Decoding what Reeves’ historic Budget means for the NHS

Matthew Taylor
Hello and welcome to Health on the Line. In a moment, I'll be getting stuck into the nitty gritty of the recent budget and what it means for health and care. And that will be with my regular guest, Sally Gainsbury, senior policy analyst at the Nuffield Trust. But first, we've heard a huge amount recently about the vital shift needed towards more preventative work in the health service. How do we do more of it? And how do we make it work as health and care systems?

We at the Confed have just published a research report based on work by academics at the University of Stirling and Southampton looking into unlocking prevention in ICSs, as well as working with Newton who produced a practical guide for systems and who support organisations across health and care with their challenges by using a data-led approach to co-design new ways of working and that includes targeted prevention approaches.

So this research into prevention was commissioned mainly in response to the recommendations made by Patricia Hewitt in her excellent ICS review to support a shift of resources towards prevention, to identify and be clear about what comprises preventative services and to incentivise local and national prevention efforts, including through payment mechanisms. Well, there's almost nobody I could imagine better to reflect with me on the findings of this research then Patricia Miller, CEO of Dorset ICB and member of our ICS Network board. 
Patricia was co-chair of the Prevention and Population Health Workstreams of the Hewitt Review.

Welcome to Health on the Line, Patricia.

So the new government has made clear that it's prioritising shifting to preventative model of care. It's one of West Streeting's three famous shifts, along with care closer to home and digitalisation.

Now, as you and I both know, successive governments have spoken about the importance of prevention, but not achieved the scale of change that we wanted to achieve. What do you think is the role that local systems can play in ensuring that that ambition, that move from treatment to prevention can become reality?

Patricia Miller
So I think the first step is the welcome change to the Health and Care Act that gives integrated care systems four strategic aims and two of those being focused on reducing health inequalities and working in this space of social and economic development, the two being intrinsically linked. I think that gives us the platform to start to make that leftward shift. But if we're going to deliver on it, we have to be intentional about it, not just talk about it. Our strategies have to reflect that. And then I think there are a number of ways that that could be achieved that not just make the leftward shift in terms of where the activity takes place and have a greater focus on prevention, but how we also use our finances flexibly in order to achieve that, expecting that for a short period, there may be some double running of services while we move from one model to another until the early shoots of benefits start to be achieved in terms of the overall cost of health and health outcomes starting to improve.

So for me, the work falls into two or three areas:

It's developing the right strategy with your community by listening to their voices, understanding what their needs are and co-producing those service solutions with them that make that leftward shift from hospital into community. It's also about making sure that when you develop those new models of care that they focus on the entire pathway right from prevention until the end of life and making sure that someone has a dignified end of life in the place of their choice.

And that sort of reflects I think the intention that the old parliamentary agreement had in the original establishment of the NHS that it would focus in that space of prevention and health and wellbeing because Bevan said if it does its job it won't exist for very long and we've got into the habit of being the catchall of supporting people going through ill health rather than having our primary focus on keeping people well.

I think also that the new models of care that we need to implement around that shift from hospital to community and from treatment to prevention, those new models of care start to move us into that space. The work of integrated neighbourhood teams, not just in terms of the delivery of clinical service, but also around the next layer which focuses on supporting people to address the wider determinants in working through that broader partnership, which definitely takes the pressure away from primary and community care, we spend a huge amount of their time supporting social issues that should be dealt with elsewhere in the system.

I think there's an element of secondary prevention where we need to focus some of the hospital care, not just in responding to ill health, but working with communities to understand through an activation model, why people are not engaging with services in the way they should do and what else needs to be done to slightly change the service model that moves us into that space of secondary prevention.

And then I think we've also got something to do in primary prevention. We tend to talk a lot about primary prevention being the job of central government and it needs to be done through legislation. But I don't agree with that. I think there is an element that needs to be done by government at a systematic level. But there's also a lot that we can do within ICBs and ICSs talking to local employers, talking to local supermarkets, thinking about how and when as a system we give planning and licensing permission for different businesses that impact on the overall health of our population and being much more intentional in that space where we can make changes without needing a central legislative reform to do so.

