The news that NHS providers have overspent by £930m in the first quarter of 2015-16 caused a predictable media storm. The year-end total is expected to exceed £2bn.
Although the scale of these numbers is startling, the existence of deficits within the health service is not new. The chancellor now faces the question of how far to allocate even more resources to the NHS which, unlike local government, the police and fire services, has been protected from public spending reductions.
Expenditure on health in the UK has risen from £100.4bn in 2010-11 to £116.6bn in 2015-16: a 16% uplift. In the same period, local government expenditure in England has fallen by about 15%, though it is hard to calculate this latter figure with precision because of central-local service transfers and statistical re-classifications.
Yet local government is not announcing deficits. By law it is not allowed to do so. Council budgets must balance spending and income. This fact, coupled with the uncertainty surrounding annual finance settlements, leads to the growth in reserves. Treasurers are so careful to avoid expenditure exceeding income that they budget cautiously. Figures released by the Department for Communities & Local Government in late August showed council reserves in England up £982m in 2014-15 outturns.
There are no rewards for local government’s remarkable capacity to manage its finances. The spending review to be announced next month will almost certainly see the chancellor requiring four more years of council budget cuts, though the proposed reforms to non-domestic rates may make it hard to be certain what the precise impact of these parallel changes will be.
One thing is certain: extra cash will be found for the NHS. The government dare not enforce on hospitals the kind of budgetary regime faced by councils. ‘Demand’ has to be met in the health service, but managed down in local government. Council care for older people has seen entitlements reduced. It is small wonder the Local Government Association and Association of Directors of Adult Social Services have this week called for “sustainable” social care funding.
People judge the state by the quality of local public provision. Faith in government is a fragile thing. The Treasury should take care they do not undermine confidence in basic services.