IFS - Nurses more likely to leave NHS hospitals where costs of living have increased quickly

24 Feb 2021 01:49 PM

Improving the retention of NHS staff has been a long-term policy challenge, and will be of even greater importance in the aftermath of the Covid-19 pandemic.

NHS pay is currently tightly regulated in order to reduce variation in pay for the same roles in different parts of the country and to stop hospitals competing for staff on the basis of pay. However, this regulation has consequences: a new report by researchers at the Institute for Fiscal Studies and Imperial College London, as part of the National Institute for Health Research Policy Research Unit on Health and Social Care Workforce, shows that national pay-setting limits the flexibility of hospital trusts to respond to local conditions, exacerbating shortages in hospital nursing labour before the start of the pandemic. These shortages exist despite increases in the overall number of nurses working in the NHS.

Using novel administrative payroll data covering the entirety of the NHS acute hospital sector between 2012 and 2018, researchers find that in parts of England where house prices – a proxy of cost of living – have increased rapidly, the relative earnings of nurses in these areas have decreased compared to nurses living and working in areas with slower growth in living costs. This has translated into increased movement of staff between hospitals, and more exits from the hospital sector entirely among frontline nurses.

Specifically, findings include:

• Variation in pay between nurses in different areas of the country is dwarfed by much larger differences in the cost of living. The median hourly earnings for a nurse living in London in 2018 were £18.41, or 11% higher than a nurse living in Burnley. However, the average house price in London is six and a half times more than in Burnley. As a result, the relative value of nurse earnings varies considerably across the country.
• Within a system of nationally regulated pay, NHS Trusts respond to these cost-of-living differences by paying supplementary allowances and premia where allowed, and facilitating faster promotion if vacancies exist. The latter is the most important channel, explaining a large part of differences in earnings between nurses in similar roles, but different local areas.
• However, these responses do not anywhere near compensate nurses for higher living costs, with a higher cost of living resulting in an increased exit rate from the NHS acute trust sector. Rises in house prices over this period, which averaged 3.8% a year, resulted in more than 1,300 nurses leaving the NHS acute care sector each year, or more than 9,000 over the seven-year period.
• Strong growth in the cost of living also led to an increased rate of job changes between trusts. Rises in house prices led to more than 1,700 nurses switching to a different trust in a year, or more than one in five such moves over the period. While this does not reduce the total number of nurses working within NHS hospitals, it does lead to hospitals increasingly having to find new staff to fill vacancies.
• The effects were concentrated among younger and more junior nurses, who saw the biggest increases in promotion rates, churn and exits in response to an increase in cost of living.
• Trusts in areas that were already the most expensive to live in responded more strongly to increases cost of living by accelerating promotions and making increased use of allowances and premia in responses. These include London and many areas in the South of England, but also some areas elsewhere in the country, like York and Harrogate. The average increase in house prices experienced by nurses in these areas (6.4%) was associated with an increase of 2.3% in their total earnings, despite their hours of work remaining the same.
• Despite this, the detrimental impact of fast increases in cost of living on retention were also largest in these long-run high-cost areas. Our estimates suggest that nurses in high-cost areas were one-and-a-half times likelier to leave in response to a cost-of-living increase than nurses in other areas.

Isabel Stockton, an IFS Research Economist and an author of the report, said:

“National pay-setting affords NHS hospitals little flexibility to respond to economic conditions in their local area. When, as a result, nurse earnings do not keep pace with local increases in cost of living, this prompts more nurses to exit NHS hospitals, particularly in expensive areas.

The existing system of supplements and retention premia is not fit for purpose. The pressures of the Covid-19 pandemic on staff, and the need to tackle a large backlog of NHS treatments in the aftermath, have only made the issue of nurse retention more pressing.”

Cost of living and the impact on nursing labour outcomes in NHS acute trusts