I announced in July 2013 that the costs of implementing policies in the Health and Social Care Act were likely to be closer to the estimate in the business case for the programme—£1.5 billion in today’s prices—rather than the £1.6 billion to £1.7 billion estimate reported in October 2012.

I can today confirm today that I am expecting the costs of NHS modernisation to be no higher than £1.5 billion.

Up to 31 March 2013, costs of £1,096 million had been incurred across the health and care system on developing and establishing the new arrangements. During 2013-14 organisations in the new system reported that they had incurred a further £220 million to continue this work. Some of these costs will relate to the continuous improvements that all organisations are expected to make. So, at most, the costs to 31 March 2014 were £1,316 million, comprising:

£456 million on staff redundancies;

£75 million on IT for the new organisations;

£88 million on estates costs of closing bodies and setting up new organisations;

£26 million on internal departmental costs—for example, programme management;

£323 million on setting up clinical commissioning groups—excluding items above; and

£348 million on other costs of closing bodies—for example, PCTs—and setting up new organisations.

In the impact assessment, long-term annual savings arising from the changes were estimated at £1.5 billion per year from 2014-15 onwards. Gross savings over the transition period—2010-11 to 2014-15—were estimated at £4.5 billion.

As I announced last year, annual savings are still expected to be £1.5 billion from 2014-15.

The reductions in administration costs up to 31 March 2014 are set out below. These are calculated on a basis consistent with the impact assessment for the Health and Social Care Bill—with the figures set aside any administrative spending on implementing the reforms.

The cumulative savings in administration costs arising from the reforms over the period 2010-11 to 2014-15 are therefore expected to be at least £6.4 billion.