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NHS funding faces biggest real-terms cuts since 1970s, warns IFS

<span>Jeremy Hunt is considering cutting billions more from public spending to pay for further reductions in either income tax or national insurance.</span><span>Photograph: Christopher Thomond/The Guardian</span>
Jeremy Hunt is considering cutting billions more from public spending to pay for further reductions in either income tax or national insurance.Photograph: Christopher Thomond/The Guardian

NHS funding faces the biggest cuts in real terms since the 1970s, an influential analysis shows, amid growing pressure on Jeremy Hunt to prioritise public service funding over tax cuts in the budget.

It comes as the Guardian has learned that the chancellor is planning to clamp down on the NHS’s annual £4.6bn bill for agency workers who cover for doctor and nurse shortages at the frontline.

Health spending in England is due to suffer a 1.2% cut – worth £2bn – in the new financial year starting next month, despite the NHS facing extra costs from continuing pay strikes and the expansion of its workforce, according to an analysis by the Institute for Fiscal Studies (IfS).

The health budget, almost all of which the NHS gets, is to go from £168.2bn in 2023-24 to £166.2bn in 2024-25, after adjustment for inflation, in 2022-23 prices.

Without a government rethink the reduction in funding will force the NHS to cut staffing numbers, staff pay, the services it provides to patients or all three, the thinktank warned.

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Its intervention comes as Hunt is considering cutting billions more from his public spending plans to pay for further reductions in either income tax or national insurance in this week’s budget.

Economists have calculated that such a move would mean taking as much as a fifth out of budgets for certain “unprotected” departments across the five-year parliament covering areas such as justice, home affairs and local government.

There were also reports on Monday night that the chancellor was looking to give motorists a £5bn boost by extending the “temporary” 5p-a-litre cut in fuel duty by another year.

The level of public sector spending pencilled in for the next parliament could mean cuts equivalent to those undertaken by David Cameron’s government during the years of austerity from 2010 to 2015. That has prompted warnings that the next government would not be able to implement them, and would be forced either to raise taxes or borrow more to fund emergency spending.

The Liberal Democrats said the plan to cut the NHS budget was “scandalous”. Doctors’ leaders warned it would harm patients. And hospital bosses said they would struggle if it went ahead because the estimated £2bn cost of 15 months of strikes have left their finances in a perilous state.

Sarah Olney, the Lib Dem’s Treasury spokesperson, said: “What this Conservative government is doing to our NHS is nothing short of scandalous. They have left health services shockingly underfunded and it is patients who are bearing the brunt of their neglect.”

She urged Hunt to cancel the planned cut in the budget he will present to MPs on Wednesday.

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Meanwhile, hospital doctors voiced alarm that, with the NHS already in “an eternal crisis” in which it cannot meet the growing demand for care, pressing ahead with the planned cut could be “terminal” and would harm patients.

Dr Tim Cooksley, the immediate past president of the Society for Acute Medicine, said: “On this background, rumours of a funding cut could be the final straw for many colleagues and would undoubtedly cause severe harm to large numbers of patients.

“There is consensus that the situation in the NHS has never been so challenging. Funding is only part of the solution but a crucial one. A reduction at this stage could be a terminal event.”

David Phillips, an associate director at the IFS who carried out the analysis, said: “Existing [government spending] plans entail real-terms cuts of around 1.2% in [NHS] day-to-day spending [in 2024/25] – the largest reduction since the 1970s following the 1976 IMF crisis, except for the last two years as temporary funding related to the Covid-19 pandemic expired.

“A real-terms reduction in health spending would require some combination of reductions in staffing, pay and service provision.”

Phillips also disclosed that the government had to give the Department of Health and Social Care an emergency injection of £4.4bn of extra Treasury funding during the course of the current financial year to ensure that it – and the NHS – did not bust their budgets. The DSHC had not publicised that.

The NHS is thought to have received about £4bn of the £4.4bn, which was to cover staff pay rises, the costs of industrial action, schemes to help the service cope with winter and also its share of the health surcharge that migrants, or their employers, pay to cover the cost of their NHS care.

The DHSC’s budget for 2023-24 was originally due to be £164.2bn. However, it rose to £168.2bn as a result of ministers giving it what health economists call an “in-year bung” of about £4bn, to avoid a shortfall.

The department was and remains due to be handed a budget of £166.2bn for 2024-25. However, the £4.4bn top-up received this year meant that, as a result, next year’s budget was on course to be £2bn less than this one, prompting the IfS’s intervention, Phillips explained.

Julian Hartley, the chief executive of NHS Providers, which represents health service trusts, said: “These figures will ring alarm bells for trust leaders who are already struggling to provide patient care in a hugely challenging financial environment.

“Fifteen months of strike action have landed the NHS with an eye-watering bill due to income lost from delayed operations, scans and procedures and providing cover for striking staff.

“With worries that industrial action looks set to continue into the next financial year, trust leaders are rightly worried that these costs could continue to mount. Given the extra pressure industrial action is putting on NHS budgets, it’s vital the Treasury funds trusts’ strike costs in full.”

Hunt also plans to announce a clampdown on the money the NHS gives to employment agencies – £4.6bn across the UK and £3.5bn in England alone – as a result of a Treasury review of productivity across the public sector. He is set to cap the amount the service as a whole can hand them.

Wes Streeting, the shadow health secretary, labelled the chancellor “hypocrite Hunt” because the DHSC last year raised the annual cap for such spending by £450m. Streeting also pointed out that in 2015, when Hunt was the health secretary, he announced a similar crackdown on agencies which charged “extortionate hourly rates which cost billions of pounds a year”.

Streeting said: “Taxpayers are paying a heavy price for 14 years of Conservative failure.

“The Conservatives refused to train the doctors and nurses our NHS needs, leaving the health service to rely on rip-off recruitment agencies. Then they forced doctors and nurses out on the worst strike in the history of the NHS, leaving patients waiting longer and taxpayers picking up the bill.

“Expecting hypocrite Hunt to fix the mess he’s made is like expecting the arsonist to put out the fire they’ve started – it’s not going to happen.”

The DHSC was approached for its response.