Comment / 2024 reality check

04 April 2024 Steve Brown

So, the much delayed planning guidance is out, with Easter stepping in at short notice for the usual Christmas deadline. There were no major surprises for finance leaders, who had been given some earlier draft assumptions to enable them to at least start the process of developing plans for the year ahead.

Perhaps the biggest unknown is why the guidance, for which the HFMA has produced a useful summary,  took so long to appear. Okay the accident and emergency department target has been edged up to 78% of all patients to be seen within four hours, compared with the draft assumption of 77%. But given trusts have struggled to deliver the 76% target in 2023/24 (at the beginning of this calendar year, monthly performance was in the early 70s), the argument about the level of increase seems redundant.

Of no surprise at all (particularly in a general election year) is the lack of recognition of just how big a mountain the NHS is being expected to climb. It is not all about money, but the simple truth is that much of it is about funding – what the service can realistically be expected to deliver with the limited resources available. 

The cost uplift factor of 1.7% is offset by a general efficiency requirement of 1.1% meaning that a net uplift of just 0.6% is being applied to prices (used for elective acute activity) and to the fixed elements of contracts. That seems out of step with current measures of inflation, even if inflation has fallen from the scary levels seen over the last year or two. 

The Treasury’s preferred GDP deflator may be a more appropriate measure of inflation than the retail or consumer price index, but the Institute for Fiscal Studies has said previously that ‘it is likely that the GDP deflator understates the true cost pressures facing the NHS and other public services’. Finance leaders would agree with that assessment.

But even ignoring the current level of inflation, the NHS has faced two years of significant inflation. In his month 10 finance report to the NHS England board last week, chief financial officer Julian Kelly highlighted that inflation had outturned for 2022/23 at 6.7% and was forecast to be 6.1% for 2023/24. That same paper showed that systems were forecasting at month 10 to be overspent by around £1bn for the full year. 

Underlying deficits will be even bigger in many areas, with recurrent cost pressures plugged with one-off savings. Systems will not in all cases have been able to meet those levels of inflation by cutting costs recurrently. In this financial context, the must dos in the planning guidance’s list of national objectives seem unrealistic – even if all health service leaders would sign-up to the ambition they represent. Some of the requirements even seem at odds with each other.

A good example is the requirement to reduce agency spending across the NHS to a maximum of 3.2% of the total pay bill. The argument for using substantive over agency staff is well made – with increased use of bank staff instead of agency a step in the right direction. There are quality and cost benefits to doing this. But it also has to be realistic, with trusts needing to keep shifts safe and continuing to cope with high levels of vacancies.

But if substantive recruitment is part of the answer to reducing reliance on agencies, there are also frequent calls to consolidate after significant increases in capacity over the last three years. The requirement for systems to reconcile staff increases since 2019/20 and link these increases to outcomes or improved quality suggests the service has over-recruited. And yet, it still has those vacancies, and the direction of travel – as set out in the NHS long-term workforce plan – is for far bigger staffing increases in the future.

There are clearly opportunities for productivity improvement across the NHS – although a first step towards this would be an end to ongoing industrial action, which is outside of local systems’ control. It is good news for the NHS that consultants have now accepted their revised deal, but the risk of junior doctor strikes still remains. Capital investment is also key to improving productivity – with digital investment particularly important. But, while the spring Budget has promised much needed funds for technology, they don’t start to flow for another year yet. 

And even if the efficiency and productivity demands are deliverable in some parts of the country, that doesn’t mean they can be achieved everywhere. Different systems will have different levels of opportunity and waste in their processes and services. The more efficient already, may have fewer places to look for further savings.

One of the consequences of such a difficult financial context is that many of the things that will improve longer term sustainability get sidelined. Major additional investment in community services almost inevitably gets overlooked in favour of reducing the elective backlog. Paying for double running costs is simply not going to happen. And the service seems light years away from the promised move towards population health management and trying to look beyond healthcare to the wider determinants of health.

Previous years’ experience suggest there will need to be in-year funding increases to avoid deficits and hit even the most important service targets. And if that is the case, wouldn’t it be better to acknowledge that up front and allow systems to develop realistic plans from the outset, rather than spending another year firefighting events and reviewing targets and funding on the fly?

HFMA: Summary of NHS operational planning and contracting guidance 2024/25