The NHS crisis that none of the parties will discuss: how to pay for it

With a £30bn funding gap, all parties need to decide whether they would raise taxes, cut spending elsewhere, or impose patient charges. But don't expect them to tell us.

If there's one NHS issue that none of the parties are prepared to confront, it's that of funding. The common view is that the health service has been shielded from austerity by having its budget ring-fenced, but in reality the reverse is the case. Owing to the above-average rate of inflation in the service, the NHS requires real-terms rises just to stand still. As a recent Social Market Foundation paper noted, "A ‘flat real’ settlement for the NHS is mot what it sounds like since it is defined with reference to an irrelevant price index. To keep up with rising input costs, growing demand, and the public’s expectations for an adequate healthcare system, growth in spending on health has historically outstripped GDP growth." 

By historic standards, the NHS is undergoing austerity. Since 1950, health spending has grown at an average annual rate of 4%, but over the current Spending Review it will rise by an average of just 0.5%. As a result, in the words of the SMF, there has been "an effective cut of £16bn from the health budget in terms of what patients expect the NHS to deliver". Should the NHS receive flat real settlements for the three years from 2015-16 (as seems probable), this cut will increase to £34bn or 23%.

If they wish to avoid a significant fall in the quality and quantity of services, this government and future ones are left with three choices: to raise taxes, to cut spending elsewhere, or to impose patient charges. The third of these is proposed by the think-tank Reform today, which calls for a £10 charge for GP consultations, £10 fines for missed appointments, the introduction of a means-tested system for end of life care and an increase in prescription charges from £7.85 to £10 (with exemptions for those on low-incomes). It estimates that these measures would raise around £3bn a year, with research director Thomas Cawston commenting: "Few will want to debate higher NHS charges but the funding outlook for the service makes it unavoidable. Prescription charges are the easiest route to new revenue, with exemptions for people on low incomes built in." If this seems heretical, it's worth remembering that our "free" health service hasn't been truly free since Labour chancellor Hugh Gaitskell introduced prescription charges for glasses and dentures in his 1951 Budget (although they have now been abolished in Scotland, Wales and Northern Ireland).

But perhaps unsurprisingly, the Department of Health has responded by dismissing the idea out of hand. A spokesman said: "We have been absolutely clear that the NHS should be free at the point of use, with access based on need. That is why we have increased health spending in real terms alongside £20bn of efficiency savings to make sure the NHS continues to provide excellent care."

Labour, meanwhile, spying an opportunity to cause political mischief, has commented: "Patients will be alarmed that friends of Number 10 want to see charges for GP appointments and hospital care.

"Labour froze prescription charges before the election, but they have increased year on year under David Cameron. They are now creeping towards £10, as these plans want, and are adding to the cost of living crisis.

"The Government must come clean on any plans to charge for NHS care. They have already lost people’s trust over the crisis in A&E and thousands of axed nursing jobs – this will only add to it."

But this merely defers the question of how we will ultimately pay for a health service of the standard the public both expect and deserve. Will any party grasp this nettle before 2015? Don't count on it. 

Jeremy Hunt delivers a speech during his visit with David Cameron to the Evelina London Children's Hospital on July 5, 2013 in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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In the row over public sector pay, don't forget that Theresa May is no longer in charge

Downing Street's view on public sector pay is just that – Conservative MPs pull the strings now.

One important detail of Theresa May’s deal with the Democratic Unionist Party went unnoticed – that it was not May, but the Conservatives’ Chief Whip, Gavin Williamson, who signed the accord, alongside his opposite number, the DUP MP Jeffrey Donaldson.

That highlighted two things: firstly that the Conservative Party is already planning for life after May. The deal runs for two years and is bound to the party, not the leadership of Theresa May. The second is that while May is the Prime Minister, it is the Conservative Party that runs the show.

That’s an important thing to remember about today’s confusion about whether or not the government will end the freeze in public sector pay, where raises have been capped at one per cent since 2012 and have effectively been frozen in real terms since the financial crisis.

Michael Fallon, the Defence Secretary, signalled that the government could end the freeze, as did Chris Grayling, the Transport Secretary. (For what it’s worth, Gavin Barwell, now Theresa May’s chief of staff, said before he took up the post that he thought anger at the freeze contributed to the election result.)

In terms of the government’s deficit target, it’s worth remembering that they can very easily meet Philip Hammond’s timetable and increase public sector pay in line with inflation. They have around £30bn worth of extra wriggle room in this year alone, and ending the pay cap would cost about £4.1bn.

So the Conservatives don’t even have to U-turn on their overall target if they want to scrap the pay freeze.

And yet Downing Street has said that the freeze remains in place for the present, while the Treasury is also unenthusiastic about the move. Which in the world before 8 June would have been the end of it.

But the important thing to remember about the government now is effectively the only minister who isn’t unsackable is the Prime Minister. What matters is the mood, firstly of the Cabinet and of the Conservative parliamentary party.

Among Conservative MPs, there are three big areas that, regardless of who is in charge, will have to change. The first is that they will never go into an election again in which teachers and parents are angry and worried about cuts to school funding – in other words, more money for schools. The second is that the relationship with doctors needs to be repaired and reset – in other words, more money for hospitals.

The government can just about do all of those things within Hammond’s more expansive target. And regardless of what Hammond stood up and said last year, what matters a lot more than any Downing Street statement or Treasury feeling is the mood of Conservative MPs. It is they, not May, that pulls the strings now.

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

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