Matthew Taylor
Great. Well, Patricia, we've nearly run out of time, but one last question, which is in terms of the message to government as they embark on the preparation of their ten-year strategy. I mean, there are lots and lots, but what are the two or three things that government needs to do differently, the centre needs to do differently if we are going to unleash a kind of preventative revolution in systems?

Patricia Miller
I think the fact that government are engaging in a broad exercise that includes a wide and deep community voice is really important. And I really welcome that step because I think in the past, we've been a bit afraid to ask the public what they think or what they want, particularly in health care, because we're always afraid they'll ask for something that we can't deliver. And I actually think the public are much more sensible than that. They know that the service is under strain and we can have a really sensible conversation about what it can do, what it can't do, what the core offer needs to be and how they need to meet everyone in the middle with self-care and responsibility.

So I think that's the first thing I'd say that is a really important step. I think having health as the golden thread that runs through governmental policy and I mean all governmental policy again is important because health needs to be seen, good health as an investment to the economy because it's a really important part of economic growth not a tax to the taxpayer and if we start to see it like that and for every core governmental decision we make we start to think about how does that impact on the health of the nation then I think we'll be moving in the right direction.

The last thing I would say is we need to think really carefully about what that public health budget needs to look like if it's going to support prevention because now it sits within local government which I think is the right place for it to sit slowly but surely over a number of years like the budget's been reduced and I think if we are really serious about this left shift we don't just need the NHS to fundamentally change the way it works, we also need to see that commitment from central government into local government around the prevention agenda and how it's funded appropriately to be able to do the things it needs to do.

Matthew Taylor
Patricia, thanks so much for joining us on Health on the Line.

Before we get into the next part of Health on the Line, I've got a bit of a favour to ask. If you're a regular listener, in which case thank you, or if you're tuning in for the first time, in which case well done, I'm really keen to hear what you think about this podcast. In a way, I'm turning the microphone on to you so you can have your say. If you could spare just five minutes, it really is just five minutes to complete a short survey. You can help me, can help us at the Confed, make help on the line better, more relevant, more useful to you.

You'll find the link in the show notes. I really look forward to hearing from you.

We're recording this edition the day after the budget announcement, which for the NHS saw a 4.7 per cent revenue budget increase this year and another 3.3 per cent next year, alongside a welcome 3.1 billion increase to capital investment. But behind those figures lie all sorts of complexity. And today we're going to break down those figures a bit more to understand what the budget means for the health service, particularly for you who, many people who listen to the podcast, who are leaders in the health service. And we're going to connect that to some of the broader issues around NHS finances and planning processes.

Now to have that conversation, well, we couldn't have anyone better than a friend of health on the line, Sally Gainsbury, senior policy advisor at the Nuffield Trust, one of the country's leading experts on how the financial systems of the NHS work. Sally, welcome back to Health on the Line.

So, well, let's start with the obvious question. What did you make of it, Sally?

Sally Gainsbury
Yeah, it's obviously the first budget from an incoming government. So there have been some changes in the way the NHS and health figures have been presented, which I think in part are positive moves, which we might get onto later. But there's still a little bit of unpicking and unravelling to do on these numbers.

On the face of it, it does look like a relatively generous compared to recent experiences increase for both the Department of Health and NHS England, but we know that in general this budget is very front loaded. So there's some warnings about what might be coming after the year after next. But it's still not quite enough to resolve all of the immediate cost pressures that the NHS in England is experiencing this year. So there's quite a bit more negotiation to come, I think.

Broadly speaking, I think the NHS is left possibly around 2.5 billion short in this current financial year. Some of that might be caught up with efficiencies, but I think we've got some negotiations to come, particularly between NHS England and Department of Health in the coming days and weeks.

Matthew Taylor
So help us understand that a bit. Sally. I went to NHS England yesterday afternoon and was chatting with people there about what it meant. And one of the things that surprised me, well, there's two things really. First of all, that this 22 billion figure really isn't quite what it seems in terms of it is an accurate description of what's happening to the budget this year and next year. But quite a lot of that money is already spoken for in terms of pay increases, in terms of the deficit which exists in the NHS.

