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The Progressive Policy Think Tank

Hunt will not be able to fund NHS & lift pay cap for NHS workers through productivity alone

New IPPR analysis shows that tax rises are needed at Autumn Budget to pay for pay rises for NHS staff and future NHS & Social Care services

The NHS faces a funding gap of £8.4 billion funding gap by 2020 even before you include the governments proposed pay increase for staff, according to a new report by IPPR, the progressive policy think tank. The report argues that the NHS has repeatedly failed to fill this funding gap through productivity increases - which would need to hit 2-3% - as set out in the Five Year Forward View.

Whilst NHS productivity has improved in the last few years, the government’s strategy of delivering ‘more for less’ is running out of road with the funding squeeze resulting in rising deficits, increasing waiting times and the re-emergence of rationing. As the University of York calculates, the current figure stands at 0.9%. Even during it’s peak NHS productivity only stood at 1.75%, which still does not meet the level needed for savings required, or to lift the NHS pay cap.

The pay squeeze in the NHS, as detailed in recent IPPR work, has significantly eroded the value of pay in the NHS; pay for a band 5 nurse is £3,214 lower in real terms today than in 2010/11. The decline in real terms pay has led to a 10% fall in satisfaction with pay and contributed to an escalating workforce crisis.

NHS Trusts in England are already on course for an underlying deficit of £5.9 billion this year. Requiring NHS Trusts to fund an increase in pay from existing budgets would further escalate this financial crisis, increasing pressure on the quality and availability of care .

The report further shows even before the pay-cap announcement:

  • The proportion of hospitals in deficit has risen from 1 in 10 to two-thirds since 2012.
  • 68% of acute hospitals and 71% of foundation trusts are failing to meet the quality standards (being rated as either inadequate or requiring improvement).
  • The NHS is failing to meet targets on A&E waits, ambulance response times and cancer treatment.
  • There has been a staggering 27% decrease in the number of people receiving social care since 2005/06.

IPPR therefore calls for urgent action at the Autumn Budget on health and social care funding, recommending an ‘NHS tax’ to help plug the short-term funding gap while politicians come together to form cross-party solutions. In the long-term the NHS must cope with stresses and developments such as changing demographics, the ageing population, changing expectations, new scientific developments in medicine, and how big data and automation will transform the sector.

IPPR’s new report Mind the Gap also finds that:

  • Since its creation in 1948 spending on the NHS has grown at around 4% per year, since the financial crisis in 2010/11 the funding settlement for health and social care changed while intense pressures on the system remained.
  • The NHS is now well into its most austere decade and, with the exception of 2015/16, social care funding has declined year-on-year since 2010.
  • Conservative estimates put the scale of the funding crisis in the NHS and social care system will hit £8.4 billion a year by 2020/21, reaching £28 billion per year by 2030/31.

The report further shows that the gap has grown not only because of funding cuts in health and social care but because of continued pressures on services. The aging population will continue to cost the NHS more because the cost of dying (end of life care) is expensive. New technologies and scientific developments also will continue to put a financial strain on the NHS. The funding situation for social care has been even tougher due to the cuts to local government.

IPPR further recommends that the Chancellor could reform pensions in order to raise £3 billion a year to plug the social care funding gap. This would involve measures such as capping the tax-free lump sum and reducing the earnings threshold above which the pension contributions annual allowance is tapered away.

Harry Quilter-Pinner, IPPR Research Fellow, said:

“The government’s demands that the NHS delivers ‘more for less’  to fill the funding gap are no longer credible. Hunt and Hammond must face the fact that boosting productivity alone will not meet the NHS funding gap or allow the Chancellor to lift the NHS pay cap.

Further attempts to fill the funding gap through productivity savings alone will only increase deficits, waiting times and rationing - and the public are loosing patience with this.”

“The Chancellor must commit to raising taxes at the Autumn Statement to ensure that our NHS remains free at the point of need in the future. Not only is this the most sustainable and effective way of filling the gap - its also popular with the majority of people in favour of an increase in National Insurance to fund the NHS”


Sofie Jenkinson, 07981023031,

Florence Burton, 020 7470 6154,


IPPR's new report Mind The Gap: The case for more funding in health and social care will be available at 00.01 Tuesday 14th November at

Further details on IPPR’s recommended ‘NHS tax’: raising National Insurance ( % rise in the rate of employee national insurance above the upper earnings limit - raising £1.3 billion); by introducing a 1% rise in the higher rate of income tax (raising £1.7 billion); and by extending employee national insurance to workers above the state pension age (raising £0.9 billion).