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Logo of bmjThis ArticleThe BMJ
BMJ. 2007 April 7; 334(7596): 715.
PMCID: PMC1847884

Hewitt predicts 3% NHS growth for three years from 2008

Nicholas Timmins, public policy editor

Patricia Hewitt, the health secretary, has said she is confident that the NHS will get a minimum of 3% growth a year in real terms for the three years after 2008.

And the Department of Health has finally agreed to unwind the “double whammy” of the “resource accounting and budgeting” rule—for NHS hospital trusts but not for primary care trusts.

Under the rule, hospitals that overspend, by say £10m (€15m; $20m) on a £100m budget, have not only to pay that off but also lose the same amount from their next year's budget. In effect the hospital would have to make savings of £20m before the £10m is restored to the following year's budget.

This plunged 28 NHS hospital trusts into a financial position from which they might not be able to recover. With the NHS set to make a tiny surplus in the financial year just ending, the Department of Health will use part of a £450m contingency reserve created by the strategic health authorities, chiefly by slashing training budgets, to write off the £178m deficit that the resource accounting and budgeting rule created.

This has to be good news for the affected trusts, but it is not a complete solution. Four trusts have deficits of between £12m and £21m unrelated to the resource accounting and budgeting rule, and the change puts only nine of the 28 trusts back into break even or surplus. Their remaining deficits will have to handled in the normal way.

In addition, officials at the Department of Health admit that perhaps 15 to 20 NHS trusts have a scale of deficit that cannot possibly be repaid in the foreseeable future. Other answers—takeover by a foundation trust in some cases—will have to be found.

The resource accounting and budgeting rule remains for primary care trusts. This is not unreasonable. An analogy is a credit card. Overspend and you not only have to find the money to repay it, but you also have to reduce your consumption by the same amount to find the cash—a “double whammy.” Although that works as a fierce financial discipline for purchasing organisations, which is what primary care trusts chiefly are, it doesn't work for hospitals because their income increasingly depends on activity, through payment by results, not on block grants.

On the big money, Patricia Hewitt told the Financial Times last week that although the figure is yet to be settled she is confident that the NHS will get a minimum of 3% growth in real terms from 2008. That is about the long term average between 1948 and 2000.

The figure is less than the 4.4% at the bottom of the range that Sir Derek Wanless suggested would be needed in his 2002 review of health spending, but it is more than some in the NHS had been fearing.

An analysis by the Institute for Fiscal Studies shows that, with education spending settled as part of the budget, there is enough money left in the spending round for the NHS to get 4.4 %. But that would imply a complete freeze for other departments yet to settle, which includes the defence, transport, and environment departments. And it would leave little or no extra money for tackling child poverty, a target that the government is badly missing.

The best guess at this stage must be a 3-3.5% increase—and probably closer to 3%. The bad news is that thanks to Tony Blair stepping down, the number will not be settled until October at the earliest. That means it will be November or December before health authorities learn precisely how much they will be getting next April.

Under the normal spending timetable, the NHS would have known the headline figure last July. At least now, however, it has a pretty clear idea of roughly how much it will be.

Articles from The BMJ are provided here courtesy of BMJ Group