NHS leaders face impossible choices over whether to cut patient care or reduce investment in much needed diagnostic capacity and new technology after a series of unexpected cost pressures, including a new pay award for staff, left the NHS facing its first real terms cut in funding.

The Government has now confirmed that it will make further investment in the pay of NHS staff of approximately 5 per cent overall. However, only 3 per cent of this investment in pay has been budgeted for. With no extra money coming from the government to pay for the additional 2 per cent investment, the NHS will have to absorb this within its existing budget. This is around an extra £1.8 billion of costs that were not planned for.   

The extra costs of pay are on top of a range of other unexpected cost pressures that are eating into the NHS budget, including:

• The impact of high energy costs and soaring inflation more generally, which is reducing the value of the NHS budget.  
• The ongoing costs from Covid, including from providing free lateral flow tests for staff (these costs are no longer funded centrally by government).

New analysis from the NHS Confederation confirms that these extra costs mean the health service is this year facing a real-terms cut in funding of between £4 billion and £9.4 billion (depending on which measure of inflation is used*). This is one of the reasons why the NHS is required to make efficiency savings of 2.2 per cent, which is double the requirement of recent years.

This is a far cry from the planned 3.8 per cent annual real terms increase in NHS funding up to 2024/25, which was outlined in the government’s Spending Review last October.

Local NHS leaders now fear that these extra costs will hold back attempts to reduce the size of the elective waiting list, especially as national NHS leaders have warned that money will need to be released from existing programmes such as those designed to rollout new technologies and boost diagnostic capacity across the NHS. These are key areas of investment that are required to reduce the elective and cancer care backlog.

Local leaders fear it may also result in capital budgets being raided to plug holes in the day to day (revenue) budget of the NHS. This was a common feature during the ‘decade of austerity’ in the 2010s when the NHS received the lowest annual funding increases in its history.  

Matthew Taylor, chief executive of the NHS Confederation, said:

“We have been calling for the government to help NHS and social care staff with the cost-of-living crisis by increasing their pay, but what we did not expect was that these extra costs would have to come from within the current health budget. Put simply, this wasn’t budgeted for and will have unintended consequences for patient care.  

“NHS leaders are used to having less money than their local services need, but what we are seeing now is a yawning gap between the funding the NHS needs and what it has at its disposal. The real terms cut this year is at least £4 billion and we think it represents the first real-terms cut in funding since 1997.  

“This leaves the NHS in a perilous position: either local leaders will have to cut back patient care or accept that waiting times will continue to lengthen. We are already being told that investment in new technology and diagnostic capacity will suffer as a result of this and these are critical areas if we are to reduce the elective and cancer care backlogs. The government has placed the NHS in an impossible position.  

“At the same time, candidates to be the next Prime Minister continue to make hollow claims about how the government is increasing investment in the NHS. This is no longer true. That’s why we have been calling for a realism reset about the state of the NHS to be injected into the leadership debate.

“We need the government and future Prime Minister to level with the public about the scale of the challenge facing the NHS and social care, and to do away with the myths and political rhetoric. This must include a proper acknowledgement of where the lack of investment during the 2010s have left the NHS, and the huge gulf between levels of demand and capacity. That honesty means crumbling buildings and ill-equipped and outdated estate, 105,000 staff vacancies at the last count, and a social care system in desperate need of repair and very far from being fixed as the current Prime Minister would have us believe.   

“The alternative approach is for political leaders to bury their heads in the sand and wish away the reality. But, as ever, patients will suffer if we don’t collectively grip this challenge. Failure to do so will significantly impact the kind of care that the NHS can provide to the public in the months and years ahead.”