Inflation hits UK government’s pledge to build 40 new hospitals

The UK government’s flagship pledge to build 40 new hospitals by 2030 has been hit by inflation and officials are debating which projects to postpone as the NHS capital budget faces a deficit of almost £2bn through 2027/8 .

As Jeremy Hunt, the chancellor, prepares the budget on March 15, people close to the process said the Department of Health and Treasury had difficult discussions about how to fund the program.

They added that some of the 40 hospital projects are likely to be put on hold, especially given the need to prioritize urgent work to repair five hospitals whose roofs are at risk of collapsing.

The pledge to build 40 new hospitals was the focus of Boris Johnson’s 2019 election manifesto, but it was controversial from the start.

The majority of the proposed projects were not new hospitals but extensions, refurbishments or replacements of existing hospitals and the National Audit Office has launched an investigation. An Observer investigation in February found that only 10 projects had received full planning permission.

The Department of Health’s capital budget, which will fund the program, is expected to increase from $11.2 billion.

But with inflation at its highest level in a generation, officials have realized this will create a new black hole of almost £2billion in the budget by 2027/2028.

Health officials are grappling with rising construction costs and numerous other capital budget demands – including the need to replace unsafe roofs at some existing hospitals that have applied to participate in the final phase of the program.

The Department of Health and Social Care said it remains “committed to implementing all plans as part of the largest hospital construction program in a generation”.

It is developing a national approach to building new hospitals “so that systems can be built faster and ensure value for money and we continue to work closely with all trusts on their plans”.

The pressure on the hospital program is part of a larger capital spending deficit in everything from defense, public housing, roads, rail and schools to energy projects. The Chancellor said in November that he would leave total investment in cash unchanged at £600bn over the next five years.

With inflation at its highest level in decades, this will result in sharp cuts in departmental capital budgets for years to come. The Institute for Fiscal Studies estimated that the 2027/20208 shortage would result in a $15 billion cut.

Ben Zaranko, senior research economist at IFS, said spending areas at risk from the bottleneck included defense, energy and climate spending.

“It’s hard to see how to prioritize all of these things at the same time while keeping the overall investment flat. I would be nervous if I was responsible for investments in social housing, for example. If the government decides that hospitals must remain the priority, something else would have to give way,” he said.

Noting the pressure from rising costs, Zaranko added that overall construction inflation was 10 percent in December, but 14.9 percent for new infrastructure, according to ONS figures.

Downing Street has grappled with the dilemma of whether to announce all threatened cuts to infrastructure projects in one big statement – say the budget – or to allow a series of negative announcements from each department.