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Guest editorial Wednesday 15 December 2010: John Appleby on PCT allocations for 2010-11: disappearingly small rises

The iridescent Professor John Appleby is the chief economist of the Kings Fund. In this guest blog, he peers intently at the rises in PCT allocation issued today by DH and at the Operating Framework.

The harder you stare at the PCT allocation figures for next year, the less you see.

Less, not only in terms of clarity, but just less - as in the opposite of more.

Can’t avoid some numbers on this, so….

Total PCT revenue allocations next year will be £89.1 billion. This is equivalent to a 3% cash rise. This is greater than the 2.0% cash rise for the NHS as a whole.

PCT spend accounts for 84% of total NHS spend. This means that the remaining 16% will have suffered a cash cut of around 2.9%.

'The NHS allocation overall will be cut in real terms by around 0.5%'

But after allowing for inflation (2.5%, according to the GDP deflator forecast issued by the Office for Budget Responsibility recently), the real-terms total PCT revenue allocation just scrapes in at 0.5%.

And the rest of the NHS budget faces a real cut of just over 5%.

The NHS allocation overall will be cut in real terms by around 0.5%.

OK, now for a bit of harder staring at the numbers.

The £89.1 billion for PCTs includes £648 million earmarked for social care. Once this is taken out, the cash rise becomes 2.2%, which means that PCT total revenue allocations will fall in real terms by around 0.3%.

Revenue figures: a capital wheeze
Now, all these figures are revenue. The Operating Framework for next year states that there will be no automatic capital allocation to PCTs. So, PCTs' total (revenue plus capital) allocations will therefore rise by less than 2.2% - though hard to say by how much.

Top-slice time
The Operating Framework also states that, as this year, PCTs will need to lodge 2% of their allocations with their SHAs in order to manage the ‘transition’ and to ‘maintain the financial health of the NHS’.

In other words, around £1.8 billion will be spent on implementing the White Paper reforms and ensuring the system is in financial balance through (presumably) some system of brokerage, by the end of the next financial year.

This is 2% of PCTs’ allocations which they cannot control - money on which they can only get their hands with real difficulty (i.e. they must make a convincing business case to be approved by the SHA).

So, effectively, PCT allocations are reduced further; this is a real cut of around 2.3% in their purchasing power.

But things are not all gloomy for PCTs.

The tariff will also reduce in real terms next year. It is unclear (to me at least) by how much it will be cut, but it should offset some of the PCT purchasing power reductions. Of course one organisation’s ray of sunshine is another’s skin cancer risk; tariff reductions will bite hard into trusts’ incomes.

Liberating the tariff - competition on price
The Operating Framework has another surprise on tariffs: they are no longer to be fixed.

Trusts, including independent sector providers of NHS care will be free next year to offer their services at below the tariff price. Let me repeat that: there will now be competition on price.

This may help PCT budgets go further, but, as the Operating Framework notes rather blandly, ‘Commissioners will want to be sure that there is no detrimental impact on quality, choice or competition as a result …’.