Page last updated at 23:20 GMT, Sunday, 19 July 2009 00:20 UK

NHS 'must prepare for shortfall'

Services could come under pressure

The NHS must act now to prepare for an expected funding shortfall after 2011, two influential think-tanks have said.

Both Labour and the Conservatives have said they will protect NHS budgets in coming years.

The King's Fund and the Institute for Fiscal Studies said this would mean cuts in other departments or tax rises.

But even the most generous forecast for the NHS is not enough to prevent it having to tighten its belt now, the analysis says.

The health service cannot plough on regardless as it has in recent years
Niall Dickson
King's Fund

John Appleby, chief economist at The King's Fund and co-author of the report, said: "The NHS is facing the most significant financial challenge in its history.

"Both the Labour and Conservative parties have pledged to avoid cutting NHS spending in real terms from 2011 but this will come at a big price, whether in departmental cuts elsewhere or tax hikes.

"The NHS has enjoyed unprecedented increases in funding since the turn of the century, but those days will soon be over.

"That's why it's crucial that the service does all it can over the next two years to prepare itself for the financial freeze that will take hold over the two coming spending review periods."

Wanless recommendations

The analysis sets out good, bad and middling possible levels of funding for the NHS over the next two comprehensive spending review periods - 2011/12 to 2016/17.

Niall Dickson: "The Health Service is about to embark on its most difficult period"

But it says all three fall short of the funding recommended in Sir Derek Wanless's 2002 report which recommended significant investment in the NHS up to 2022.

Even on his mid-range predictions, aimed at ensuring "solid progress", the amount of funding the King's Fund and IFS think is feasible - with combinations of cuts elsewhere and tax rises - would be between £6.4bn and £32.4bn short by 2017.

Carl Emmerson, deputy director of the IFS who co-wrote the report, said: "If the NHS budget were frozen in the next two spending reviews then this would be the tightest six-year settlement in its history.

"But, if the Treasury's assessment of how much will be available to spend is right, even this historically ungenerous NHS settlement would still require a combination of sizeable cuts to other departments' budgets or further tax raising measures."

The biggest issue facing the NHS is the fact that it's simply not the National Health Service any more
Clive Hamilton, Woking

However, the analysis says boosting NHS productivity now would enable it to make significant financial gains which would offset the effects of future funding restrictions.

It says that, between 2011/12 to 2016/17, the NHS would need to make gains of between £23.5bn (£3.9bn per year) and £48.9bn (£8.2bn per year), equivalent to improvements of 3.7% to 7.7% per year.

In comparison, private sector productivity growth averages around 2% a year, while the Office for National Statistics estimates average NHS productivity between 1997 and 2007 has fallen each year by 0.4% on average.

'Good practice'

King's Fund's chief executive Niall Dickson said: "It would be a mistake to underestimate the challenge or the opportunity this downturn provides.

Quality improvements through greater efficiency and redesigning services can provide significant budget savings, but these may well involve taking some tough decisions
Steve Barnett
NHS Confederation

"The health service cannot plough on regardless as it has in recent years.

"Urgent action is needed now to improve the quality of services provided to patients and to do this more productively and efficiently.

"This will not be about devising new and untried solutions - the good practice and techniques are already out there in the health service.

"The imperative is to create the conditions in which they can be applied in each part of the country."

NHS Confederation chief executive Steve Barnett said: "Quality improvements through greater efficiency and redesigning services can provide significant budget savings, but these may well involve taking some tough decisions."

Political reaction

A Department of Health spokesperson said: "Investment in the NHS will increase this year and next.

"Departmental allocations beyond 2011 have not yet been set but overall current spending is forecast to increase. Health is a key government priority."

Andrew Lansley, the shadow health secretary, admitted the scale of demands on the NHS was such that even a real terms increase in spending could not prevent pressure on the service.

He said: "Our ambition is to improve NHS care so that our outcomes are amongst the best in the world.

"Alongside getting rid of pointless bureaucracy, our policies of patient choice, payment by results, competition, information and innovation provide the necessary levers to make this happen."

Liberal Democrat health spokesman Norman Lamb said: "This report reinforces the need for much more efficient use of resources in the NHS.

"The health service faces a potential perfect storm as rising demand for services clashes with increasingly tight financial constraints."

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