NHS savings: time for realism

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The government’s efficiency target for the NHS is simply wishful thinking. When will ministers realise that you can’t change public services just by issuing orders from London?

As a consequence of the UK fiscal crisis the NHS faces the challenge of making £20bn efficiency savings over a four-year period in order to release resources needed to meet increasing demands for services. This equates to approximately 4% efficiency savings per annum.

Let us look at this issue seriously and see the magnitude of the challenge being faced. Start with some history. Over the life of the NHS, annual (real-terms) growth in resources has averaged 3.7% per annum. However, between 1997-2005 average real-terms growth was 5.1% and between 2001-2005 it was 7.1%. Now the NHS is facing, at best, nil growth in resources (and possible reductions) but is expected to generate large-scale efficiency savings.

Let’s be realistic about this. The NHS, over a long period, has developed into an entity whose structures, managerial processes and cultures expect, and are used to absorbing and utilising additional funding growth each year. During the period of the last Labour government, resources were thrown at the NHS as if there were no tomorrow and (as we now know) the government had to borrow substantially to pay for this additional funding, which is why we are now in a mess.

Moreover, over the last ten years or so the productivity of the NHS has (according to some measures) actually declined and some have argued that much of the extra funding put into the NHS has not been used optimally.

How on earth is the NHS expected to be turned around, at relatively short notice, to operate in an environment where funding growth is either nil or negative? It is like the proverbial oil tanker heading for the shore – it takes time to stop and turn it around in a different direction.

The challenges involved were clearly stated by the NHS chief executive, Sir David Nicholson, giving evidence to the Commons Health Select Committee, by warning that the 4% productivity improvements required by the £20bn cut had ‘never been achieved in the history of the NHS or any healthcare system in the world’.

The recently published Kings Fund, How is the NHS Performing, has already provided evidence of the difficulties associated with this efficiency target. The report identified that the majority of NHS trust finance directors questioned said that they were uncertain of meeting their efficiency targets for 2011/12. Nearly half of those interviewed were pessimistic about the financial prospects for their local health economy.

The report also highlighted concern about the prospects for NHS finances as the spending squeeze begins to bite, with three respondents expecting their trust to be in deficit at the end of the financial year. Outside of this evidence, many of us are aware of NHS trusts already in substantial deficit positions after the first quarter of the current year. The conclusion must be that many NHS trusts will struggle to deliver the improvements essential to maintaining quality and avoiding significant cuts to services.

If this represents the situation for 2011-12, what is going to happen in the longer term? The Kings Fund report suggests many trusts will have difficulty in delivering this year’s efficiency target but it must be emphasised that whatever is achieved this year has to be repeated for, at least, the following three years. How many trusts have a long-term (i.e. four years or longer) plan for delivering on-going efficiency improvements of this magnitude?

It seems to me that the £20bn savings target is not based on any substance or evidence of what is achievable and is little more than wishful thinking. It is certainly not going to be achieved just by cuts in managerial numbers and back-office services. The target is probably just a political tactic designed to get the NHS ‘protected’ compared to other public services. In the absence of radical reform (and this seems remote given the recent climb down by the government) the likelihood is that, sometime in the not too distant future, the NHS will face a major financial and political crisis or will be bailed out by the chancellor.

When will ministers and civil servants realise that you will not change public services just by issuing orders and targets from the London and expecting things to happen on the ground in the rest of the country? The former US president Harry Truman made the point that he didn’t make things happen by issuing orders from the White House. He said he spent time ‘kissing backsides’ to make things happen.

The simplistic approach to public expenditure planning and management enshrined in the very centralised command and control mechanisms in the UK is probably the main reason for the abysmal degree of success achieved by all governments in virtually all public policy areas. Governments are very fond of putting local authorities and other public bodies into ‘special measures’ when they are seen as failing. Isn’t it time somebody put central government itself into special measures.

Malcolm Prowle is the co-author of Planning and Managing Public Services: Getting out of the hole due to be published in September

About Malcolm Prowle

Malcolm Prowle is professor of business performance at Nottingham Business School and a visiting research professor at the Open University Business School. Malcolm is an expert on the economics, finance and management of public services. He has advised ministers, senior civil servants and public service managers on a wide range of public policy and implementation issues

2 comments on NHS savings: time for realism

  1. clive woodbridge says:

    Spot on analysis Malcolm. The £20bn was plucked from mid-air with not too much science and now the NHS is pitched headlong in an attempt to match it. We have to hope commonsense applies and the savings are not made at any cost.

  2. Let me be clear about this. I do think the NHS can achieve substantial efficiency improvements but this will mean changing the practices, (and restrictive practices), of health professionals. The mere existence of unwarranted variations in care and large scale variations in unit costs illustrates this. However, realising such efficiency savings will require a proper, coordinated and sustained process of organisational and cultural change (not pretending about it and talking the talk) plus education of the general public, accurate reporting from the media and courage from politicians to face the inevitable backlash and shroud waving from certain NHS staff when faced with change.

    These savings will NOT be achieved just by setting targets and giving orders at the Department of Health and Treasury
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