No cuts, but low growth in budget

Tags: A Budget Darling Efficiency Government Green iS Office Productivity Savings Shared Services Telecare Treasury

22 Apr 2009

Chancellor Alastair Darling has told the Commons that the government does not plan to “cut” its way out of recession while delivering a budget that promises low spending growth and big demands for efficiency savings from the public sector.

The Chancellor confirmed that local health services can expect to receive 5% funding increases on average this year, which is the final year of the NHS’ current settlement with the Treasury.

However, he indicated that overall public spending growth is likely to fall from 1.1% in real terms to 0.7% a year from 2011-12 onwards.

This would put growth in NHS spending well below what it has been in recent years and far below the increases recommended by Sir Derek Wanless in the report that he produced for the Treasury on future healthcare spending needs in 2002.

Darling also indicated that the NHS and other public services will be expected to find very significant efficiency savings.

The pre-budget report in November identified £5 billion of efficiency savings by 2010-11, on top of the £30 billion that had already been announced for the current comprehensive spending review period.

Darling said this morning that the Treasury has now identified a “further” set of efficiency savings, amounting to £9 billion by 2013-14.

Yesterday, the Treasury issued a paper indicating that many of these savings are expected to come from government IT, and, in particular, from an increase in shared services centres for “back office” functions.

“Some have argued that we should cut public services immediately rather than invest and grow our way out of a recession, but I believe that would be the wrong thing to do and I can confirm we are able to secure savings whilst increasing investment,” Darling told the Commons this lunchtime.

He added: “The savings will include efficiencies in the public sector, back office functions and IT, improved procurement and better collaboration and innovation at a local level.”

The Chancellor indicated that there would be increased investment in IT and green technologies. He said additional funding would be found to roll-out fast broadband to “most” communities.

The government outlined plans to ensure every home has a broadband connection by 2012 in January this year, and identified the spread of teleheatlh and telecare technologies as a major benefit.

Despite its own energy demands, roadband could also play a role in helping to meet the Chancellor’s pledge to cut Britain’s carbon emissions by 34% by 2020.

The NHS, which has been set tough targets to reduce its carbon emissions, has been told to make more use of teleconferencing and home working technologies, which rely on it.

Initial reaction to the budget from the healthcare sector was muted, with unions and management bodies focusing on the low growth and demand for efficiency savings.

Unison general secretary Dave Prentis said it was clear that “future growth plans have been revised down again” and the government’s hopes for world-class services were “at risk.”

“If efficiency savings are called for, politicians should be honest with the public and not pretend that savings can be made where clearly they cannot,” he added.

King's Fund chief executive Niall Dickson said the budget was a "wake up call" for the health service. "No matter who is in power from 2011, the NHS will have to manage with very low or no growth in its funding," he said. "We are in a serious recession from which the NHS cannot be immune."

Dickson said the challenge for NHS managers would be to deliver efficiencies while still improving quality, by focusing on improving productivity and redesigning services.

"While a degree of short termism is inevitable, what the health service must avoid is crude cost cutting measures, such as freezing posts and delaying care to patients," he said. "This would ultimately leave the NHS in a poorer state when the recovery begins.

Lyn Whitfield and Sarah Bruce

Readers Comments

The cuts are coming . .

chris@cjsquire.plus.com

23 Apr 09 20:32

. . either in an emergency autumn budget this year or in 2010, when they will probably be 'Tory cuts'. So wise NHS managers will start hoarding resources now, out of this coming year's budget, for the many lean years to come. I recommend the excellent blog by Prof Willem Buiter [LSE] at http://blogs.ft.com/maverecon from which comes this:

' . . Under the best possible scenario, taxes will have to be raised and/or public spending cut on a permanent basis by between 5 and 6 % of GDP to regain fiscal sustainability. The necessary permanent fiscal tightening could easily be larger. The pain will be widely felt. The ambition to bring British infrastructure back up to the level it achieved at the end of the 19th century has been postponed by another quarter-century. Education and health will suffer.'

No doubt Trust boards will see their IT budget as expendable once it ceases to be ring fenced or centrally controlled as they did in the days before 'Connecting for Health' was cooked up on a No. 10 sofa.

The view from the Institute for Fiscal Studies

chris@cjsquire.plus.com

24 Apr 09 01:02

The Institute for Fiscal Studies comments [Apr 23]: 'Alistair Darling admitted yesterday that the underlying health of the public finances is much weaker than he thought in last year's Pre-Budget Report, and that it will take two full parliaments of intensifying austerity to get government borrowing back to acceptable levels.

The Chancellor's forecast that the Government would need to borrow £175 billion this year - almost 12½ % of national income - had been well trailed in advance. Much more surprising was the Treasury's assessment that four-fifths of this borrowing will be 'structural' and therefore impervious to economic recovery - whenever it comes and however strong it is.

The Treasury has revised up its estimate of the structural budget deficit for 2010-11 from 7.2 % of national income in the PBR to 9.8 per cent in the Budget, increasing the size of the hole that the Treasury thinks needs to be filled by around £35 billion since the PBR.

This reflects a number of factors. For example, the Treasury thinks that the economic crisis will punch a bigger hole in the productive potential of the economy. It also expects the level of prices in the economy to be lower over the long-term. It has also been hit by the growth of 'VAT debts'.

In response, the Chancellor announced cuts in capital spending plans, cuts in other government spending plans and increase in taxes that will each raise about £9 billion each by 2013-14, adding up to 1.6 per cent of national income. But this will still leave the government borrowing 3.2 per cent of national income more than it needs to invest in that year.

That means that whoever takes office in the general election after next will still have to find another £45 billion a year in today's money by the end of their parliament to eliminate this deficit, from tax increases and cuts in non-investment spending.' [http://www.ifs.org.uk/]

What a joke!

24 Apr 09 11:47

No cuts for the NHS?

Ignore the spin - when Darling Alastair talks about "efficiency savings" and the press talk about £5bn or £10bn "Whitehall cuts" they are talking in euphemisms about cuts in real terms to the NHS and local authorities. We have a national agreement to give pay rises at fixed rates for the next two years and "uplifts" which include "Cash Releasing Efficiency Savings" that make these pay increases unaffordable unless genuine efficiency savings are made or services cut. These so-called "efficiency savings" are cumulative so what looks like an easy 3% efficiency target in year 1 becomes a massive 18% cut in income in real terms by year 5. PBR becomes a nonsense as local commissioners won't have the revenue to pay Trusts ... unless tariffs are reduced accordingly.

I wonder if Hazel Blears will be on the picket line this time round berating Salford's hospital managers for making electorally unpopular cuts in services, forced by unattainable efficency targets foisted on them by her own government? Watch this space!!