Cutting NHS costs is not cheap

Good afternoon. 

I’m Laura Hughes, the FT’s public policy correspondent. There has never been a more interesting time to write about health policy and this week was no exception. 

On Tuesday, health secretary Wes Streeting faced a grilling from MPs on the health and social affairs select committee. Unsurprisingly, he was challenged on the cost of redundancies being planned across the NHS in England, as part of government moves to slimline the service and bring it under tighter Whitehall control. 

His appearance followed the announcement of the abolition of NHS England, which employs more than 15,000 staff. As a reminder, the government has insisted that killing off the ‘world’s biggest quango’ will save money and bring management of the health system back into democratic control.

But as well as the headline-grabbing announcement of cuts to the number of bureaucrats working in NHSE, less well reported is that NHS trusts have also been instructed to reduce their “corporate cost growth”, while integrated care boards (ICBs) — statutory bodies responsible for planning, funding, and commissioning NHS services within their local area — have been ordered to cut their running costs by 50 per cent from October.

The cost of making these redundancies is being questioned by health leaders up and down the country. 

Fit for the future

NHSE will be able to cover its redundancy costs via the £3.2bn transformation fund announced around the time of the Spring Statement, which covers civil servants and those working in central government arm’s length bodies (ALBs). However, there is no such equivalent for other NHS organisations making similar cuts to backroom personnel.

The NHS Confederation, which represents health managers, is now calling for a national staff redundancy fund for all the job cuts they are being asked to make. Without it, they say the NHS will start the next financial year in a state of financial deficit. 

They say the cost of cutting staff could actually have the perverse impact of putting Streeting’s reform agenda at major risk. One example they cite is his pledge that by the end of this parliament 92 per cent of patients will begin treatment for an ailment or get the all-clear within 18 weeks — a target last met at the end of 2015.

As Matthew Taylor, chief executive of the NHS Confederation, tells me, the fact that ICBs and trusts have been told to deliver such “eye-watering efficiencies” and simultaneously make deep cuts to their running costs has left leaders “very concerned” about how they will now deliver the reforms demanded by ministers to shore up and develop an NHS fit for the future.

“The government has said it expects a quick return on investment and to see any savings released put immediately back into frontline services,” he adds. “For its forthcoming Ten-Year Plan for Health to succeed, the NHS needs to become as financially stable as quickly as possible.”

Cost cuts

One hospital boss is more cynical about a “national pot” of money for ICBs and trusts. “There is a concern that organisations and individuals act irresponsibly”, they tell me, such as “people taking redundancy who would have naturally left anyway.” 

Streeting appeared to suggest to MPs earlier this week that he was supportive of such a fund but, as ever, it will be His Majesty’s Treasury that gives the idea the green light. Sir James Mackey, the interim chief executive of NHS England, told MPs they have just started a “discussion” with the Treasury about how the redundancy costs are managed. 

Experts and health officials expect the total cost of redundancies across NHSE, ICBs and trusts to come in around the £1bn mark, but no one quite knows for certain. Streeting told MPs on Tuesday that this was a reasonable “ballpark figure”. 

One health official says the NHS couldn’t absorb that £1bn and meet the levels of efficiency savings that are required. “Not without some serious pain along the way.”

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Britain in numbers

This week’s chart comes from a startling new analysis released by the National Housing Federation (NHF), which represents housing associations, and the charities Crisis and Shelter, and lays bare the consequences of successive governments’ failure to build enough social homes in England. 

The analysis revealed that in 32 local authority areas across England, families are facing waiting lists of over 18 years for a home with at least three bedrooms, the equivalent of an entire childhood.

The most severe shortages are in London, where the three worst performing councils have waiting lists of over 100 years. An additional nine local authorities have projected waiting lists of more than half a century, exposing the very real strain on England’s social housing system.

So why is this happening? England’s social housing system is buckling under mounting pressure, with more than 1.3mn families currently on waiting lists. The crisis is being driven by a combination of shortages, rising homelessness, and affordability issues in the private rental sector.

In the year 2023–24, the number of households deemed eligible for homelessness support rose by 9 per cent to nearly 325,000. Meanwhile, escalating rents have triggered an increase in evictions, pushing more families towards the already struggling social housing sector. 

Compounding the problem is the dwindling pace of new construction. In March, the NHF and the Local Government Association wrote to ministers saying they could build more than 90,000 additional affordable homes over a decade if they had access to two multibillion-pound cladding funding schemes, the “Building Safety Fund” and “Cladding Safety Scheme”.

But in the absence of such support, the pipeline of new social housing remains scant, leaving the gap between supply and demand to expand further.

Data visualisation by Amy Borrett 

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