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24 March 2011

Osborne set to break pledge to protect NHS spending

The IFS warns that higher inflation means NHS spending will be cut by 0.1 per cent.

By George Eaton

The oracle has spoken. The key finding from the IFS’s traditional lunchtime briefing on the Budget is that the coalition is at risk of breaking its pledge to protect real-terms spending on the NHS.

In the Spending Review, George Osborne announced that health spending would rise by 0.1 per cent a year, or 0.4 per cent across the economic period. But as the IFS slide below shows, higher inflation means that real-terms spending will now fall by 0.1 per cent over the next four years.

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Based on current trends, spending will be frozen in 2011-2012 and will fall by 0.1 per cent in 2012-2013. Had it not been for lower-than-expected spending in 2010-2011, the IFS points out, there would have actually been a small real-terms cut in 2011-2012.

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The coalition’s pledge to ring-fence the £101.5bn health budget had everything to do with politics and nothing to do with economics. During the Labour leadership election, Andy Burnham, then shadow health secretary, persuasively argued that it was wrong to spare the NHS from cuts.

He pointed out: “The effect is that he [George Osborne] is damaging, in a serious way, the ability of other public services to cope: he will visit real damage on other services that are intimately linked to the NHS.” But David Cameron refused to abandon what was a prime piece of detoxification.

Since then, this commitment has been overshadowed by Andrew Lansley’s costly and divisive reforms. Labour, which originally planned not to ring-fence health spending, won’t miss an opportunity to add to the coalition’s woes by highlighting this broken pledge. Indeed, Ed Ball has just denounced it as “another broken promise from the Prime Minister” in the Commons.

The question now is whether Osborne is prepared to intervene to rescue what was an expensive and unnecessary pledge.