Health plans to squeeze other spending - report

LONDON Mon Jul 20, 2009 11:32am BST

A nurse chats with parents on the Parrot ''neurosurgery'' Ward at Great Ormond Street Hospital for Children and NHS Trust in central London July 4, 2008. REUTERS/Dylan Martinez

A nurse chats with parents on the Parrot ''neurosurgery'' Ward at Great Ormond Street Hospital for Children and NHS Trust in central London July 4, 2008.

Credit: Reuters/Dylan Martinez

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LONDON (Reuters) - A pledge by the country's two main political parties to protect the state-run health service means other departments will face sharp spending cuts, an influential fiscal report said on Monday.

With an election less than a year away, both Labour and the Conservatives have promised to 'ring-fence' health spending, despite a recession that has pushed the public deficit to a record post-war high.

The pledge will require either sizeable tax rises or hefty cuts to other areas, such as defence and education, after 2011, say researchers at the King's Fund and the Institute for Fiscal Studies.

If the National Health Service (NHS) were to receive a real increase of 2.5 percent a year from 2011 to 2017 -- less than half the typical increase of the past decade -- then other departments would need budget cuts of around 2.8 percent a year, the report said.

Departmental cuts could be limited to 2 percent a year while freezing the NHS budget, but only by raising additional revenue of around 10.6 billion pounds -- equivalent to 340 pounds for each family in the country.

If health spending were frozen in real terms, budgets for other departments would face a cumulative cut of around 8 percent over the six years to 2016/2017.

"Our analysis shows that the NHS is facing the most significant financial challenge in its history," said report co-author John Appleby, chief economist at the King's Fund, a healthcare charity.

"Both the Labour and Conservative parties have pledged to avoid cutting NHS spending in real terms from 2011 but this will come at a big price."

Public spending is set to be a key battleground in the campaign for the national election, due by next June.

The public deficit is forecast to rise to 175 billion pounds this year, more than 12 percent of gross domestic product. The government has pledged to halve the deficit over the next five years, but the International Monetary Fund has called for faster action.

The NHS has been one of the biggest winners from the increase in public spending over the past decade, its budget rising by typically 7 percent a year.

"If the NHS budget were frozen in the next two spending reviews, then this would be the tightest six-year settlement in its history," said co-author Carl Emmerson, deputy director of the IFS.

"But even this historically ungenerous NHS settlement would still require a combination of sizeable cuts to other department budgets or further tax raising measures."

(Reporting by Christina Fincher, editing by Tim Pearce)

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