Budget 2025: What does Rachel Reeves’ fiscal plan mean for the NHS?

 Matthew Taylor 

Hello and welcome to the latest edition of Health on the Line produced by HealthCommsPlus on behalf of the NHS Confederation.  

Now, before we get into the content for this episode, I want to tell you that bookings for NHS ConfedExpo 2026 are now open. I do think that as things get more challenging, the opportunity to come together becomes even more important. So it's going be wonderful. It's going to be in Manchester and it's going to be in June, and it's going to provide unrivalled networking opportunities and the widest selection of content you can imagine. So, go to nhsconfedexpo.org to book your place.  

Now it's the morning after as I sit to record this episode, the morning after the Budget. That is, we've heard the announcements, we've been hearing announcements, and then counter announcements for weeks, haven't we? But now Rachel Reeves has sat down. We've got time to digest what's in it. We can get into the implications particularly for health and care.  

And who better to analyse what we've heard and what it means for us than the two guests I have today: Anita Charlesworth of the Health Foundation, who's no stranger to Health on the Line. Anita is both health economist and co-chair of the NHS Productivity Commission that is already producing really interesting work. I'm also joined by Lee Outhwaite, chief finance officer for South Yorkshire Integrated Care Board and president of the Healthcare Financial Management Association, HFMA. 

So, welcome Anita and Lee to Health on the Line. 

So this has been one of the most trailed Budgets we've seen. You know, get to my age, I've seen a lot of Budgets. I've rarely seen one with as much speculation as kind of politically freighted as this one has been. So, just initially even before we get into health and care, because you know, it is interesting, this stuff. 

What did you make of everything that has led up to Rachel Reeves finally getting on her feet yesterday, Anita? 

Anita Charlesworth 

Well, I think fundamentally that was a reflection of the fact that without strong economic growth over the medium term, the choices facing the country leave the government between a rock and a hard place. 

And they are which of these, the following list of unpalatable things, minister, are you prepared to do? Where Rachel Reeves has been absolutely correct, I think, is that growth needs to be this government's number one mission. There is no way out of the predicament that we're in without growth. The OBR in the runup to the Budget said, ‘actually, you know what? For a very long time now, we've been over optimistic about productivity performance in the economy. Nothing specific to do with this government, but we think we need to actually adjust our projection for productivity growth going forward.’ And that led to a big hit on the public finances. But also that came at a time where some of the measures she'd announced in the previous Budget had unravelled. 

And there's a lot of pressure on her, you know, to start to deliver on other areas of the manifesto, like child poverty. Squaring that circle is a nightmare.  

Matthew Taylor 

Yes. And we'll come on to some of the ways that she's done that and the implications for us. Lee, I'm not going to drag you into politics, but I'm just interested. How have you observed this unbelievable level of speculation that we've had over the last month?  

Lee Outhwaite 

It does feel like we are in a really difficult and febrile time, doesn't it? In terms of that interface with central government? I don't think it's anybody's fault, but for the reasons Anita cites around how is that growth going happen? Where are we going to get a bit of a productivity boost from? How are we going to fund the public services of the current rates? If you've got the new statesman with a sort of Butch Cassidy and Sundance Kid covers with sort of Keir and Rachel launching out onto the street into this gunfire, it does feel like it's a really, really difficult time, doesn't it? 

And that seems to percolate not your sort of fiscal policy, but into health too.  

Matthew Taylor 

No, absolutely. I’m going to ask you both three sets of question. I want to ask you first about what was in the Budget. The specifics, the money for the neighbourhood hubs, the cap on prescription charges, the things that were trailed, the sugar tax. 

I'm then interested in drawing back from that because actually there wasn't much difference in terms of what was announced yesterday to what we knew about the public spending envelope. So I want to explore what does that mean for us over the next couple of years? You know, winter and the next couple of years. 

And then the third thing I wanted to ask you both. When we think of the next fiscal event, what are the things you think that we at the Confed should be trying to start to make the argument for now, things that weren't there this year, but actually do need to be addressed sooner or later.  

So Anita, I'm going to start with any views you've got on what was in the Budget? What was in the press release from the Treasury with these are the implications for health and the DH. What, what did you think of what there was in there for us?  

Anita Charlesworth 

So, let's start with health rather than healthcare. And I think three things that were in there were very important for health and healthcare for the long term. 

