Unfunded pay rises are not the solution

Essentially prison and police services will have to find the cash from their already stretched budgets.

No one doubts that public sector workers need a pay rise. But an unfunded pay rise may lead to further deeper cuts elsewhere. Already, police chiefs are warning that this will result in job cuts. If this policy was to be extended across the public sector the results would be hugely damaging. In the NHS, they could be catastrophic.

A recent report by the Nuffield Trust lays out exactly what the risks are. The NHS Five Year Forward View requires commissioners and providers to find enormous ‘efficiency savings’ in order to plug the £22bn funding gap that our health service faces, as funding flat lines at a time of rising demand.

NHS providers have gone to great lengths to find these savings but the costs have been high. Unlike other services, the health service cannot easily respond to reductions in funding by reducing the service it provides. And we wouldn’t want it to. This means there are three main ways that trusts have covered the shortfall. They have capped staff pay, increased waiting times and they have run deficits.  Ultimately there is a risk that quality of care might suffer.

The fundamental problem is that since 2010 there has been a persistent gap between the income that Trusts receive and the costs they incur, leading to escalating deficits.

Whereas, overall funding for the NHS roughly corresponded with hospital admissions, since 2010/11 that connection has been broken.

This has been exacerbated by cuts to the tariffs paid per operation. This means that NHS acute trusts receive less money per hip replacement (for example) than they did before 2010. The idea being that they will find efficiencies to plug the gaps. Some of these tariffs have recently been increased again, albeit it a rate lower than inflation - for instance the tariff for caesarean sections – but nonetheless the years of reduced rates have taken their toll.

At the end of 2016/17 the underlying NHS deficit was £3.7bn, once we strip away the short-term non-recurrent funding fixes such as the £1.8bn bail outs through the Sustainability and Transformation Fund and land sales. If this strikes you as alarming, it should. But it needs to be measured against the £6bn in unfunded cost pressures NHS trusts faced in real terms over the year. It is a testament to the ingenuity and dedication of NHS staff across the organisation that they managed to find £2.3bn of recurrent savings. But this should not blind us to the immense fiscal risks that remain.

NHS staffing levels have been rocky over the last seven years – with negative growth from 2011 to 2013- but have risen since. Nonetheless growth is slowing and the NHS faces serious staffing pressures at a time when service use is increasing across a range of areas. The net increase in qualified midwives was only 79 last year. Health Education England has estimated that there is a staffing shortfall of 8.9% in nursing. 

At the same time, there has been a widely publicised increase in calls on accident and emergency services. Since 2003/4 attendance at A&Es has increased from 18 million to 22.9 million, an increase of 39% in 2015/16.

The NHS is staffed by dedicated and talented professionals at all levels. As a result, patients have not seen the negative outcomes you might expect from this kind of pressure. But we have still seen worrying trends in staff turnover and morale, and in terms of waiting times. The service is already struggling to carry on with present levels of funding. Staff need a fair pay deal, but if this has to be funded from current budgets, the service risks intensify.

As parliament returns to work, and we begin the run up to the first Autumn Budget it’s vital that the government reflect on these issues. We a new funding settlement for the public sector which gives providers  the resources they need to meet increasing demand and  recruit, retain and reward the staff that deliver their services.

Instead of divisive and unfunded pay rises for some, the public sector needs a properly funded pay rise, all of it.