Reality of the NHS budget squeeze

Drastic reform of clinical services is the only way the NHS can avoid being overwhelmed by falls in real funding and rising demand. According to the Department of Health, this means finding £20bn (€23bn; $31bn) of productivity gains by 2015.

What became known as the Nicholson challenge was first articulated in the 2008-9 annual report of NHS chief executive, David Nicholson. It was already clear that the banking crisis would trigger sharp cuts in public spending, and Sir David knew he had to get the NHS to confront the reality that it would have to make huge changes to the way it worked if it was to avoid its second financial crisis in a decade and cope with rising demand from an ageing population.

So he called on the NHS to prepare for “unprecedented” efficiency savings of £15-20bn between 2011 and 2014, since stretched to 2015. Quality, innovation, productivity, and prevention (QIPP) were to be the levers.

The £20bn is a slippery concept. It is not a cash cut but an estimate of the additional value the NHS needs to squeeze out of its resources if it is to continue to meet demand as spending flatlines. As the Commons’ health select committee pointed out last December in a report on spending, exactly how this is supposed to translate into practical changes has never been made clear. “We do not believe that the government is providing a clear enough narrative on its vision of how these savings are to be made,” the committee said.

Sir David told the committee that about £8bn would come through cuts in administration and management costs. This includes keeping …