The first thing is obviously the ending of the two-child benefit cap was the big headline measure in the budget. That measure has been argued for by a huge number of research organisations and charities who are interested in child poverty because it's one of the most direct ways in which we can reduce child poverty over the coming years, which is worryingly high, and child poverty is bad on every aspect, but it's bad for children's health as well, bad for long-term prospects. So, if we care about health, I think reducing child poverty is an important thing.  

The second thing I think is the acknowledgement of the gambling tax, and I imagine that Claire Murdoch is pleased person in regard to that because obviously she and her work on mental health has been really highlighting the worrying rise in problem gambling in that linked to mental health issues and so increases to the gambling tax.  

And then the extension of the sugar drinks levy. 

So those are three things I think in terms of the health of the nation that are, are encouraging and we have argued, I think at, at the Health Foundation in previous governments, you can spend directly on services to improve prevention. You can make sure, obviously, through the welfare system that people aren't on low income. You can also use fiscal measures like tax to start to try to help people to change behaviour, and governments need to do all of this. 

So it is good to see some of those fiscal measures like gambling tax and sugar tax in the package.  

I guess worryingly on the health is in the OBR forecast is they're not seeing any measures that fundamentally address the rise in people who are economically inactive due to ill health. So is that government's fault or actually NHS do we need to start to say there is still quite a hole in our plans about really what we are going to do to play our part beyond some of the excellent pilot work that's going on in areas like Work Well to shift the dial on people who are out of work due to ill health. And in that, what's our role as well in supporting particularly young people who are trying to transition into adulthood effectively and really worrying rising the number of young people who are leaving school and going straight into economic inactivity with mental ill health as a key part of the story there. 

There are a million young people, roughly speaking, not in education, training and employment. The government’s announced a review led by Alan Milburn, my boss, Jennifer Dixon's going to be involved in that. That's really important work when we think of health. And actually there is an interesting question, what's the government got to do, but also in the NHS, are we really leaning into that, playing our part as sufficiently as we should, as ICBs and providers? Do we take children and young people's health seriously enough?  

Matthew Taylor 

I want to turn to Lee in relation to something that you haven't touched on and I'm sure you would've done, but which is the kind of headline announcement in terms of health, which was this funding for neighbourhood hubs, but also, again, something that we knew was kind of coming, I think, which was using a kind of public-private partnerships as a method for taking that forward.  

Lee, what's your reflection on that announcement? Is that investment enough? What do you think we need to learn from the successes and failures of past public-private partnerships?  

Lee Outhwaite 

I think developments around ‘can we co-locate services around the citizen in a different context?’ People are doing work on that at the moment across England and across the UK, aren't they? About ‘what's the team around the citizen model that we need?’  

I get a little bit frightened, to be honest, Matthew, about big policy pronouncements about the good fit of 250 integrated neighbourhood health things and how they align with incumbent resources we've got in each ICB or across the UK. 

I'm not saying it's a wrong policy instrument, and I think we probably do need some more diagnostic capacity and a bit of capital would be helpful from somewhere. I don't tend to bad mouth, actually, somebody who used to be a signatory to a very large PFI contract using private finance to do public works, but we need to rediscover how to do that really well. 

But what I do get slightly nervous about is it feels like in the field we're having a conversation about what we can't afford to do currently with the incumbent resources. And I just worry a bit about even if capital is made available for new things, how do you juxtapose that with the conversations we're having in the field about there's a range of incumbent services I can't quite afford before I introduce something new. 

I do get a bit worried about notions of additional resource and some view of channel shift and needing to do something new. When I do think we've got to have a serious conversation about how do we critically appraise the value we're getting from our incumbent resources first. 

So I'm not saying I think this is a detestable proposition, but I do get a little bit nervous about, we know in white all we want 250 of these things. Why? How would you know that? And I do get a little bit worried about how we juxtapose that with a range of services we're currently offering and introduce that really well. 

We need some new capital from somewhere. I think a model around integrated neighbourhood health is a genuinely good idea. As ever, the devil's going to be in the detail of the policy and the implementation and how it lands in the field.  

Matthew Taylor 

Anita, I was going to ask you on that, that this tendency in the NHS to come up with an idea, a model or, and then to say to people, ‘look, there's more money, but you're going to have to do it this way’, is one of the ways in which the kind of over decentralisation of our health service articulates itself. So rather than just saying, ‘look, there's more money available to ICBs, use the money in the way that is most effective to improve patient care’. It's kind of, ‘well, look, this is the way to do it. Here's a new public-private model’. 

