Analysis prepared for the BMA by GP committee member and former contract negotiator Dr Peter Holden warns that GP partners face a 'double whammy' financial hit from soaring levels of inflation.
GPonline reported earlier this month that the government's announcement of a 4.5% pay rise for salaried GPs and a rise worth a similar amount for NHS staff - which practices have been given no additional funding to pay for - could put a £40,000 hole in the finances of an average practice.
Practices also face increased outlays on energy bills - which Dr Holden described as a 'very significant part of the non-staff pay element of general practice finance' - with costs predicted to triple or even quadruple for some practices.
The impact of these increased costs, which far outstrips the 3% funding increase for 2022/23 built in to the five-year GP contract deal, are set to drive up the proportion of practice revenue consumed by expenses to new record highs.
In England, expenses consumed 56% of GP practices' gross income in 2005/6 - but this figure had risen to just under 70% by 2019/20 according to figures from NHS Digital.
Dr Holden's analysis warns: 'In very round terms for every 1% of inflation at a 70% practice expenses ratio you will lose 3% of your income. But it does not rest there. If we were to get subsequent years of 10% inflation without an increase in our gross turnover we would have no income at all by the end of year four and by the end of year two we would have lost half our income.
'We would not survive beyond year two as I suspect that banks would call in loans which support our premises by that point.'
General practice at risk
Speaking to GPonline, Dr Holden warned: 'If the government doesn’t get a grip on this, general practice will collapse.'
The Derbyshire GP warned that the mood in general practice was 'very ugly indeed', adding that he could see industrial action on the horizon.
More than 1,600 GP practices in England have closed or merged since NHS England became operational in 2013 - a fifth of all practices - and numbers of full-time equivalent GP partners have slumped by around a sixth in the past five years.
Dr Holden's analysis says that for salaried GPs, 10% inflation means a 10% reduction in buying power, but that for GP principals 'if the turnover of the business is fixed (and it is for NHS general practice because government controls the price) then inflation is a nasty pincer movement because not only does the expenses ratio rise and therefore profits fall but what is left in profit has reduced buying power additionally, so it is a double whammy'.
It adds: 'It is very important to try and get a handle on what inflation means for your practice because there can be massive falls in liquidity and therefore drawings over a very short period even with quite modest inflation.'
The analysis says that the risk to practices' viability from inflation 'highlights the dangers of five-year fixed deals without explicit compulsory balancing mechanisms regarding practice expenses' and warns that general practice 'needs urgently to understand what steps are to be taken to sort this out'.
The warning comes after the Doctors and Dentist Review Body delivered a strongly-worded warning to the government over the potential impact of forcing general practice to operate within funding limits set as part of a five-year deal agreed in very different economic times.
The DDRB warned that failure to act to support general practice and other branches of practice subject to multi-year pay deals would have a damaging impact by suggesting that 'workforce groups under multi-year deals should not expect there to be an appropriate response to exceptional changes to the economic and wider context'.