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Inflation hits UK government 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 delay as the NHS capital budget faces a shortfall of close to £2bn by 2027/8.

As Jeremy Hunt, the chancellor, prepares for the Budget on March 15, people close to the process said the Health department and the Treasury have had difficult discussions about how to fund the programme.

They added that some of the 40 hospital projects are likely to be put on ice, particularly given the need to prioritise urgent work to fix five hospitals whose roofs are at risk of collapse.

The pledge to build 40 new hospitals was at the heart of Boris Johnson’s 2019 election manifesto, but has been beset by controversy from the start.

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

The Health department’s capital budget, out of which the programme is being financed, is forecast to grow from £11.2bn in 2022-23 to around £12.6bn in 2024-25 before being held flat in cash terms for three years.

But with inflation at its highest level for a generation, officials have realised this will create a fresh black hole of close to £2bn in the budget by 2027/8.

Health officials are grappling with soaring construction costs and multiple other demands on the capital budget — including the need to replace unsafe roofs on some existing hospitals, which have applied to be part of the final phase of the programme.

The Department of Health and Social Care said it remained “committed to the delivery of all schemes as part of the biggest hospital building programme in a generation”.

It was developing a national approach to constructing new hospitals “so schemes can be built more rapidly and ensure value for money and we continue to work closely with all trusts on their plans”.

The pressure on the hospital programme is part of a wider shortfall for capital spending across everything from defence, social housing, road, rail and schools to energy projects. The chancellor said in November that he would keep total capital spending unchanged in cash terms at £600bn over the following five years.

But with inflation at its highest level in decades, that will lead to deep cuts in departmental capital budgets in the coming years. The Institute for Fiscal Studies estimated that the squeeze was equivalent to a £15bn cut in 2027/8 compared to what was previously pencilled in.

Ben Zaranko, IFS senior research economist, said spending areas at risk from the squeeze included defence, energy and climate change investment.

“It is difficult to see how you prioritise all these things at once while holding overall investment flat. I would be nervous if I was in charge of social housing investment, for example. If the government decides that hospitals must remain the priority then something else would have to give,” he said.

Noting the pressures imposed by rising costs, Zaranko added that general construction inflation was running at 10 per cent in December, according to ONS figures, but for new infrastructure the figure was 14.9 per cent.

Downing Street has been grappling with the dilemma of whether to announce all of the looming cuts to infrastructure projects in one big statement — for example in the Budget — or whether to allow a string of negative announcements from each department.

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