Government plans pose unique challenge to NHS and social services

14 December 2010

The government’s public expenditure plans assume unprecedented efficiency improvements in both social services and the NHS, according to the House of Commons Health Committee.

Launching a report on Public Expenditure, Stephen Dorrell MP, chair of the committee, said:

“The government’s plans for health and social care are based on assumptions which will test these services to the limit.


Sir David Nicholson set out the scale of the challenge facing the NHS in his Chief Executive’s Annual Report in May 2009. At that time he estimated the efficiency savings required at between £15-20 billion over the next four years.


Those figures represent a requirement for the NHS to deliver 4% efficiency gain, four years running. There is no precedent for efficiency gain on this scale in the history of the NHS, nor has any precedent yet been found of any healthcare system anywhere in the world doing anything similar.


The requirement to deliver this result (which we refer to as the Nicholson Challenge) has been endorsed both by Andy Burnham before the General Election, and by Andrew Lansley since the General Election”.

The purpose of the Inquiry was to examine the implications of this commitment for both patients and staff of the NHS.

In addition to these pressures on the NHS, the committee also concludes it is clear that equivalent assumptions about efficiency gain underlie the closely related services provided by local authority social service departments.

“These assumptions about adult social services are important, both for the quality of service provided by those services to elderly and disabled people, and because it is widely accepted that when failures occur in adult social services, the burden falls on the NHS in the form of poor health outcomes, avoidable hospital admissions, delayed discharges and so on,”

says Stephen Dorrell.

The committee therefore asked the King’s Fund to prepare a note analysing the implications of the Spending Review for adult social services and the committee’s report opens with a review of the prospects for these services based on the King’s Fund note.

In particular the committee examined the likely effect on Adult Social Care of two Spending Review commitments:

  • Although the committee sees the PSS Grant is as a welcome gesture, it notes the government has also – with widespread support – ended the ring fence around this grant. It concludes that there must therefore be uncertainty about whether local authority spending decisions will reflect movements in the PSS grant.
  • The government also announced that £1 billion will be transferred from the NHS budget to social service departments to develop social care facilities. The committee describes this development as a “step in the right direction”, but warns that it is important to take the opportunity to make a step change in the interface between health and social care. It describes this requirement as “mission-critical to the successful delivery of the Nicholson Challenge.

“Taking account of these concerns, and the 14% real terms reduction in total local authority expenditure anticipated by the Spending Review, the Committee concluded that efficiency gains of between 2.0% and 3.5% per annum will be required from social service departments to avoid the requirement for service reductions,”

adds Stephen Dorrell.

Although the committee recognizes that such improvements may be possible, it notes that the government itself described them as unprecedented. The committee was therefore unable to conclude that councils could sustain care levels without reducing eligibility criteria.

The committee is strongly of the view that effective social care is a key partner for effective healthcare, and it intends to monitor the delivery of social care objectives throughout the current Parliament.

Turning its attention to the NHS, the committee’s report stresses that – against the background of an NHS budget which is broadly stable in real terms – the Nicholson Challenge is not about cuts, but is about doing more with the same amount of money.

“The committee believes, however, that there is a serious danger of this objective being lost from view, and agrees with Dr Hamish Meldrum, the chairman of the BMA, that the government needs to develop a 'better narrative'. "

says Stephen Dorrell.

“Numerous witnesses pointed to the additional risks created for the NHS by the proposed restructuring of NHS management.


The committee is conducting a separate Inquiry into the future of NHS Commissioning and intends to reserve its main opinions about the proposed restructuring until the publication of that report.


It was, however, impressed by Sir David Nicholson’s recognition that it is not possible to “sustain 152 independent PCT’s between now and 1 April 2013” and his announcement that he anticipated existing PCT’s would form into clusters “both to enable them to devolve their responsibilities to local government and consortia and, on the other hand, to enable them to hold on the accountability chain, which is going to be so critical for us over this period”.

The Committee welcomes Sir David’s recognition of the need to “hold on to the accountability chain”; it believes this will be fundamental to the delivery of the Nicholson Challenge, and therefore to the delivery of the Spending Review.

The committee was also particularly concerned about two other issues affecting the outlook for spending in the NHS:

  • The committee believes it is important for the government to produce an estimate of the likely cost of its reorganization proposals. It thinks it is unhelpful for the government to continue to use the figure of £1.7 billion which is the figure included in the NHS Operating Framework for 2010-11 which was published before the election of the current government.
  • The committee is also sceptical about the government’s belief that 40% of the efficiency gain required by the Nicholson Challenge (i.e. £6-8 billion) can be achieved simply by reducing the tariff. Although the committee recognizes that opportunities exist for efficiency gain as the tariff is reduced, it is concerned that excessive reliance on this instrument will result in both quality reduction and crude cost shunting. 

This report is intended to present a snapshot of the key implications and risks arising from the Spending Review. It will also provide an overall context for later reviews by the Committee into detailed aspects of health and social care policy.

Further Information

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