But the other thing I found surprising was, you can listen to it, you think, well, okay, we know where we are now. But actually, an awful lot of this is up for further negotiation and further clarification. So let's deal with those two issues one by one, Sally.

So first of all, one of the things I think is hard for people to understand is that the budget of the NHS changes a lot during the year. The beginning of the year, I think we had less than 1 per cent real terms increase, but because of particularly the pay increases, the  outturn for the budget this year is going to be much higher than the budget that was set at the beginning. Is that right?

Sally Gainsbury
Yeah, that's right. And there's an additional element as well in that the previous government, if you remember from 2015 onwards, ring-fenced NHS England spending to give it special treatment to protect it from the ongoing austerity that we had from 2015 onwards.

So NHS England was supposedly given special treatment, but in that move, what counted as NHS spending was kind of held down and minimised. So actually, if you turn to the last budget in March, there was this almost fictitious figure of £165 billion, if I'm remembering rightly, to be the NHS in England's budget. But if you turn to NHS England's most recent board documents, they were even before the budget, working to a figure of £179 billion.

Now, some of that is because NHS England has subsequently absorbed Health Education England. That's quite a large budget. That's just over five billion. But a lot of that was made up with these kind of extra responsibilities that NHS England has taken on from Department of Health over time, but also extra funding that NHS England has had to receive from the Department of Health to cover pay deals in 2023, 2024, costs of additional vaccination campaigns associated with covid. Extra costs of inflation that originally weren't funded. Remember, we've had inflation has kind of been quite hard to predict for the government over recent years.

So this question of what actually is the baseline on which any extra is coming has been quite fraught. And I think it will continue to be fraught for a few more weeks.

Matthew Taylor
Yes, absolutely. And the kind of questions that become significant in terms of trying to understand what room for manoeuvre there is this year, for example issues around the degree to which NHS England can convert capital to revenue, which is something that it's consistently had, what it's often had to do. That's one of the imponderables, isn't it? Is how much flexibility NHS England has to do that?

Sally Gainsbury
Yeah, and you can imagine that the new Chancellor will be particularly adverse given that she has changed the rules around capital spending and how that's scored nationally, the borrowing. She will particularly want to see an end to those capital to revenue transfers that the NHS has somewhat relied on to balance its revenue budget in recent years.

The other big issues really is what's left in the Department of Health budget. So NHS England has relied on these transfers from the Department of Health because the Department of Health has significant responsibilities other than NHS England. It has over three billion of public health spending that most people would like to see significantly increase. It is responsible for R &D, another big priority for the new Chancellor and new government.

And what's really hard to see at the moment is how the cost pressures that we know exist in the NHS can actually be fully funded from the Department of Health's new envelope alongside those existing responsibilities that the Department of Health has. And that, I think, is where the big crunch point is going to be, that there doesn't seem to be a huge amount of headroom, if any, for additional transfers from the Department of Health without really squeezing other budgets, which are a priority as well.

Matthew Taylor
And that includes public health, of course, doesn't it, [SALLY GAINSBURY: Yeah.] which has been historically squeezed?

So, in terms of kind of putting all of this together, the kind of phrase I'm using is it kind of 'enables us to just about keep the show on the road'. But leaders out there in trusts and systems, the truth is there is not going to be any additional money in this financial year. Is that right?

Sally Gainsbury
I think there will be some additional money, but the question is what that additional money will be tied to.

So in an ideal world, there would have been in the region of £3.5 billion extra to fund the cost of the pay deal, the unfunded bit of the agenda for change and the medical pay settlements this financial year. I think what's actually going to happen in practice or what actually already has happened in practice is a large chunk of the extra will be tied to elective recovery. And the problem on the ground will be for those ICBs and those trusts who are incurring very significant costs, usually in the form of staff overtime, in trying to chase those elective recovery targets. So they're accruing all the cost of trying to get to elective recovery. but not hitting their target, which will mean they'll be unable to receive the additional income.

So whereas we might see, at a push with some luck, this budget leading to the NHS as a whole breaking even, because some trusts and some ICBs will be able to actually gain on the elective recovery targets because they're hitting their targets, they will receive this extra income that's been tied to it. So we might see net across a whole lot of NHS in England a break-even position, at a push, I think we're going to see a very, very patchy, uneven position on an ICB in between trusts. So at an organisational level, this may not cure anybody's problems and it could actually exacerbate some.

