Let’s make one thing clear right from the off: the IFS did not just say that the government would break its pledge to increase health spending in real terms. What it did say is that the government is coming close to breaking it — and that’s the truth. Here’s the graph that we’ve put together to compare the real terms health spending figures in last October’s Spending Review (the green line, calculated using last November’s inflation figures) with those in yesterday’s Budget (the red line, calculated using yesterday’s inflation figures):
Hang on. Doesn’t that show health spending going down in real terms, after this fiscal year? Well, yeah, kinda. But the IFS was reluctant to describe this as a definite “real terms cut,” and for three main reasons. First, that, if anything, this is more like a freeze: the total for 2011-12 is £102.9 billion, while it is £102.8 billion for 2012-13. Second, that their figures are roundings of roundings, which matters when the differences are as small as they are. And, third, that — particularly in the years after 2012 — the government could simply increase health spending to compensate.
But what explains the change from the Spending Review figures in the first place? Part of it is a general downwards adjustment in how much was spent on health in 2010-11. But the main factor is inflation. Thanks to the Treasury’s new, higher estimates for inflation in the general economy — aka, GDP deflators — the money that the government was planning to spend on the NHS is now, effectively, worth less. £100 billion will simply buy fewer ambulances, beds and hospitals than expected.
The moral of all this — and, indeed, of yesterday’s Budget on the whole — is that Osborne has so little room for manoeuvre. A slight shift in inflation forecasts, and the NHS might be experience cuts instead of rises. Another shift, and we could still be in deficit at the end of this parliament. From now on, when we hear that Osborne has money to “play with”, the assumption may have to be that he will consolidate his existing plans, not engage in cheery giveaways. Such is the danger of making promises when the money’s tight.
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