The health service has been promised “whatever it needs” to deal with the coronavirus pandemic, but government spending choices reveal possible long-term changes to funding and policyby Graham Atkins / April 7, 2020 / Leave a comment
Rishi Sunak’s budget feels years, rather than weeks in the past. But one thing has remained constant since the chancellor delivered his first set piece—government commitment to provide the NHS with whatever funds it requires.
Having initially promised the health service “whatever it needs, whatever it costs” on 11th March, the government made this official when Matt Hancock issued a ministerial direction allowing the Department of Health to “spend in excess of formal Departmental Expenditure Limits”—effectively providing a blank cheque.
But while the government’s actions are designed for the immediate crisis, they may be difficult to reverse once the peak of coronavirus has passed. Indeed, they could yet change how the health service operates on a permanent basis. It is worth investigating how.
One major announcement has been the government promise to forgive over £13bn of historic NHS debt. This was in fact money that NHS trusts—hospitals—owed to the Department of Health and Social Care. Cancelling these debts removes a headache for NHS finance staff, who no longer have to plan how they will pay interest to the department, but it is not an injection of new money. NHS trusts with debts will stop paying the department—but the DHSC was already recycling the money from the interest payments it received back to the NHS.
Nonetheless, it may signify a turning point. The real significance of forgiving the debt is that it abandons a central strategy of austerity—trying to force NHS trusts to become more efficient by cutting their income.
Trusts have to balance their running costs against their income from the activities they undertake—from performing surgeries to running diagnostic tests. The amount of government money they receive for each activity is determined by the “national tariff,” and the coalition and successive Conservative governments have repeatedly reduced the tariff in real terms since 2010.
Initially, trusts responded as the government expected, doing more for less by capping staff pay rises and becoming more productive. These strategies, however, ran out of road after 2015. At that point, trusts started selling off assets, delaying essential maintenance spending and taking out emergency loans to try to balance their books.
Up until last Thursday, the government expected trusts with debts to eventually balance their books and pay the department back—hoping that having to pay interest…