Spending squeeze for NHS despite Darling's promise

Budget cuts and pay freezes after unprecedented growth in investment, Government warns

Hospitals and GP practices are facing a squeeze on spending not seen for more than a decade, the Government revealed yesterday.

A pay freeze for doctors, real cuts in hospital and GP budgets and a "slash and burn" approach to management are foreshadowed in one of the gloomiest documents on the NHS published by a Labour government.

To ease the pain, patients are to be given a greater voice in determining where funds go in the NHS, with up to 10 per cent of a hospital's income dependent on its meeting acceptable levels of patient satisfaction.

After a decade of unprecedented growth that has seen NHS staff numbers soar and waiting times plunge, yesterday's announcement – though long anticipated – represents an astonishing reverse. And this in a service supposedly protected from cuts.

Despite Chancellor Alastair Darling's pledge to shelter hospitals and schools from the economic hurricane, there are stormy times ahead. Yesterday the Department of Health published its "vision" for the NHS over the next five years, optimistically titled "from good to great", which lays bare the gravity of the challenge.

The "protection" promised to the NHS by the Treasury is relative, of the kind afforded to a low-rent mafioso from a Godfather. Mr Darling announced on Tuesday that next year's (2010-11) pre-planned NHS increase would go ahead and 95 per cent of the budget that pays for front line services would be uprated for inflation to 2013. That amounted to £3.7bn extra for the NHS over the next three years – enough to prompt initial sighs of relief from medical organisations. But the increase is dwarfed by recent record rises, and will not be enough to keep pace with the demands of an ageing population, advances in treatment and higher patient expectations. David Nicholson, the NHS chief executive, has said efficiency savings of £15-20bn will be required in the three years from 2011, in addition to the £3.7bn increase.

If the NHS is facing hard times, however, other Government departments are preparing for cuts on a frightening scale. The Institute for Fiscal Studies yesterday estimated that, with the exception of hospitals and schools, the public sector should expect cuts of 13 per cent – 6.4 per cent a year – over the two years from 2011-13.

Yesterday's NHS document shows that even achieving the lower level of saving required in the health service will cause unavoidable pain. The report signals a four-year freeze on the hospital "tariff" – the prices charged by hospitals to Primary Care Trust's for treating their patients. As staff, equipment and other costs rise, hospitals face a real terms cut.

Following the Chancellor's announcement of a 1 per cent cap on pay rises for all NHS staff from 2011, ministers have turned the screw a notch tighter on the highest paid by recommending a zero pay rise for consultants, GPs and senior NHS managers for 2010-11 to the NHS Pay Review Body. They have also said that GPs should be required to cut the cost of running their practices by at least 1 per cent.

Management costs in PCTs and Strategic Health Authorities are to be slashed by 30 per cent over four years, the report says. For lower-paid staff the offer of an employment guarantee in return for flexibility, mobility and "sustained pay restraint" will be explored.

Speaking at the launch of the report before an audience of NHS chief executives in London yesterday, Andy Burnham, the health secretary, said that there would be no going back to the longer waiting times that affected the NHS when money was tight in the past.

"That will not happen this time," he said. "Once we were all about building capacity in the NHS. Now we must focus on getting more from this expanded system."

Mr Burnham said he wanted a more "preventative and people-centred" NHS. Making hospitals depend for up to 10 per cent of their income on meeting acceptable levels of patient satisfaction was part of a "symbolic shift", he said. "I want to encourage the NHS to look at the service though the eyes of patients and their families." Patients would also be offered more choice to register with GPs anywhere; one-to-one care for complex conditions such as cancer; and the right to die at home.

Mr Burnham attacked the Tories for pledging to reverse the rise in National Insurance contributions announced by the Chancellor. "It is quite ridiculous for them to oppose that rise and then say they will ring-fence NHS funding without saying where the money will come from. They should not be allowed to get away with it."

Andrew Lansley, the Tory shadow Health Secretary, said: "Andy Burnham's announcement falls badly short in providing the vision, reform and new ideas that the NHS needs. Conservatives have promised to free up the NHS from Labour's waste and bureaucracy, put power in the hands of patients and protect NHS spending, with real terms increases every year."

Dr Hamish Meldrum, chairman of the British Medical Association, said: "Repeated talk of 'pay restraint' when what is really meant is no pay rise at all, is demoralising. While healthcare workers clearly understand the financial pressures on the NHS, and will want to act responsibly, they should not be punished for a situation which is not of their making."

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