Spending on public services: the biggest bird catches the worm?

Watching how revenue is allocated across different public services can be like watching a mother bird return to her nest with a beak full of worms only to be confronted by a chorus of squawking babies with open mouths and seemingly inexhaustible appetites. However fair she tries to be, one always seems to squawk louder than the others and gobbles up more of the spoils.

In the nest of public services, health care is typically the most insistent and successful in its claim on any available worms. This reflects familiar long-term pressures on the cost of and demand for health care – notably technological advances and the ageing population – as well as the potent political salience of the NHS. Since 2020, these have been compounded by the special demands of the pandemic, both in the immediate response and in the need to tackle its longer-term legacy.

At the UK level, and measured relative to the size of the economy, health spending rose steadily from 4.6% of GDP in 1998/99 to 7.5% in 2009/10, at which point it broadly stabilised during the ‘austerity’ years. It stood at 7.3% in 2019/20, before ballooning to around 10% during the pandemic.

But even during the lean times, health fared better than most. Compared to total spending on public services, its share rose from 14% in 1998/99 to 18% in 2009/10, but then carried on rising to 21% by 2019/20. The subsequent surge during the pandemic has passed its peak, but it remains to be seen at what level – or rising path – it ultimately settles down.

Health spending in Northern Ireland

When it comes to spending by the Northern Ireland Executive (or its constituent departments when the Executive is not functioning), health care is an even bigger bird in a rather smaller nest.

Without the need to spend on services like defence and foreign policy that are provided at the UK level, the Department of Health (which is also responsible for social care) consumes more than half the resource spending of Northern Irish departments. Almost the only thing that the parties in Northern Ireland could agree on when the outgoing Executive tried and failed to agree a Budget in 2021 was that health should be prioritised. And when the UK Northern Ireland Office published draft spending allocations late last year, health had more of its prospective overspend covered than any other department.

Such are the constant pressures, the UK government almost always ends up spending more on health than it originally intends to. According to the Institute for Fiscal Studies, growth in spending on health averaged 4.1% a year in real terms over the 40 years from the 1982 Autumn Statement to the end of the pre-pandemic 2015 Spending Review, compared to initial plans averaging 2.7%. In only two years did health spending end up growing less quickly.

In this regard, governments are presumably responding to their sense of public mood, arising in part from personal experience of the health care system but also what they hear and read about it.

Biased coverage?

A fascinating review of BBC reporting on public finances by Andrew Dilnot and Michael Blastland raised the possibility of a “spending good” bias. One respondent complained that reporting “turned public spending into a shopping list”, while another described the typical BBC story about public spending as: “Here’s a vivid and emotionally compelling ‘need’, or ‘failure’, here’s how much more money a few other carefully chosen countries spend on this need, here’s how much better results are in those countries, therefore (it’s implied) more public spending is the answer.”

Dilnot and Blastland did not say whether they thought health spending was too high or too low, but argued that “what’s most lacking here is a stronger sense of the trade-offs. More for some often means less for others – either lower public spending elsewhere, or lower private spending because of higher taxes to pay for higher public spending. Once we acknowledge this, ‘more’ spending ceases to be uncontestably positive or even neutral.”

Spending within health care is also full of trade-offs, they noted. “Should less money go to treatment and more to prevention through public health? Should services be more centralised and less local in the hope they become more efficient – and better – by concentrating specialist expertise? Should London have less and the regions more? Should places with higher health needs have more and others less to reduce health inequality? Has old age become over-medicalised and is too much done to extend life at the expense of quality of life?”

But, as Dilnot and Blastland also observed, the public’s perceptions of where spending should be focused are dominated by health to such an extent that attempts to discuss other possible trade-offs are often unproductive.

The ongoing challenge of making money go further

All of this suggests that upward pressure on health spending is likely to persist, but the trade-offs remain and presumably must become more visible over time. One obvious conclusion is that governments need to do everything they can to maximise outputs and desired outcomes from every pound spent on health care – and indeed of every other public service. But the task of the mother bird in deciding which baby should get which worms is not going to get any easier.

Sir Robert Chote is the Chair of the Northern Ireland Fiscal Council, and also the Chair of the UK Statistics Authority.

The Northern Ireland Fiscal Council recently commissioned the Nuffield Trust to carry out a review of health and care funding, productivity, service performance and spending projections in Northern Ireland. You can read the report here.

Please note that views expressed in guest articles on our website are the authors' own and do not necessarily reflect the views of the Nuffield Trust.