Inflation ‘cuts NHS budget by £20bn’

Truss urged to top up spending as health chiefs fear squeeze will derail efforts to clear waiting lists

NHS chiefs will warn Liz Truss of a £20billion black hole in the health and social care budget as rampant inflation and pay rises for doctors and nurses tear up spending plans.

The Prime Minister and her Chancellor are being urged to top up spending plans for the next three years as the inflation squeeze on the health department threatens to derail efforts to reduce record backlogs.

Matthew Taylor, the chief executive of the NHS Confederation, said the health budget set out at last year’s spending review has been made “somewhat redundant by inflation”.

“[A spending review] needs to recognise what’s going on in relation to health service funding and the consequences of not living up to the commitments that they made last autumn,” he said.

“Either the Government has got to admit that it isn’t able to fund the NHS at the level that it certainly felt it needed to fund the NHS this time last year, or else it needs to make up that gap.”

Mr Taylor said he will be making the case for extra funding to the new Prime Minister, who has made the NHS one of her key priorities.

He warned of pressure on its budget on several fronts from rising wages, climbing building material prices and inflation affecting a range of costs, such as food bills to provide patients with meals.

The funding shortfall for health and social care will reach approximately £20billion over the coming three years, according to analysis by the Institute for Fiscal Studies (IFS) based on inflation projections from August.

Thomas Pope, deputy chief economist at the Institute for Government, said the multi-year health budget outlined last year is “not going to be sufficient to start to get the backlog and waiting lists under control”.

He said: “If you’re really serious about delivering a better NHS and it seems Truss has made it one of her priorities you do need to spend more money.

“However, I would also caution that money on its own is not going to be a magic solution in the short term.”

Ms Truss has promised to hold a new spending review to “find more efficiencies in government spending”, tearing up plans set out for the next three years by Rishi Sunak in October 2021.

However, she and Kwasi Kwarteng will be under enormous pressure to also boost the budgets in frontline services which have been squeezed by the highest inflation in 40 years.

The NHS risks a huge funding shortfall in the coming years as it struggles to cope with the patient waiting list hitting an all-time high of 6.8million and soaring ambulance response times.

Across the public sector, inflation is eroding budgets. The IFS estimates that inflation has wiped out more than 40 per cent of the real-term increases to department budgets set out at last year’s spending review.

Overall, the Government would need to find an extra £44billion for departmental budgets for them to be as generous in real terms as they were when they were set out.

Ms Truss has promised tax cuts for households and businesses, plus a boost to military spending, leaving little scope for spending increases elsewhere.

She vowed to boost the defence budget from 2.2 per cent of GDP to 3 per cent by 2030, a pledge that could cost an extra £28 billion over the next three years, according to the Royal United Services Institute.

In April, Mr Sunak, the former chancellor, raided workers and their employers in the name of raising extra funds for the NHS and social care, adding 1.25 percentage points to National Insurance contributions.

The Office for Budget Responsibility estimated this would bring in extra revenues of more than £18 billion per year.

However, Ms Truss has promised to reverse the tax increase.

The Treasury declined to comment.