NHS pay review body: twenty-sixth report 2012 - Official Documents

3.46 The Department added that recent data on historical pay drift suggested that the
historical assumption did not effectively predict future pay drift thereby prompting an
overhaul of pay bill monitoring and forecasting. The Department told us that its new
approach would be more timely and included improvements that will: consider average
workforce levels over the year (rather than a September snapshot); allow detailed
disaggregation of pay bill growth into its component drivers (including by staff group);
and support a more bottom up approach to forecasting. The interim findings from the
new approach suggested overall pay drift in the order of 0.5% to 0.75% in 2009/10 and
2010/11 for HCHS staff. The difference between the old and the new approach largely
reflects the use of average workforce levels over the year. The Department stated that
a 1% pay drift figure was a reasonable and prudent assumption for financial planning
although it would be reviewed and refined as the new approach was finalised.
3.47 The SGHSCD commented that it faced challenges in a period of reduced funding while
demand for services continued to increase alongside higher expectations of service
quality. The health budget had received the full health revenue Barnett consequentials
which had lifted the resource budget by 2.3% to £11 billion in 2012/13 although capital
budgets had reduced significantly. NHS boards would have around 1% additional cash
funding in 2012/13 to meet pay and non-pay pressures but NHS boards forecasted that
they would need to make savings of 3.7% in 2011/12 to ensure financial breakeven.
Considerable budget pressures were expected from an ageing population, new
technology and the cost of drugs. The SGHSCD estimated the cost of applying the £250
uplift would be some £16 million.
3.48 The Welsh Government (WG) told us that the Health and Social Services budget had
been protected in cash terms for the period 2011/12 to 2013/14. The WG estimated
unavoidable NHS cost pressures at between 4 and 5% per annum for 2011/12 and
2012/13. Therefore, to remain in financial balance, NHS organisations would need to
deliver cash-releasing efficiency savings of at least 5% per annum to fund these costs
as well as other national or local service pressures. Most NHS organisations had carried
forward an underlying deficit from 2010/11 although efficiency savings achieved equated
to just over 5% of their allocation. The WG estimated that the financial gap to be bridged
was approximately £1 billion by 2014/15.
3.49 The DHSSPSNI informed us that budget allocations were agreed by the Executive and
ratified by the Assembly in March 2011. While the cash uplift for Health, Social Care and
Public Safety Services between 2010/11 and 2014/15 was 8.3%, this represented a real
terms decrease of 2.7% over the same period. The DHSSPSNI commented that there
was a material and widening gap between the resources available and the best estimate
of the minimum costs of maintaining existing Health and Social Care services broadly
comparable to the status quo. Underlying the minimum cost estimates for 2012/13
was £196 million of inescapable cost pressure arising from Ministerial commitments,
demographic change, organisational restructuring and anticipated pay bill increases
(estimated at £29 million). There was no allowance within the budget for pay inflation,
except for staff earning £21,000 or less and costs for incremental progression, without
impacting directly on patient care.
NHS Employers
NHSE
3.50 said that the NHS would need to achieve unprecedented levels of efficiency
savings of up to £20 billion before 2014/15 to meet growing demand. In this context,
employers were increasingly concerned that the present national pay and conditions
arrangements were not affordable and that restraining pay bill costs was essential to
minimise potential job losses and protect services.
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