Health: NHS ordered to find massive savings

The new age of austerity for the NHS was signalled by the Department of Health yesterday as it spelt out how it is to achieve £4.35 billion of savings annually by 2012-13.

Even assuming it succeeds, it will still be a stretch to achieve the eye watering £20bn of cumulative savings that NHS chief executive David Nicholson says will be required by 2013-14 to sustain the NHS through the lean years ahead.

All three main parties have promised to protect the NHS from cuts – and the Chancellor yesterday pledged to raise frontline NHS funding in line with inflation in 2011-12 and 2012-13. But because of rising demand from an ageing population and advances in medical care, even a real-terms budget freeze will mean cuts in some services to fund unavoidable increases in others.

The £20bn war chest that NHS trusts have been ordered to find is intended to smooth these bumps in the road ahead. But it is a tall order. As the figures published yesterday by the Office for National Statistics show, NHS productivity fell by 7.8 per cent between 1995 and 2008 (3.3 per cent after adjusting for improvements in quality). To close the £20bn funding gap will require productivity gains of betweeen 3 and 4 per cent a year, according to the Kings Fund, the health policy think tank.

Professor John Appleby, chief economist at the Kings Fund, said: "Improving productivity has to be the top priority if the NHS is to maintain quality and avoid having to cut services. Politicians will need to be honest about the scale of the challenge ahead and help the public to understand that some of their services may need to change in order to improve efficiency and maintain quality."

The Department of Health said target savings to deliver an overall total of £4.35bn annually by 2012-13 would focus on driving down prices for goods and services bought by the NHS (saving up to £1.5bn), reducing staff sickness absence in the NHS (£555m), cuts to the IT programme (£100m), more efficient use of land and buildings (£70m) and reductions in energy use (£60m).

Longer term cumulative targets are to save £3.5bn from improvements in staff productivity, £2.7bn from improved care of patients with long-term chronic conditions avoiding emergency hospital admissions, £1.5bn from reducing unnecessary prescriptions and hospital referrals, and £2bn in management savings.

Health secretary Andy Burnham said: "The NHS budget is in a strong position after a decade of record investment. I am pleased that the Budget locks in that growth. As a result of this funding, the NHS is today more resilient, has more capacity and provides better care than ever before."

"We have already challenged the NHS to deliver efficiency savings of £15-20bn by 2013/14. By making tough efficiency savings, this will mean we can continue to increase real terms resources available for patient care year by year."