NHS spending ‘will have to be cut’ says think tank

The Scottish NHS could face making more cut-backs than its counterpart in England as the impact of the asault on the UK deficit bites, a think tank report has warned

The NHS in Scotland will be under pressure in the next few years not only to freeze current levels of spending but to impose real cuts in services, a Scottish think tank has predicted.

In a stark message which directly contradicts repeated assurances from politicians that NHS frontline spending can be protected despite the economic downturn, a report from the Edinburgh-based International Futures Forum (IFF) said current levels of spending on health north of the Border are “not sustainable”.

Indeed, the paper says, the Scottish NHS could face making more cut-backs than its counterpart in England as the impact of the asault on the UK deficit bites.

The paper, written for the IFF by Dr Margaret Hannah, a consultant in Public Health Medicine and currently deputy director of public health in NHS Fife, paints a bleak picture of the financial prospects for the NHS on both sides of the Border.

It contends that without radical innovation in the way health services are delivered in the UK, the NHS is “in a state of terminal collapse”.

Dr Hannah argues that while politicians have “understandably” long argued that we should protect healthcare spending in a time of recession, this may not be possible in the longer term.

“Healthcare spending looks set to consume inexorably more of our economic resource. Is this justifiable? How much should a healthcare system cost a nation? Should we keep increasing the spend on healthcare in the way we have over the last 50 years?”, she asks.

With the full scale of the UK deficit now becoming clearer, these questions, argues Dr Hannah, have even greater urgency.

She points out that in England, the Department of Health has announced that current levels of funding will be maintained until 2014-15.

The department in London has also said that because of underlying cost pressures of 3 per cent per year (principally wage inflation and an ageing population) over this same 3-year period between £15 and £20 billion of efficiency savings need to be found in order to balance the books.

She writes: “The Scottish government health department has yet to announce its plans for 2011-14, but with cash allocations reduced by 3.4 per cent in cash terms (11.8 per cent in real terms) by 2013-14 compared to 2009-10, it is likely that the NHS in Scotland will be faced with having to make proportionately more efficiency savings and perhaps real cuts during the next few years.

“It [the NHS in Scotland] will be under huge financial pressure not just to freeze the current level of spend on the NHS in Scotland but to impose real cuts.

“The alternative would be even more drastic cuts in other areas of public expenditure such as education, social care, transport and infrastructure projects.”

Her paper adds that, historically, health expenditure in the UK and in all other developed countries around the world has grown exponentially for decades.

Spending on the NHS in the UK has grown tenfold from £12 billion (2010 prices) in 1950 to £120 billion today (more than £10 billion annually in Scotland).

While, the economy has also grown during this time, it has not been at an equivalent rate. At its inception in 1948, the proportion of GDP spent on the NHS was 3 per cent, now it is 9 per cent.

“The rising trend shows no signs of weakening. Quite the opposite. The NHS is likely to face significant pressures in the next few years as a consequence of an ageing population, rising staff costs and new technologies.”

Dr Hannah calls as evidence the famous report in 2002 carried out by Sir Derek Wanless for the then Chancellor Gordon Brown.

Sir Derek advised that the UK should aim to spend 10 per cent of its GDP on the NHS by 2022. This, says Dr Hannah, was considered the minimum necessary increase to meet demand, and assumed a “fully engaged” model of public health where everything possible was being done to reduce smoking, cut back on obesity, reduce health inequalities and encourage people to look after themselves.

“In other words, if the NHS shifted focus from “sickness” to “wellness”, spending would still need to rise. If smoking and obesity persisted, Wanless concluded, the demand on healthcare would grow still further, requiring 12 per cent of GDP to meet it.”

Dr Hannah comments: “This inexorable rise in spending would come as a surprise to the founding fathers of the NHS. They never envisaged it would end up costing the taxpayer so much. They thought that once immediate health concerns were addressed, initial increases in funding for the NHS would level off at a steady state.”

She adds that this exponential rise in healthcare spending is not sustainable. “Sooner or later it will have to be contained. But governments and providers work on the opposite assumption.”

A survey in 2005 by Healthcast 2020, PricewaterhouseCoopers’ health research institute, says Dr Hannah, revealed that over half of healthcare executives from 27 countries around the world expected healthcare costs to increase in the period to 2020 at a higher rate of growth than in the past.

“This in spite of mounting evidence, in the same report’s chapter on The Unsustainability of Global Health Systems, that these trends cannot possibly continue.”

“The NHS has never experienced a protracted period of flat-line budgeting in its 60 years of existence. And the forces that have been driving increasing expenditure throughout that time, and especially in the last decade, have not gone away.

“Our reading suggests that the measures being proposed so far to control costs have either been tried and found wanting in the past; or will lead to considerable opposition from staff, the public and politicians; or cannot deliver at sufficient scale to make any systemic impact. The sums will not add up.

“And the consequence may well be dramatic, enforced, permanent cuts in services as that reality begins to sink in two or three years from now.”

She argues that four main factors are driving this increase in spending —- the cost of more staff; an ageing population; changing patterns of disease and increased medical activity and increased investment in drugs, technology, buildings and premises.

However, she argues, more money in the NHS has not led to the improvements in productivity and effectiveness that were hoped for. Between 1997 and 2007, measured productivity in the NHS fell by 4.5 per cent.

“With the NHS receiving zero growth from 2011-12 onwards, productivity will need to increase by 6 per cent per year just to mark time.

“To put this in context, private industry has managed an improvement in productivity of 2 per cent per year over the last decade. Achieving this scale of improvement in productivity will require a radically different culture and mindset in the NHS.”

She adds: “Everything points to the conclusion that a ‘predict and provide’ model of healthcare provision has had its day. Responding to increased demand by employing more staff, buying more kit and investing in new buildings has not dealt with the underlying drivers in the system. The laws of diminishing returns on investment have been in evidence for a long while.

“Without radical innovation, this is a system in a state of terminal collapse.”