Comment / Increase speculation?

Rewind to 2002. Chancellor Gordon Brown had just received his commissioned review of future healthcare funding from Sir Derek Wanless. As we know, the recommendation was for more money – lots more – but based on a set of assumptions (improvements in NHS productivity, more ‘engagement’ from the public in their own health and so on) and broad arguments for reform (improved financial incentives in the NHS, for example).

Mr Brown committed the government, which had already started to boost NHS funding from 2000, to a five-year deal tracking the first five years of the Wanless spending trajectories. Worth noting that spending across the three Wanless scenarios for these years (to 2007/08) were identical; it was only from 2008/09 that the ‘fully engaged’ and other scenarios started to diverge.

The commitment ended with this year’s allocation. A recent King’s Fund review (led by Sir Derek) confirms that the NHS did receive the money as recommended. Annual real (GDP-deflated) spending across the UK NHS has averaged around 7.4% – more than twice the historic increase of around 3.1%. This has been a massive boost in spending and again, as the King’s Fund review has shown, there have been benefits – such as record increases in staff. It has also, however, provided the means to boost staff pay, which swallowed up around 40% of the cash increase since 2002.

And despite notable success, such as reducing waiting times, it is also apparent that NHS productivity – albeit crudely measured – has not lived up to Wanless’s original assumptions. Indeed, it may have declined as extra money flowed in (the two things are probably not unrelated).

Apart from the usual fiscal dilemmas and tight finances, it is precisely these questions – where did the money go and was it used effectively? – that are exercising the Treasury over the current.

CSR. If the settlement for the next three (or possibly five) years is closer to 3% than Sir Derek’s recommendation of a 4.4% real increase per year, then the new Chancellor is going to have to find a way of selling this shortfall to the public (and, for that matter, the NHS).

An honest appraisal by Alastair Darling in this year’s CSR should acknowledge that the extra cash over the past few years has made a positive difference, but not the difference that could and should have been expected. If the NHS settlement is lower than that recommended by Wanless – and, despite the rumours, this is by no means certain – the Chancellor will still be able to claim that the NHS will have done better than most, if not all, other public services. But expect, too, a carefully phrased message to the NHS that it needs to improve on productivity.

John Appleby is chief economist at the King’s Fund