Statement leaves NHS funding unchanged

23 March 2022 Steve Brown and Seamus Ward

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sunak.prepares.for.spring.statement lIn his spring statement on 23 March, Mr Sunak (pictured) raised the threshold at which employee national insurance contributions are made to £12,570. This will come into effect in July, when the threshold will align with the amount that can be earned before income tax is payable.

When announced last autumn, the health and social care levy was to be funded by a 1.25% increase in national insurance contributions and dividend tax, and contribute £12bn a year to health and care funding.

In confirming that the health and care levy and national insurance increase will go ahead from April, the chancellor repeated his original claim that 'every penny' would go straight to health and social care. In justifying the levy, he said 'if it goes, then so does the funding’.

However, raising the national insurance threshold will significantly reduce the funds collected via the levy, although Department of Health and Social Care or NHS funding will not be reduced. Paul Johnson, director of the Institute for Fiscal Studies, said the link between NHS funding and the levy was a 'myth'. 'It is simply not true that it has anything to do with the amount of money that goes to the NHS,' he said.

Health and social care funding will not increase, despite calls for additional funding to maintain spending power in the face of rising inflation. In England, overall health spending will be £167.9bn in 2022/23, including £151.8bn for NHS England.

The spending review settlement was described last autumn as providing 4.1% average real terms growth for the Department of Health and Social Care over the spending review period. But with no change to health funding, the IFS's Mr Johnson said that inflation would eat into health and other departments' settlements. 'Public sector spending totals were set in cash terms back in October when inflation looked like it might be 4%. Now it is looking like it will be 8% – so these are much smaller real increases for departments.'

NHS efficiency

In its spring statement document, the Treasury insisted it was making more funds available from existing budgets by tackling waste in the system. It confirmed the NHS efficiency commitment would double to 2.2% from 2022/23. This would release £4.75bn to fund priority areas, it said.

However, the national tariff consultation, which informs contract prices with NHS providers, is based on an efficiency requirement of 1.1% and system allocations have also assumed a 1.1% efficiency requirement. The 2.2% is understood to be a re-presentation of the overall efficiency ask as Covid funding is reduced. In reality, many systems and providers face efficiency requirements in excess of 2.2%.

NHS Providers deputy chief executive Saffron Cordery (pictured) said trusts were concerned about the scale of savings they will be expected to make given the significant operational pressures they are facing.

Saffron Cordery

‘The need to tackle care backlogs while meeting rising demand for services, against a backdrop of ongoing pressures from Covid-19, widespread workforce shortages and staff burnout are all taking their toll on the health service. These pressures won’t go away anytime soon.

‘The impact of inflationary pressures including energy and fuel costs will make their savings requirement even more stretching. Trusts will do all they can to realise the savings required, but we need to be aware of how challenging the task is likely to be,’ she added.

As well as raising the national insurance threshold, the chancellor outlined other measures to reduce the impact of the rising cost of living. He announced a 5p a litre cut in fuel duty, which will be welcomed by community-based staff. The Royal College of Nursing had called for community and district nurses to be compensated for the rising cost of fuel, which it said could leave nurses £100 a month out of pocket.

RCN general secretary and chief executive Pat Cullen said the measure would take about £3.30 off the cost of filling a family car. ‘Nursing staff will feel extremely short-changed by this statement. The cost-of-living crisis means some are having to choose between filling up their cars and feeding their children,’ she said.

‘[The] fuel measures are not enough to stop nursing staff subsidising the NHS when they fill up their car. When community nursing staff drive great distances to see their patients, giving vital care, this is not enough action.’

Rising inflation will also affect the real-terms value of pay rises for 2022/23. In written evidence to the NHS pay review body, which makes recommendations for staff on Agenda for Change contracts, the government suggested pay could not be increased by more than 3%. Higher increases would reduce the funds available to recruit additional staff and tackle the care backlogs built up during the pandemic.

However with spiralling inflation, a 3% pay rise would be real-terms cut in pay and could exacerbate recruitment and retention problems in the NHS. ‘Allowing public sector pay to overtake prices won’t worsen the inflation spiral,’ said Unison general secretary Christina McAnea. ‘Only real-terms wage increases will lead us out of the growing crisis.’

She added that, faced with an effective pay cut, many key workers would not hang around. ‘They’ll jump ship for calmer waters, where better pay can help shield them from the growing prices storm.’

When the RCN evidence to the pay review body was submitted, it said the retail price index (RPI) measure of inflation stood at 7.5%. The consumer price index is more generally used to measure inflation, but the RCN called for a pay rise that is 5% above RPI. The Office for Budget Responsibility today forecast RPI would reach 10.5% in April, peaking at 11% in the last quarter of 2022, which will add to the pressure for higher pay rises.