Magazine article Public Finance

From Feast to Famine

Magazine article Public Finance

From Feast to Famine

Article excerpt

'Behold, there come seven yean of great plenty throughout all the land of Egypt And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt; and the famine shall consume the land.'

Thus, in the Bible, Joseph interprets the pharaoh's mysterious dream of thin cattle eating fat cattle and thin ears of corn devouring full ears. Confident central government, prompt strategic planning initiatives and strong project management then enable Egypt to lay up stores of grain in readiness for the famine ahead. You can read the full story in Genesis 41 and 42.

These early years of the twenty-first century have been times of relative affluence for the health sector in England. The 2002 Budget allowed for an average 7.4% real-terms funding increase each year from 2003/04 to 2007/08, a growth level unprecedented in modern times and the envy of other government spending departments.

Health has had five years of plenty. Yet the story of NHS finance has also been one of seemingly incurable deficits, typically running at around 0.5% of the total budget, irrespective of how big that budget becomes. Getting back into the black remains the major preoccupation for many NHS organisations.

'Where did all the money go?' has been a commonly heard question. But now a second, and perhaps more challenging, question is being whispered within the NHS finance community. How on earth will the health service cope in 2008/09 and after, when annual cash uplifts of 10% or so have become a distant memory?

Back in Egypt, the corn stores were ready and waiting when the famine years began. We, however, have gobbled up all our revenue funding as we've gone along, and returning a few hundred million pounds worth of unspent capital to the Treasury isn't quite the same as laying down a reserve.

At the CIPFA health conference this October, Richard Douglas, long-serving NHS finance director, compared the health sector's situation to that of slightly overweight people who are advised by their doctors to diet Eat less, exercise more.

It sounds easy, but many overweight people stay heavy despite their best intentions. Do NHS organisations have the willpower to stick to such a regime? And what support, what strategies, might an entity accustomed to consuming 9% of GDP - and to steady expansion - need for success?

Self-discipline and willpower, otherwise known as sound financial management, will help. There is ample evidence from recent financial crises in the NHS that breakdowns of budgetary control, establishment control and accountability processes, combined with boards and audit committees unwilling or ill-equipped to challenge, mark the road to deficit

The Audit Commissions Learning the lessons from financialfailure in the NHS, published in July, spotlights these patterns and the way their mirror image - strong information, strong accountability, strong board leadership - often forms the foundation of successful recovery.

But good discipline will go only so far. The drivers of higher spending on health care are real. One is pay inflation. Chancellor Gordon Browns aspiration of a 2% pay ceiling across the public sector might prove difficult to impose in health, where there is a well-established locum and agency sector (allowing dissatisfied staff to sidestep inflation controls), competition from a growing independent health sector and significant leakage of trained staff into other industries.

Another is demand. Across western Europe the desire for, and expectations of, health care continue to rise. England is now spending around 9% of GDP on health care, but in other major economies the proportion is between 11% and 13%.

The third driver is the perennial combination of demographics and science: an ageing population makes greater demands on our health care system, while technology and the pharmaceutical industry never stand still.

What, then, are NHS managers to do? …

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