Expert analysis by our Senior Counsel Richard Douglas 

The economic impact of COVID-19 remains too uncertain for the government to fix spending plans through to the next election as they would have hoped and so they have stuck to one year. This gives public services the certainty they need to plan for the immediate future without tying the Chancellor’s hands beyond.

Coming into this year the NHS had more certainty than other public services. NHS revenue spending limits – covering the vast majority of expenditure – were set for five years through until 2023-24 under Theresa May.

But of course COVID-19 changed things.  The original five-year settlement – not surprisingly – made no allowance for a global pandemic. In-year the DHSC received unprecedented additions to spending permissions, delivering on the Chancellor’s pledge to provide the resources needed to deal with the pandemic by providing funding both through NHS England for services and DHSC for procurements and test and trace.  The Spending Review documentation shows this spending at a massive £52 billion, or more than a third of the health budget: the vast majority of this – £40 billion – for purchase of PPE, vaccines and spending on Test and Trace. These additions inevitably muddy the baseline position going into next year and in particular what needs to be covered from the existing five-year settlement.

The Spending Review documentation helpfully distinguishes between COVID-19 and “core funding”, as the settlement recognises that the pandemic will continue to have a significant impact on NHS spending in 2021-22.  An additional £21 billion is provided for the DHSC in 2021-22 as a result of COVID-19.

Direct impacts that need to be funded will depend upon the pattern of disease next year, but in addition to NHS care there are previously-unplanned costs of test and trace, PPE and vaccines. The settlement provides a further £18 billion for this – £15 billion for test and trace – in 2021-22. The adequacy of this is difficult to assess without more clarity on underlying costings but it is not unsurprising that the bulk is allocated to test and trace.

Indirect impacts next year will include:

  • lost productivity as a result of tighter infection control measures – potentially offset through improved productivity from other changes such as moves to virtual consultations
  • activity growth needed to deal with the backlog of elective work and to reduce the massive growth in waiting lists
  • and the continuing impact of lost non-NHS income

The £3 billion extra trailed in advance for “recovery” was confirmed today with £1 billion of this linked to waiting lists, £0.5 billion mental health and £1.5 billion for other pressures. At first glance the numbers again look reasonable in the circumstances although only time will tell.

On capital most of the words and examples used by the Chancellor are linked with previous announcements but on the face of it the settlement for next year looks broadly the same as this year.  Similarly for public health, where the grant will be “maintained” – which we can assume means held at this year’s level – and education and training, where the Health Education England budget is broadly flat in real terms.

Overall this looks a reasonable settlement for DHSC, that recognises the cost impact of the pandemic.  The fact that the service had a five-year settlement has been hugely beneficial as core non-COVID spending elsewhere in government has been held down.

As always the devil will be in the detail. It will be important to see precisely what the additional resources will be expected to cover, and in particular, the costing that sits behind the £18 billion for testing, PPE and vaccines.

And finally, one thing that this pandemic has taught us is that fiscal events are no longer just once or twice a year. So don’t be surprised if we don’t return again to this sooner than you may expect.