NHS funding is facing the biggest real cuts since the 1970s, IFS warns

NHS funding is facing the biggest cuts in real terms since the 1970s, an influential analysis has found, amid growing pressure on Jeremy Hunt to prioritize funding for public services over tax cuts in the budget.

It comes as the Guardian has learned that the Chancellor plans to tackle the NHS’s £4.6 billion annual bill for agency workers to cover shortages of doctors and nurses on the frontline.

Healthcare spending in England will suffer by 1.2% – worth £2 billion – in the new financial year starting next month, despite the NHS facing additional costs from ongoing wage strikes and the expansion of the workforce, according to an analysis by the Institute for Budgetary Studies (IfS).

The healthcare budget, which the NHS will receive almost entirely, will go from £168.2 billion in 2023-2024 to £166.2 billion in 2024-2025, after adjusting for inflation, in 2022-2023 prices.

Without a government rethink, the cut in funding will force the NHS to make cuts to its workforce, staff wages, the services it provides to patients, or all three. the think tank warned.

Healthcare spending will be cut in real terms in 2024-2025 – graph shows up and down to £166.2 billion

The intervention comes as Hunt considers making billions more cuts from his government spending to fund further cuts to income tax or national insurance in this week’s budget.

Economists have calculated that such a move would mean removing as much as a fifth of budgets from certain “unprotected” departments in the five-year parliament, covering areas such as justice, home affairs and local government.

The level of public spending planned for the next parliament could mean cuts equivalent to those made by David Cameron’s government during the years of austerity from 2010 to 2015. That has prompted warnings that the next government will not could implement, and would be forced to raise taxes or borrow more to finance emergency spending.

The Liberal Democrats branded the plan to cut the NHS budget “outrageous”. Physician leaders warned this would harm patients. And hospital bosses said they would struggle if it went ahead as the estimated £2 billion cost of 15 months of strikes has left their finances in a perilous state.

Lib Dem Treasury spokesperson Sarah Olney said: “What this Conservative government is doing to our NHS is nothing short of disgraceful. They have left the healthcare system shockingly underfunded and it is the patients who are bearing the brunt of their neglect.”

She urged Hunt to cancel the planned budget cuts he will present to MPs on Wednesday.

Healthcare spending in England and Scotland is currently forecast to fall in real terms over the next financial year – a bar chart showing the impact in England, Scotland and Wales, with only Wales set to see a very small increase

Meanwhile, hospital doctors expressed alarm that with the NHS already in “perpetual crisis” and unable to meet growing demand for care, pushing ahead with planned cuts could be “terminal” and harm patients.

Dr. Tim Cooksley, former president of the Society for Acute Medicine, said: “Against this backdrop, rumors of funding cuts could be the last straw for many colleagues and could undoubtedly cause serious harm to large numbers of patients.

“There is consensus that the situation in the NHS has never been more challenging. Financing is only part of the solution, but it is crucial. A reduction at this stage could be a terminal event.”

David Phillips, deputy director at the IFS who carried out the analysis, said: “Existing plans (public spending) entail real cuts of around 1.2% in daily spending (in 2024/25) – the biggest fall since the 1970s following the 1976 IMF crisis, with the exception of the past two years when temporary financing related to the Covid-19 pandemic expired.

“A real reduction in health care spending would require a combination of cuts in staffing, wages and services.”

Phillips also announced that the Government needed to give the Department of Health and Social Care an emergency injection of £4.4 billion in additional Treasury funding over the course of the current financial year to ensure the Department – and the NHS – do not blow their budgets would make. The DSHC had not announced this.

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It is believed that the NHS has received around £4 billion of the £4.4 billion, which was intended to cover pay rises for staff, the cost of industrial action, schemes to help the service cope with the winter and also for the share of the healthcare surcharge that migrants, or their employers, pay to cover the costs of their NHS care.

The DHSC budget for 2023-2024 was originally expected to be £164.2 billion. However, it rose to £168.2 billion as ministers gave what health economists called an “in-year freeze” of around £4 billion to avoid a shortage.

The department would have a budget of £166.2 billion for 2024-25. However, the additional £4.4 billion in support received this year left next year’s budget on track to be £2 billion less than now, prompting IfS intervention, Phillips explained .

Julian Hartley, the chief executive of NHS Providers, which represents healthcare trusts, said: “These figures will ring alarm bells for trust leaders who are already struggling to provide patient care in a hugely challenging financial environment.

“Fifteen months of strike action has left the NHS with an eye-watering bill due to lost income from delayed operations, scans and procedures and the provision of cover for striking staff.

“With concerns that industrial action will continue into the coming financial year, trust leaders are rightly concerned that these costs could continue to rise. Given the additional pressure that industrial action places on NHS budgets, it is vital that the Treasury Funds strike costs are fully utilised.”

Hunt is also planning to announce a restriction on the money the NHS gives to employment agencies – £4.6 billion in Britain and £3.5 billion in England alone – as a result of a review of the productivity in the public sector by the Ministry of Finance. He will set a maximum on the amount that the service as a whole can hand over to them.

Wes Streeting, the shadow health secretary, branded the Chancellor a “hypocritical Hunt” because the DHSC increased the annual limit on such spending by £450m last year. Streeting also pointed out that in 2015, when Hunt was health secretary, he announced a similar crackdown on agencies charging ‘excessive hourly rates costing billions of pounds a year’.

Streeting said: “Taxpayers are paying a high price for fourteen years of conservative failure.

“The Conservatives refused to train the doctors and nurses our NHS needs, leaving the health service reliant on scam agencies. They then forced doctors and nurses into the worst strike in the history of the NHS, leaving patients waiting longer and taxpayers footing the bill.

“Expecting the hypocrite Hunt to fix the mess he made is like expecting the arsonist to put out the fire they started – that’s not going to happen.”

The DHSC was contacted for a response.