Matthew Taylor
Yeah, well, I guess it's better than the dire warnings we were having a few weeks ago about the possibility that NHS England will be told to effectively cease the elective recovery fund.

But that is challenging, and of course with winter coming, if winter pressures increase, it's generally speaking the case that elective activity does reduce during the winter, partly because of kind of flow issues, just a simple kind of lack of beds. So, this will add to the kind of risks and dangers around winter for the health service.

If we think about next year, my understanding of the money for next year is that it depends an enormous amount on the pay review bodies and how much money is required to meet those. Is that the key variable?

Sally Gainsbury
Yeah, pay is around two thirds of cost in the NHS, so a lot does ride on what those settlements will be and the budget is expected to slightly increase household borrowing costs, how that will play through to pay settlements in the private sector and then how that plays through again to NHS staff expectations and needs. That is going to be a big area to watch, effective to see what NHS inflation is going to be next year and therefore the extent to which the 4 per cent on the face of it figure that the NHS is getting for next year, whether or not that will, kind of, do the job.

There's an awful lot that is expected to come out of the settlement for next financial year. It's going to be year one of the ten-year plan. A lot of aspirations will be attached to that ten-year plan in terms of shifting care out of hospital into primary and community services. It's hard to see at the moment where the figure we've got for next year creates any sort of headroom for, for example, double running services, experimentation, designing new care pathways. That does look like a very difficult area.

Matthew Taylor
Yes, and of course, given that the major earmarked money is money for elective recovery, we're back in that kind of world where the short-term priorities of the health service and indeed of the public around elective waiting is contradict the longer-term aspiration that Wes Streeting has talked about in terms of that kind of leftward or upstream shift. And of course, that's the world we've been in now for decades, where we've had a long-term aspiration, which is constantly undermined by the short-term imperatives of responding to the top public concern, is those elective weights.

Let's talk a couple of last things. Some of the good things in this that we should mention. It's good to see that we're going to be maintaining the value of so-called sin taxes - tobacco and alcohol and, although I think there's a cut in beer duties and on sweet drinks. So that's useful, I guess.

It's good that there is going to be some money going into exploring what the NHS can do to contribute to reduce the number of people out of work or people of working age or out of work for health and care related issues. And there is a certain amount of excitement in the centre, which is if it were the case that the NHS working with local government and others could show that they could help people stay in work, get people back into work, well, that does make an investment case for more money for the health service. And of course, the biggest positive thing, which is genuinely more money for capital investment.

I those are all things to be welcomed, aren't they Sally?

Sally Gainsbury
Yeah, in general, those are things to be welcomed. I think we'll look forward to seeing the ten-year plan in terms of the vision for how the capital increase would be best spent.

It seems slightly contradictory that we've kind of got this kind of overarching rhetoric at the moment around shifting care out of hospital, but still a very, very hospital-focused budget this year. And the focus on the new hospital programme, I think what we really look forward to the review of the new hospital program for some really clear thinking about what the NHS's ongoing estate needs are and where that capital will be best invested.

We've got a very ambitious productivity target of 2 per cent from next year. How will that capital be best invested to enable the NHS to do that? Because really the time scales in which it's expected to deliver are very, very short - capital coming in this year, next year, but up and running with 2 per cent productivity by next year, which is really going to be needed because the warnings in the budget are for a slowdown in spending from April 2026.

Matthew Taylor
So the negotiations around the comprehensive spending review, the ten-year plan are going to be tough. And what I'm hearing a lot, and I've heard it for a while now, is that in terms of transformation, the reality is it's probably going to be about pilot work in various places and systems to try to get proof of concept in order to be able to kind of make the case that you can shift resources in ways that are sustainable. There just isn't the money to try to do that across the whole of the system. That's likely to be the kind of way in which we move a bit more towards transformation is kind of experimentation in order to try to show what might be possible.

I guess, think the last question is, I got a kind of slightly different impression of what these figures meant when I spoke to the Treasury, when I spoke to the Department, when I spoke to NHS England, when I looked at OBR.

