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The times we are working in now need a great deal of accelerated change and there must be no negotiating that down. So my mission statement for this part of my consultancy career is to be clear that there needs to be and will be a lot of change from the work that I do with individuals and organisations and if organisations don’t want that, then it is probably best to go somewhere else.

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It’s the economy, stupid

Filed Under (Expenditure, Health Policy, Resources) by Paul on 29-06-2012

This phrase was first used on posters and “buttons” in all of the offices where Bill Clinton’s staff worked during the 1992 election campaign. It was a reminder to them all that whatever they talked about internally during the campaign the issue that worried the American people was the economy – and that given the importance of talking to the electorate about the things that worry them it’s stupid not to recognise that.

This week’s events – bringing in it the first use of the failure regime for an NHS hospital for the South London Health Trust – leads me to start a series of occasional Friday posts concerning the economy and its impact on the NHS.

I may be wrong but I think that several issues in the wider economy had an impact on the Secretary of State sending the administrator into the South London Health Trust. The trust was being subsidised by £1 million a week. Of course it would have been easier for the trust and for the Secretary of State to go on finding that money from somewhere. If the Inefficient NHS Hospital Fund were bottomless then the services of the administrator would not be needed.

But this week it became very clear that the Secretary of State’s Inefficient Hospital Fund was not bottomless.

But why now? Why not a year ago, or in a year’s time?

The truth is that I don’t know, but I do have a couple of good guesses.

Late on Tuesday after the Secretary of State for Health made the announcement about the South London Health Trust going into administration, the Chancellor made a statement to the House of Commons making a ‘U’ turn on raising extra money from fuel duty. In the sixth ‘U’ turn since the budget he decided to give back to the public the £500 million that he was going to raise from them in extra fuel duty from August.

This was popular, and represented a decision to put an extra £500 million into the pockets of the public rather than those of the Government. It was a small stimulus to the economy and, as such, a move away from a Government policy that has had balancing the books as its main objective.

Of course because he’s the Chancellor he has to say how this will all be paid for. He could simply have said “we will increase the public debt”. But of course that goes against too much of the main policy of debt reduction. It sort of undermines what the Chancellor claims he really wants to do.

So instead he said that this £500 million will be found “from savings in departmental spend”.  Which indicates that at some stage over the few days before this announcement, there would have been a scurrying around Whitehall with the Treasury asking departments “where is this money coming from?”. Now of course there’s not a direct relationship between spending £50 million a year propping up an inefficient hospital trust and the fact that this sum of money gives the Chancellor 10% of his fuel tax giveaway. But it’s true that on that very same day the Chancellor was on the hunt for money – and we all know that the NHS is the big departmental spend that has not been cut.

Last Tuesday something else was announced about the public finances. In May 2012 the shortfall for the Government of its expenditure over income was £17.9bn. In May the Government spent£17.9 billion more than it received. This means that national debt increased to 65% of GDP. A year ago it was 61.3%.

You will remember that the promise of this Government – and its sole economic aim -is to reduce public debt. This year it has risen – a lot.

This is easily explained.

Over the year to May 2012 Government expenditure went up by 7.9%

Over that same year tax revenue went up 1.6%. Interestingly this growth was made up of a growth in VAT of 4.9% and a fall in income and capital gains tax of 7.3%. (So when the Chancellor agreed not to raise fuel tax he was agreeing to forego expenditure for sales taxes that are those bringing in more money.

These overall figures for debt are a disaster for the Government. It means that their policy of cutting public expenditure in order to reduce debt is not working. In fact public expenditure went up by 7.9%. For a policy aimed at cuts these are strange figures.

Expenditure is going up, revenues are going down, and debt is increasing.

It is within this context over this summer that the Government are contemplating their   next public spending round.

Does anyone seriously believe that given these numbers the NHS is going to get an increase in its resources?

I think what these figures mean is that week by week we will be seeing more and more of the application of the laws of economics to the NHS. The subsidies that have traditionally been paid to bolster failure will increasingly disappear.

This will in turn mean that those organisations that understand economics – and by that I mean more than accountancy – will thrive. Others will find times becoming increasingly hard.


One Response to “It’s the economy, stupid”

  1. Paul, do you think this new realism will be applied to the legal costs and pay-outs to gag – or “supergag” – whistleblowers in the NHS?
    I can think of better uses for scarce funds.
    btw, whose budget within the NHS do these come from?

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