The excluded middle: Is the 'new money' new or not?

Author: Ben Gershlick, Senior Economist at the Health Foundation
The excluded middle: Is the 'new money' new or not?
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The NHS has always been political. This can have its upsides, but it does also mean politicians like to make big announcements at weekends. And in an effort to announce the biggest numbers that’ll please the most people and hit the most headlines, governments of all persuasions tend to fudge the numbers.

Why announce numbers that account for inflation when you can announce bigger numbers that don't? Or numbers per year, when you can add them all up over five years? By the time people work it out, the story's already on the front pages.

As ever, there was some smoke and mirrors with the latest announcement – of a '£1.8bn NHS cash injection’ for buildings, tech and IT, made up of £850m for 20 specific hospital projects, and £1bn for 'existing upgrade programmes' and 'tackling the most urgent infrastructure projects'.

The first bit of jiggery pokery is the number: only the £1bn actually comes in this year, and a little of the £850m, which is spread over five years. So if you thought the budget was going to increase by £1.8bn this year that's understandable, but unfortunately it's not.

Is there something more sinister going on?

There has been some debate about whether this 'new money' is new at all. Does this mean that (a) it's new money – the NHS can spend £1bn more on capital this year, or (b) it's not new money – this is money that NHS providers already had? Well, both are true. Aristotle was the first person to suggest the law of the excluded middle: something is either true or its negation is true, it can't be both. Of course, he hadn't anticipated just how confusing NHS accounting is.

The answer depends, and stay with me here, on what you mean by 'new' and what you mean by 'money'. When most people think about money they think about cash in bank accounts, or cash in their pocket – and if you were to give them 'new money' they’d be expecting their bank balance to go up a bit.

But – and I can't stress this enough – the Treasury aren't most people. The Treasury thinks in terms of how much you actually spend (rather than how much you have) and control the spending of departments through setting departmental expenditure limits (or DELs). Before you spend it, it's all just hypothetical money to them. The Department of Health and Social Care (DHSC) was set a capital DEL of £5.9bn meaning that's the amount it, and all of the things under it, is allowed to spend on capital – that's buildings, infrastructure, maintenance, equipment etc. Following the announcement today, it looks like this is now closer to £7bn. That is an extra £1bn of spending – one tally in the 'new money' column. The big caveat is that we won't know for sure how much 'new money' has actually been provided until later in the year when we see the detail.

However, there’s another way of looking at it. The Provider Sustainability Fund (PSF) scheme incentivised trusts to make efficiencies in their day-to-day running costs in return for financial rewards (money in the bank). This is money that providers hoped to spend on capital projects.

However, this year trust capital plans and other capital spending amounted to more than the DHSC’s capital DEL of £5.9bn. So there's an issue – people were planning to spend money in their bank accounts (well, technically in the government's bank accounts, but that’s for another time) that they'd earned fair and square. But if they did so the DHSC would overspend its spending limit, which is an extremely serious issue that goes to Parliament and can result in firings of senior officials.

As a result, trusts were asked to reduce their spending plans by 20%. This meant that some trusts had money available to them which they were being asked not to spend. A similar thing happened last year, with trusts cutting about 15% from their original plans.

There is a clear tension here. Some NHS providers are foundation trusts, and one of the incentives to becoming a foundation trust is that the Department can't tell you what to do with your money. This hasn't mattered in recent years because there hasn’t been much money in their accounts, but has been an awkward dynamic for as long as these 'freedoms' have existed.

The announcement today means that they no longer need to cut their plans by 20%, which is partly funded by money they'd already thought they could spend. So, for the trusts that made their efficiencies and had planned to spend their reward, it may feel that now being able to spend this money on capital is no more than what they were promised. One tally in the 'not new money' column.

How have we got here?

To recap: this is 'new money' in the sense that the NHS is going to be allowed to spend £1bn more this year than we thought a week ago, bringing the capital budget from around £6bn to around £7bn. But it’s simultaneously 'not new money' as a big part of it is reversing cuts to plans that providers were asked to make to stop them spending too much money. The problem is different people mean different things when they refer to 'new money'.

So all indications are that it is technically new spending, in that Treasury will allow DHSC to spend an extra £1bn than they planned to allow, meaning overall funding for DHSC will rise. However, to those in trusts whose spending plans were cancelled and can now go ahead, it will feel like cold comfort.

But there are two bigger issues here. Firstly, is this really the way to do things? Short-term announcements halfway through the year, re-announcing money, an opaque process for who gets the money, and not letting trusts spend money given to them then a volte-face weeks later? It creates an environment where it's almost impossible for local areas to plan their capital spending.

Secondly, an extra £1bn of spending is clearly not enough. The current maintenance backlog is £6bn, with capital budgets not increasing for almost a decade and capital per worker down over 17%. It would take over £3bn for England to match the average spending on health capital among similar countries, set to rise to £4bn by 2023/24. And we're £1.5bn behind other comparable countries when it comes to spending on MRI and CT scanners. Whether it is 'new money' or not, an extra £1bn this year was only ever going to be a drop in the ocean.

It is a continuation of the short-termism that has characterised capital spending for years, but hopefully this is the start of a recognition that if the goals of the NHS Long Term Plan are going to happen, it requires taking this a bit more seriously.

This article was first published by the Health Foundation.