Government disputes that half of NHS efficiency savings came from staff pay freeze

BMJ 2012; 345 doi: (Published 15 November 2012) Cite this as: BMJ 2012;345:e7771
  1. Adrian O’Dowd
  1. 1London

The government does not accept the claim made by representatives of NHS trusts that half of the latest £5.8bn (€7.2bn; $9.2bn) efficiency savings made by the NHS in 2011-12 resulted from staff pay being frozen.

Health secretary Jeremy Hunt, making his first appearance before the parliamentary health select committee on 13 November as part of its inquiry into public expenditure, said that the government estimated that around a third (£1.5bn) of the efficiency savings was linked to pay issues last year.

MPs also pushed the health secretary to explain why around £1bn worth of efficiency savings made by the NHS was handed back to the Treasury last year rather than being directly reinvested into healthcare.

Committee chair Stephen Dorrell, Conservative MP for Charnwood, said that the committee had been told by NHS chief executive David Nicholson earlier that around £850m of the £5.8bn savings had come from public sector pay constraint.

“That’s not the figure we were given by Mike Farrar of the NHS Confederation,” said Dorrell. “His estimate was that roughly half, or £2.8bn, of the £5.8bn was attributable to direct action on pay. Who’s right?”1

Hunt replied: “I’m not sure there’s necessarily as much of a contradiction in those two figures as you might think. There is a direct impact of the pay freeze, which was a centrally taken decision, but then there’s also other action on pay that may happen at a local level, which is also important, such as reductions in sick pay, entitlements to additional incremental increases to pay, and linking those more to performance than has previously been the case.

“My understanding is that pay is an issue that is being attacked from a local direction as well as from a central one, which may account for some of the gap.”

Richard Douglas, director general of policy, strategy, and finance at the Department of Health, also giving evidence, said: “I’d have to speak to Mike [Farrar] to understand where his £2.8bn figure came from because it’s not, in my view, a credible number based purely in pay.”

MPs asked how easy or difficult it would be to achieve service redesign in the NHS in the future.

Hunt said: “My approach to this is I do think they [reconfigurations] need to be locally led and I want to see particularly that local GPs support any changes that are being implemented. I will want to be satisfied that there is clear evidence of clinical benefit to these changes and I’ll take independent advice across all those areas before I take any decisions.”

Asked by MPs why £1bn of last year’s efficiency savings was handed back to the Treasury and only £316m carried over and kept in health, Hunt said that there was confusion between the efficiency drive expected of NHS providers and the NHS underspending its budget.

Douglas added: “We did underspend last year. It was about 0.8% of our budget. It’s a £100bn budget spent by hundreds of different organisations across the country and I cannot guarantee that won’t happen again.”

In addition, most of the money was capital spending that came from national programmes such as Connecting for Health, which meant that, because these were particular projects that were one offs, the money could be spent only once and could not support ongoing investment in staffing.


Cite this as: BMJ 2012;345:e7771