Why is it so bloody complicated? I mean, it's not a great thing for public accountability or transparency. We may have leaders now who over the next few weeks will have people marching into A &E saying, well, why am I sitting waiting in A&E? You've just been given £22 billion more. I mean, there must be a better way to do all of this, mustn't there?

Sally Gainsbury
Yeah, we've really got a problem at the moment around transparency and health and NHS spending in particular. I think it does relate to the idea set in 2015 that the NHS was going to be protected. Of course, the NHS is a massive political hot potato. It's the one public service that everybody feels they have a stake in. And of course, really, they have a stake in most public services. Everybody does. But the NHS is the one that everyone is keen to see well funded.

And so as a result of that, we kind of had these smokes and mirrors around, you know, how much it's been funded. The Treasury has sort of been incentivised to curtail what the NHS, the definition of the NHS, because that's the baseline or the denominator of which they're then expected to grow generously or at least in real terms. So that's why we've ended up having these opaque top ups from the Department of Health.

There's now an argument between the Department of Health, Treasury and NHS England about what are those top-ups? A recurrence? I think there's a big question mark over 2.7 billion that was transferred to the NHS to fund the 23/24 pay rise. That was a recurrent pay rise. How on earth that could be now regarded as non-recurrence expenditure is hard to conceive, but that does seem to be what's at the bottom of some of these actually very different numbers that you get. If you look at the OBR report, their notion of how much NHS and DH spending is increasing. It's very different from the figures that are in the Treasury's budget document.

And yes, this really does not help the public understand the sort of trade-offs that the NHS has to make. There is a limit to how much taxation the public is prepared to pay. So there is a limit to how much resource the NHS has. But there's a very difficult, almost childish public conversation around that because we don't have a realistic sense of how much the NHS is actually being funded for.

I think that really does spell problems for local NHS organisations when they go to the public in their area and they try and explain the tough choices that they have to make. In effect, they aren't able to say that, they aren't able to say there is a limit to the healthcare resources that we have. And we need to now discuss what we see as the most important benefits we want to extract from the health service.

That's not a conversation we have. We tend to have a conversation that's about the safety of existing services that usually speaks to staffing levels, which of course is a sort of a proxy for resource. But we don't have a wider conversation about what is it we want to get out of the NHS? What are we going to prioritise within the available resources that we have? And that's kind of sad because it's possible if we were to have a more grown-up conversation about that, the public might actually be more willing to see the tax increases that would be necessary to better fund that system.

And of course, the huge gap in the conversation we're having now and also for the ten-year plan and in this budget is around funding adult social care. That will have to be a conversation if we're going to have adult social care reform, if we're going to have the adult social care that the public actually think they already have, which is that it's state funded. A lot of people actually believe that the state steps in when you become frail and you need that sort of help. But we don't have that. If we are to have what the public seem to want, we're going to need very significant increases in taxation and questions around what form of taxation might fund that. And that conversation ideally would be happening alongside the ten-year plan, because how we're going to reform health services, you know, be able to move people through hospital, out of hospital, into the community quicker, more effectively, with a better healthcare experience is really reliant on what happens in adult social care.

It's a question we've bucked as a society for decades. And I think it's going to come back to bite us now in terms of healthcare reform.

Matthew Taylor
Well, Sally, so much there. And this is why we enjoy having you on Health on the Line to talk about so many of these issues.

I hear more rumours that a royal commission of some kind will be announced on social care. Mind you, I first heard those rumours Saturday after the election, so we'll see what happens in the next few days. And I agree with you, I think when things are as opaque as this, it might seem that this is just a kind of thing for techie people to argue about, but actually, you know, not really knowing what's going on has a concrete effect on the capacity of leaders to be able to lead effectively at the frontline. And it does diminish public accountability.

So, you know, I did an interview with a radio station just before I started this conversation with you, Sally, and the interviewer said: "Well, that's a generous settlement for the NHS". I think our conclusion is, and we are always grateful for money and we are grateful for that extra capital, but it's not that generous and it doesn't really seem to be a settlement.

On that note, Sally, thanks so much for joining us.

Sally Gainsbury
Thank you.