Election 2015: How will the Tories pay for their health pledge?

George Osborne Image copyright PA
Image caption George Osborne has set out new Tory plans for NHS spending

On Friday, the Conservatives wrote a big cheque. Writing in the Guardian, George Osborne, chancellor of the exchequer, wrote: "I can confirm that in the Conservative manifesto next week we will commit to a minimum real-terms increase in NHS funding of £8bn in the next five years".

The Tories - like the Liberal Democrats - are committing to the plan laid by Simon Stevens, chief executive of the NHS. He published a report last year which spelled out a scenario in which, in return for increased spending of £8bn on the health service, it could deliver reforms that would allow it to reform itself and contain its own costs. (I wrote about how plausible it is as a piece of health policy yesterday.)

Labour's riposte, via their shadow chief secretary Chris Leslie, is that "they still can't say where the money would come from". What do we know a bit about where it will come from? Well, we know that reductions in spending in other areas of government will bear the weight of the commitment.

How will the cost be met?

The Conservative have set out plans that allow us to sketch roughly what they would spend in the coming years on services were they elected to a majority. You can make plausible different assumptions that can budge the figures a little one way or another, but this is the broad shape of their plans.

It starts with a big squeeze in 2016-17 and 2017-18. That is because the Conservatives' plans aim to balance the day-to-day budget by 2017-18. (I explained more about that target yesterday.)

  • In those two years, the Tories plan to cut day-to-day departmental spending by about 6% over two years in real terms. That figure would be higher - around 11% - but for their decision to cut the welfare bill by £12bn and raise £5bn through a reduction in tax evasion.
  • We know the path that the schools budget will take, too. Setting that aside, the remaining departments face a 6.6% cut.
  • We expect the Conservatives will commit to shield the aid budget. So, excluding that, remaining departments face a 7.1% cut.
  • If you assume that the Tories fund the shape of the plan set out by Mr Stevens - which means staged increases in spending - that means the remaining departments face a 14.5% cut.

Then, the rate of cutting for non-protected departments slows down a little. In 2018-19, the plans imply a further 7% cut to the unprotected departments (bringing the total over those three years to around 20%). The total rate of spending squeezes eases that year, but there are no welfare cuts or tax avoidance incomes pencilled in to ease the departments' troubles.

Then, as spending starts climbing in the last full year of the parliament, the Tories will be able to increase spending by 8% on unprotected departments in real terms, while delivering the Stevens cash. That programme of famine then feast is what the Resolution Foundation have dubbed a "fiscal rollercoaster".

What conclusions should we draw?

What to make of all this? Well, first, we can say where the money is coming from - the unprotected departments. To that extent, the commitment is "funded". But we don't know whether it's the police, the military or local government, say, that will bear the brunt. We could certainly do with a lot more detail.

Second, the £6.5bn or so implied by the Stevens plan for 2019-20 may be easier to find than smaller sums at the start of the parliament. Note that Mr Osborne is committing to £8bn at the end of the parliament in 2020-21, but he is not committing to any particular rate of introduction (the so-called "profile"). The money could phased in slower than Mr Stevens' plan implies - although I'm not sure that, if they did it aggressively, it would meet the spirit of the Stevens plan.

Third, note the role being played by the tax avoidance and welfare cuts. It really eases the strain. Tories note that the rate of cutting in the next parliament need not be more rapid than the current one. But we don't know where the welfare cuts will come from. I could write the same about the tax clampdown - although that's doomed to be quite opaque. Without those sums, the budget plans look extremely difficult to meet. In extremis, the 15% cut to unprotected departments becomes 25% one.

Fourth, this is the rough shape of a party's pre-election plans. It could be bartered away. There could, for example, be a tax rise to ease the burden on departments. A hung parliament makes manifestos extra hypothetical.

Fifth, note the power of the name of Simon Stevens, who has asked for £8bn a year and has got it from two parties. There are other powerful officials - such as Mark Carney, the governor of the Bank of England. But it is impossible to imagine Sir David Nicholson or any of Mr Stevens' other predecessors making similar demands.

These public officials emerge from time to time. Sir Chris Woodhead, a former chief inspector of schools, dictated terms to the Major and Blair governments on parts of education. But, even in that company, the NHS chief executive is unusually strong.

Sixth, I can only poke through the Tory plans like this because they have told us enough. I hope, by the end of the next week, I can do the same for all the other parties. Labour and UKIP have set out some specifics on NHS funding, but we know little about the rest of it.