Conservative conference: clearer idea on health spending

Image copyright bbc
Image caption Andrew Lansley's figures have been further examined

I make no apologies for returning to government spending on health.

The Tory promise in the election to ring-fence health spending and increase it in real terms every year even during a period of public spending cuts was distinctive and much-touted during the 2010 election campaign.

A quick recap: during my extended interview with Health Secretary Andrew Lansley which went out live on the BBC News Channel on Sunday evening, I suggested that higher inflation than anticipated when the health spending promise was given would make it more difficult to meet the Tory promise of real annual rises.

Indeed I put to him a projection for real health spending which showed it would decline. Mr Lansley disputed these figures and said that, because of an earlier underspend, health spending would still rise in real terms despite the higher inflation.

I said I would post my figures on this blog, which I duly did. And I invited the Department of Health to respond, which it has.

As a consequence of this process I have a clearer idea of what is happening. The Department is right that an underspend in 2010 helps health spending to rise in real terms through to 2015.

But it is important to understand what happened: the 2010-11underspend happened during the coalition's first year. It meant there was a 0.9% fall in spending, in real terms, compared with 2009-10, Labour's last year.

Using this new lower spending base for 2010-11 and applying the official Treasury deflators, spending will be back just above the 2009-10 level in 2014-15 - but by only a 0.1% real increase.

'Essentially static'

In other words, even allowing for the underspend and using the existing deflator, spending will be, effectively, no more than it was in Labour's last year in real terms.

But the official Treasury deflator does not take into account the recent surge in inflation.

Using the average of the independent forecasts for the deflator which the Treasury published in August, health spending will fall by 0.8% in real terms between 2009-10 and 2014-15. The cut is masked starting from the lower baseline of 2010-11.

So there we have it. Comparing Labour's last year (2009-10) with the coalition's last year (2014-15) before the next election, health spending will be essentially static in real terms, using the Treasury's original GDP deflator.

Using a newer deflator that takes into account the reality of recent higher inflation, and real spending on health falls by almost 1%. Either way, it is hard for Mr Lansley to claim that he is keeping his promise.

But these are complicated matters and, as always, I stand ready to be corrected.