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Tony Travers: Your budget is shrinking by half

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Councils should prepare for the worse as the NHS requires more cash, writes Tony Travers

The alarm bells are well and truly ringing for the NHS. As general election season approaches, more and more voices are raised to warn the government about the impossibility of sustaining the health service without substantial extra funding. 

A few weeks ago, the Labour MP Frank Field suggested an add-on to national insurance contributions to avoid the NHS “ceasing to exist” because of inadequate resources. Last week, the British Medical Association’s annual conference was told that financial pressure on GPs “is unmanageable, exhausting and unsustainable, and puts safety and quality at risk”. More money will be required.

The King’s Fund is recommending additional resources to avert disaster in the NHS. In last weekend’s Observer, the fund stated that “unless significant additional funding is found patients will bear the cost as waiting times rise, staff are cut and quality of care deteriorates”. NHS England estimates the ‘funding gap’ within the service will be £30bn by 2021. Efficiency savings cannot bridge the gap. 

Local government will have seen its funding cut by 15-20% by the end of this financial year. The NHS by contrast has been protected in real terms and is, indeed, spending 100% more in 2013-14 as it was in real terms in 1997-98. Health spending will be just under 8% of GDP in 2014-15, up from 4.5% in 1989-90.

With all the major parties unwilling to put up taxes above 38% of GDP, a no-deficit Britain will need to cut public spending to 38% of the economy – well below its current level. Both the NHS and councils face a growing and increasingly elderly population. But there is little public concern about councils’ plunging spending, inside or outside government.

So, if NHS spending after 2015 has to rise in real terms and, indeed, as a share of GDP, it is inevitable local government will face even deeper cuts than those already expected. Pensions (over half of the welfare budget) are subject to an inflationary ‘triple lock’. Councils should prepare themselves for real terms budgets in the early 2020s which may be less than half what they were in 2010.

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