And often that does mean that it does kind of tilt local priorities. You end up chasing the money rather than necessarily doing the right thing. So what, what was your view of that announcement?  

Anita Charlesworth 

Well, I think it's quite interesting to see as someone who worked on budgets for a long time, you are always trying to work out what's actually the new bit in here and what is the substantive bit in here. 

So it's 100 by 2030. Not all of them are going to be new build as I understand it. Some of it, in the wording, is talked about repurposing existing estate. So you come back to, you know, actually how big is this? But also, very interestingly, ministers do like announcing the buildings. And the big question actually is what we're going to put inside it? 

And I thought what was really interesting in the small print of the Budget is that they've announced that the chief secretary of the Treasury will lead a process with the secretary of state to review the value for money of government spending ahead of the next spending review, including reviewing new models of care within the NHS and communities as part of implementing the NHS 10 Year Plan. 

So actually, I think the Treasury is already concerned about what this model of integrated care and neighbourhood care is. Whether it will actually deliver the big gains in system performance, the ten-year plan sort of implicitly needs. But, but interestingly, Matthew, to your point then, that's not just that the NHS England specifying this, this is the Treasury leading a review, the chief secretary to the Treasury, leading a review of what that looks like.  

Now, we've only got a couple of lines at the moment, but maybe that's even more centralisation. But to some extent, I guess, that though is brought in some legitimate anxiety.  

We talk about integrated care a lot. We've talked about things like neighbourhood health for very many years. The evidence where we've been trialling aspects of it is that actually it's quite hard to deliver the gains and the improvements, and it remains quite a nebulous concept.  

How you balance providing some clarity and a really strong evidence-based change program, which actually really does drive improvement, with not trying to run however many neighbourhood health centres we would have, you know, not just from Whitehall, but from the Treasury and as a formerly Treasury official’s many abilities, but running neighbourhood health is not an obvious one.  

Matthew Taylor 

Yeah, really, really interesting. And you know, I think we all recognise that this is not kind of central, good, local, bad, but it's about how you get the right kind of balance and how the centre and systems and places can most effectively work here to build on good practice, but also to recognise local difference. 

Lee, can we just move from this then to the kind of second question I have, which is that beyond what was announced yesterday, the huge challenge for the health service is to combine recovery, by which I mean getting closer to our constitutional targets, with the kind of transformations digital, preventative, left shifting that are at the centre of the ten-year plan, and we say this as we look out on a very high level of deficits in the NHS, particularly in acute trusts, and we're going into winter.  

What's your perception, Lee, of the kind of the basic credibility of us being able to achieve what the government wants us to achieve within the funding envelope that we've got for the next few years? 

Lee Outhwaite 

I'm never quite convinced we're quite having an honest conversation. I'm not sure budget time is the right time to do it. I do look back on all of that 2000 to 2010, that growth in funding that enabled elective recovery, the austerity decade post covid, and just look at the fiscal settlement and go, is this now all possible? 

And I think, I understand absolutely, the political salience of elective recovery, and it is not good to have people on those waiting lists. I do worry though - I'm working back in South Yorkshire, which is where I went to school. We are doing an inordinate amount of work as an ICB around that child health equity partnership work that Bernardos are doing. There's four pilot sites that look into that.  

Really welcome the work around the two-child limit. Because I think that will genuinely help in terms of socially determined disease. We're doing a huge amount of work around getting folk back into work, working with DWP. We're one of the pilot sites for that. But almost, I think, you've got public policy pulling in these two very different directions around what do you do about that sort of core inequalities, socially determined disease stuff? What do you do about that and what claims can you make with the fiscal settlement around elective recovery and more incumbent acute capacity? And I almost think some of the policy things we've got around the fiscal climate don't kind of make sense to us. 

So, I kind of look at a policy initiative around right to choose, which is not daft thing, but is it a policy instrument that I'd have with the current fiscal settlement with that sort of austerity funding continuing? I'm genuinely not sure. It's not say I wouldn't welcome additional elective capacity from somewhere, but is it the right policy? 

I look at do we really cost beyond the economic appraisal, what the sort of year one costs of the last wave of NICE approvals? That's not to say I think hybrid closed loop is a bad thing and it wouldn't pass an economic appraisal. It feels like we need to have this extraordinary, large conversation about what the NHS can afford to do, which feels like it's really politically difficult in the context of trying to chase down that elective recovery work, whilst doing everything else. 

