Credit Crisis and Looming Recession Could Rock the NHS in the Future

by Hannah Punitha on Oct 31 2008 3:28 PM

At best the NHS might expect no real growth in funding from 2011, warns John Appleby, Chief Economist at The King’s Fund, on today. Lower or capped NHS spending together with the health impacts of unemployment and deprivation caused by the credit crisis and looming recession could rock the health service in the future, he explains.

Currently, inflation is high and will reduce the spending power of the NHS—every 1% increase will cost the health service around £380 million. Higher prices also means more pressure on NHS staff’s disposable income. This could mean higher wage claims and calls for contract renegotiation. However, inflation is predicted to reduce sharply next year, and with a three-year pay deal in place for most NHS staff, such calls will be strongly resisted by the government.

Although the prime minister pledged not to cut spending on health, with foundation trusts reporting cash balances of £2.5 billion and the rest of the NHS planning a surplus of £1.7 billion, the government may look to claw back end of year NHS surplus funds—taking back unspent money may not be viewed as a cut, he writes. Short term, the credit crisis has already had an impact on private sector health providers and foundation trusts, claims Appleby. Virgin Healthcare has already pulled back from plans to enter the health market and it is likely that future private finance initiative schemes will slow down. And some foundation trusts are currently negotiating the security of deposits in failed Icelandic banks. It is the long term effects of the credit crisis which particularly concern Appleby: “NHS spending is guaranteed up to April 2011, what happens after then looks decidedly less rosy.

The health service will almost certainly have to plan for lower growth in funding from 2011 onwards.” With reducing tax revenue and increased government spending to support borrowing, the best the NHS might expect, he says, is no real growth in funding in the next spending round from 2011 to 2014, combined with a real pressure to cut costs. The NHS will have to move quickly to prioritise value with much more emphasis on improving productivity, he says. Added to this, rising unemployment (increasing the government’s spending on benefits), increasing ill health and the associated increase in demand for healthcare services, makes the longer term forecast bleak.

However, Appleby states that the NHS is now better equipped to deal with the economic downturn than in previous years, with almost two thirds of trusts now showing solid financial management. Appleby points out that the UK government’s financial system bailout using £387 billion of taxpayers’ and borrowed money will push national debt to over half the UK’s gross domestic product and this, he says, will inevitably affect public services. It will at some point and to some degree have to be born by the NHS and so it is essential that preparations are made for the inevitable difficult financial and health future, he concludes.