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NHS finances

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The NHS is funded through general taxation and national insurance contributions in the UK and in 2005-2006 94.1% of NHS funding in England came from these sources.

The remainder comes from various other sources including NHS contributions, charges such as prescriptions, and land sales and income generation schemes.

In 2001 Derek Wanless was commissioned to produce an honest assessment of long-term financial needs for the NHS and this helped to persuade the government to spend more on the NHS. It announced major increases in NHS spending from 2002 until 2007-2008.

Resources were set to grow from £53.5 billion in 2002-2003 to £87.1 billion in 2007-2008 – a total increase of 43% in real terms over these five years.

Despite this significant investment, NHS finances still have considerable problems. In April 2006 official figures showed that overall deficits for England’s NHS more than doubled to £512 million for 2005-2006 compared to the previous year.

The result of this has been cutbacks at a small but significant number of trusts by dropping use of agency staff, freezing posts and making redundancies.

The Department of Health has sent ‘turnaround teams’ to help the 18 organisations with the worst financial problems.

The RCN estimates that around 15,000 posts are at risk, but the NHS Confederation, which represents NHS organisations, says that because of already empty posts and less agency use, the numbers of people actually losing their job is much lower.

Many different explanations have been put forward as to why this has happened but the basic truth is that although lot of cash has flowed into the NHS, a lot has flowed out again. Demand is growing as are the services provided.

Health policy think tank the King’s Fund believes that almost 90% of new NHS investment in the past year has been spent on higher staff pay (due to implementation of Agenda for Change and new GP and consultants’ contracts) and other cost pressures such as clinical negligence.

The BMA has blamed the government for ‘poorly designed policies and political interference’, citing policies such as the Private Finance Initiative and funding for independent sector treatment centres as having failed to improve patient care and costing unnecessary billions of pounds.

The NHS Confederation says that extra investment in the NHS has largely gone on compensating for chronic underfunding in the 1980s and 1990s.

Employers who are reducing their workforce will have other reasons than finances for doing so, such as the reconfiguration of primary care trusts (from 303 to 152) and the provision of more care in the community rather than in hospitals.

PCTs now control 81% of the NHS budget, but some are commissioning less work from their local NHS hospital and have been encouraged by the Department of Health to consider using other providers.

Updated: September 2006

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