So I don't think it's budget time you do that and I wouldn't look at the interchange in the dispatch boxes and go, it was the right place to have that conversation. But I am sometimes a little bit disappointed that we're perhaps not having this slightly broader about what the country can afford at the moment. 

Matthew Taylor 

Yeah. It's really interestingly because yesterday we had our ICS conference and there was quite a lot of talk there. And also from Penny Dash the evening before when she spoke to a smaller group of us around the fact that strategic commissioning, the core function of ICS is going forward. That strategic decommissioning is just as important, not doing stuff that is kind of low value. But as I think we all know, commissioning is actually a lot easier than decommissioning. Giving something to somebody is a lot easier than taking something away. And things which may look low value from a kind of technocratic perspective might not feel low value to the patients who are receiving them or even some of the clinicians who are delivering them. 

So Anita, you're reflecting on what Lee’s just said and, and thinking forward. Given that we're kind of trying to get a caught out of a point pot, as it were. What are the things that a government could do, assuming that it can't change the basic fiscal reality? What are the things that the government could do to make the jobs of people like Lee more possible? 

Anita Charlesworth 

Yeah. And I think just to briefly emphasise, I think that the Budget documentation from the OBR flowing that lower projection of economic growth productivity through does really highlight that we are in a new world, I think, or it's certainly very sensible for us to plan to think about being in a new world. 

So what they do as well is they look beyond the current settlement that we have from the spending review, which gives us around 3 per cent a year in real terms to what within the sort of fiscal plans and the tax plans that the government set out, given their protections of growth, the outlook for the next spending review might look like. So beyond the three years.  

And what they show is that if health got 2.6 per cent a year, in real terms, so slightly less than we're getting at the moment and your protected defence and schools, other areas of the public services would have to face further undercuts. So what that says is the Chancellor said her aim is to beat the OBR’s growth forecast. But if she beats the OBR’s forecast, and let's all wish her every good luck to do that; we need her to succeed, I think the idea that health should be NHS should be the first port of call on that is unlikely, even if we're only interested in our own system, I think most of us would say, please, if you've got any money, could you actually implement Louise Casey's review, by the time it's there, and get social care sorted out.  

There's a huge problem on send, which is putting local authorities, for example, under enormous challenge, and that's a real issue. So I think we need to, take across the NHS now, assume that our world going forward is more like two and a half to 3 per cent a year of funding pressures, of funding available, not closer to the 4 per cent that was the historic average before the pandemic and before austerity.  

So that puts an enormous amount of emphasis on our productivity. Within the NHS, not whole economy productivity, our productivity within the NHS, we've been set a 2 per cent target annual productivity savings, double the historic trend for this parliament. I would be amazed if that 2 per cent target weren't the target then for the next one.  

Now in the OBR's work, one of the things they do point to for productivity across the economy, and health being no exception is, well it’s very easy to get very depressed about all of this, there are nevertheless, some big opportunities to improve productivity and transform services. Some of that with stability with longer term budget cycles, which we've all asked for and we are being given a bit more detail in with, with a clearer plan of what we are being asked to do is there, but the big thing obviously is technology. And obviously what we always do is overestimate the short-term benefits of technology and underestimate the longer-term benefits and in the three shifts actually in terms of productivity when you take that very long-term perspective, and we probably need to be very focused within the tech and AI on some of the really clear, more slam dunk productivity gains.  

A lot of those are in what's called ‘middle office’. They're not the clinical, but they're enabling the clinical to go further. So that I think is an area where we really do need to make sure that we're doing all that we can. We've got some capital funding, but we're going to need to spend on revenue. I guess two things which are big risks and issues here. Lee talked about can we afford new medicines? One bit of unfinished business at the moment is what's the government going to agree with the pharmaceutical industry about the success of the VPAG and is the NICE threshold going to increase?  

And I am really worried about what's going to happen with an increasing amount of medicine and innovation, which is cost effective but unaffordable to the NHS, and what we going to do about that and how are we going to manage that because that will massively increase inequality because as we've seen, because the weight loss drugs, was it two and a half million people are now on the weight loss drugs paid for privately.  

Final thing is pay and the workforce issues. Because higher inflation, at the moment, inflation's coming down slower, is meaning that pay settlements are higher than we'd expected. The OBR is expecting now that inflation will come down during 2026, but we've got industrial action. We've got pay review bodies to report. That is all very fraught and we've had persistent inflation, and we've got very little headroom in NHS budgets for either industrial action or a better pay deal to stop industrial action. 

