow by 2.7%.

Therefore, moderating acute activity growth to between 1.6% and 2.3% is a substantial challenge; it represents a slowdown of between a half and a quarter compared with the long-term average.

Even small shifts in activity growth make a big difference in a system the size of the NHS. In 2017/18, there were around 8.6 million elective admissions, one of the components of acute care. If acute and specialist activity grows at 2.3% a year from 2018/19, it will reach 9.6 million by 2023/24. This is 300,000 admissions fewer than if activity grows at 3.0%, and 600,000 fewer than if it grows at 3.6%.

Due to population growth, this projected acute activity growth of 2.3% per year is a per person growth rate of 1.6%. Although population growth for all ages is fairly low, the population is ageing. Once accounting for the ageing population, the per person average annual growth rate is just 1.3% (see Figure 5).

Figure 5: Breakdown of acute activity pressures 2018/19 to 2023/24

Source: Authors' calculations, ONS population projections.

If the NHS is unable to moderate acute activity growth then there will be major ramifications for other areas of care. If acute activity continues to grow at the 3.6% seen recently, an increase of £13.0bn will be needed for acute services alone – that is £4.1bn more than would be provided if the NHS were able to successfully constrain acute activity growth to 2.3%, and £6.8bn more than if the NHS were able to moderate acute activity growth to 1.6%.

This £6.8bn would be almost all of the value of the real-terms commitments for mental health, and primary and community services combined.

Workforce

Any increase in activity has major implications for the workforce. And, in order for the NHS to be able to slow the rate of growth in acute activity, the NHS will need to boost the available workforce in non-acute settings. The workforce challenges in the NHS in England now present a greater threat to health services than the funding challenges, and urgent action is now required to avoid a vicious cycle of growing shortages and declining quality of care. This is recognised in The NHS long term plan, which makes clear ‘To make [the] long term plan a reality, the NHS will need more staff, working in rewarding jobs and a more supportive culture’.

While productivity improvements can allow activity to rise faster than staff numbers, it is clear that staff in the NHS are stretched. Between 2010/11 and 2016/17 output in hospital and community health services grew by almost a quarter (23%), while the number of full-time equivalent (FTE) nurses grew by just 1% (see Figure 6).

Figure 6: Service output and FTE nursing staff numbers in the NHS Hospital and Community Health Service 2010/11 to 2016/17

Source: NHS Digital, NHS Workforce Statistics; ONS, Public service productivity: healthcare, England.

The NHS is currently short of more than 100,000 FTE staff in trusts. Our projections with The King’s Fund and the Nuffield Trust suggest that this could more than double to almost 250,000 in the next decade as the demand for staff increases year-on-year due to demographic change and the increasing prevalence of chronic conditions (see Figure 7).

Figure 7: Future supply of and demand for NHS staff, 1995/96 to 2029/30

Source: The health workforce in England: Make or break; Health Foundation projections, based on workforce data from NHS Digital and Health Education England.

These problems are particularly severe in nursing. Our recent projections with The King's Fund and the Nuffield Trust suggest that by 2023/24, the NHS will not be able to close the gap between demand and supply for nurses working in hospitals, mental health and community trusts (see Figure 8). Without immediate policy action, the shortages in nursing could double to 70,000 FTE nurses. Even with policy action, the gap in 2023/24 would be around 40,000 FTE nurses – 7,500 more than in 2018/19. This is before any impact of recruiting nurses internationally. In order to halve nurse vacancy levels to 5%, the NHS will need to recruit 5,000 FTE nurses from abroad each year to 2023/24 – three times more than current levels.

Problems are particularly severe in mental health and community settings. While The NHS long term plan’s ambition is to provide more care outside of acute settings, and moderate the amount of acute activity, it will not be possible to safely or effectively increase the amount of care delivered in these settings without the staff to provide it. This is exacerbated by the very low level of growth (and in some cases reductions) in staff numbers outside of acute settings in recent years.

Figure 8: Projected nurse demand and supply in NHS trusts, 2018/19 and 2023/24

Source: Beech J, Bottery S, Charlesworth A, Evans H, Gershlick B, Hemmings N et al. Closing the gap: Key areas for action on the health and care workforce. Nuffield Trust; 2019.

Note: Chart shows demand after the impact of improved productivity. As a result, demand is lower (by 3,500 in 2023/24) than is likely given current trends, as presented in the report.

Figure 9: Change in FTE nursing staff numbers in NHS trusts and general practice relative to 2018/19

Source: NHS Digital. NHS Workforce Statistics.Note: Figures for primary care nurses in 2013/14 are extrapolated from current growth rates. ‘Acute’ refers to nurses working in Acute, General and Elderly care; ‘Community’ refers to nurses working in community services, but does not include health visitors, school nurses, or community learning disability and mental health. Does not include staff working for independent sector providers.

In mental health, if staff numbers grow in line with activity, this would require an additional 10,300 nurses working in mental health in NHS trusts by 2023/24. This is compared with the reduction of 1,700 mental health nurses in this setting seen since 2013/14 (as shown in Figure 9).

If nurse numbers grow in line with activity in primary care, this would require an additional 3,400 nurses working in primary care, 1,300 more than the level of growth seen over the past 5 years. In community services, an additional 7,000 nurses working in community health in NHS trusts would be required by 2023/24 compared with a reduction of 500 over the past 5 years.


These figures are £114.6bn, £135.1bn and £20.5bn in 2018/19 prices and under the original settlement. In this briefing, numbers are given in 2019/20 prices using March 2019 deflators for consistency. As a result, some numbers may not match those in official announcements made in 2018/19.

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