And the treasury is saying, ‘ah, the bank of the Treasury is closed to public services now for this sort of thing’.  

Matthew Taylor 

It's fascinating Anita. And as I said earlier, folks should check out the work that's coming out of the Productivity Commission that you are leading is really interesting.  

So, but I'm going to, Lee, turn to you for some last thoughts on this issue of productivity in particular, as Anita has said, things are going to be very, very difficult, but unless we can make progress on productivity, they're going to seem a covert thing like they are impossible. What do you think sinking forward, particularly to ICSs roles as strategic commissioners? What is the role that that ICSs can play in kind of driving productivity? 

So for example, there's talk isn't there, of that we should fund pathways on the basis of what they could cost if they were done in the best possible way. Not what they are costing, but what they should cost if they were done effectively.  

Is that the kind of thing, Lee, which enables ICSs to help to push this kind of productivity forward? 

Lee Outhwaite 

I genuinely think, and I'm thinking of having a chat with Anita after this just about how do we elevate the conversation about productivity in a slightly more sophisticated way. So I know we've got a bit into this excitement of we've got to be 2 per cent more productive. And Heaven knows there is stuff to go after covid period. 

I think the next five years though, we've just got to be in this value-based healthcare space. Thinking quite differently with frontline clinicians about how they valuably spend their time.  

I do slightly get concerned about this thing that I describe as volumetric folly of we need lots more things. I think we probably need different and more incisive things that there is probably nowhere where I could reinforce that than in the area of general practice consultations where I'd go I know in some areas there is an eight o'clock in the morning scrum, but there are things you can do about amending general practice, which is not equal to just more eight-minute appointments. 

Now, more eight-minute appointments adds to the productivity number, but we need to find a conversation to say, as we do in some of our general practices in Sheffield, how do we deliver proactive and anticipatory care that is more valuable for the cohort of patients that don't call us at eight o'clock in the morning, but the cohort of patients where we can have most impact around frailty and chronic disease. 

 In exactly the same way, I don't really want more decompensating medical patients in hospitals, even though they will add to the denominator of activity. We've got to find a mechanism, say, of course we're interested in clinical throughput efficiency in secondary care. And if we're living longer, we'll need more lower limb surgery and we'll need more cancer surgery and best to be occupying theatres as best one can in those areas. 

But I, I think we've got to find a mechanism to have a conversation about if we're really trying to use technology differently, if we're really trying to deliver care in a community setting in a more proactive way, if we are really at that preventative end, candidly, we need less and more incisive things in a number of areas than just adding to a activity denominator that may or may not reflect the most valuable healthcare now.  

I think that's a really big conversation, but I think it's a big conversation that if you engage with frontline staff, it's really important because candidly, there's really incisive follow-up attendance work that you can do that ensures that you get a huge amount of clinical value if we, if we just trot out some narrow views of how you make the NHS productive, I'm not sure that's very helpful.  

So, big strand of work at HFMA at the moment about value-based healthcare. About how you can engage with clinicians differently about what are the most valuable clinical interactions. And I think we are entering an era where more incisive, more valuable, clinical interactions is what we want. Not just more of them for the sake of having more of them. That isn't what the Productivity Commission is doing, Anita, but you know why I made the point.  

Well, Anita, I give Lee the final thought, but even though we're running out of time, I'm going to give you the final word and I'm going to think about how we can invite the two of you back to this conversation. But for the time being, Anita just give us a very brief response to what Lee said.  

Anita Charlesworth 

This is why having that more medium-term focus is so important. You know, what we did wrong, I think in the early 2010s was treat actually what was a long-term challenge as a short-term sprint, as we did lots of tactical cost cutting, which actually came back to bite us. We must learn from that.  

This is about having to create a genuinely higher value healthcare system that works for staff, patients and residents, and for the taxpayer. And we've got to have a long-term perspective on that. And it's about deep reform, not just working the current model that we've got a little bit harder. 

Matthew 

Yes. So it's not just about doing things differently, it's about doing different things. 

 Thank you, Anita. Thank you, Lee, for sharing your thoughts with us today.  

If you have an exciting, innovative program of work that you'd like to tell us about, you know, you might feature our Future Health on the line. Please do.  

You can contact health on the line through HealthCommsPlus@nhsconfed.org. Thank you, Anita. Thank you, Lee. Goodbye.