A financial birthday present for the NHS

With a long-term funding plan for the health service recently supported by the Prime Minister, John Appleby looks at how much money the NHS across the UK might need in future years.

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Published: 06/04/2018

The Prime Minister last week backed her Secretary of State for Health in arguing for a long-term funding settlement for the NHS. Many have cheered, but the crucial point is not so much setting a long-term funding path, but rather how much money would (or should) be involved. So across the UK, what would be a good present for the NHS in the year of its 70th birthday?

This chart shows the history of NHS spending across the UK since 1950, as well as four possible future spending paths over the next 10 years to 2028/29.

NHS spending across the UK (1950-2029) 06/04/2018

Chart

Source:  

1950/2016: House of Commons Library; 2016/17: PESA; 2017/21: Author’s calculations [scaling up England planned spend to UK at constant proportion (84%)]; Projections beyond 2021: Author’s calculations                     

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For graphophobes and logophiles, here’s it explained (all at 2018 prices – actual cash increases will be much higher).

  • Over the long run between 1950 and 2009, funding for the NHS across the UK rose by around 4% a year on average over and above inflation.
  • But from 2009 to the end of current plans in 2021, the average annual increase will be just 1.1% per year.
  • Arresting this decline and keeping NHS spending as a constant share of GDP (based on OBR forecasts) would require a total increase in spend of £38 billion by 2028 – equivalent to an annual increase of 2.2% per year.
  • However, just keeping up with economic growth doesn’t seem much of a birthday commitment – what would it take to match the long run growth since 1950? Well that would require a 4% real increase in funding every year – by 2028 that would amount to an extra £73 billion.
  • But what does the independent Office for Budgetary Responsibility (OBR) say about it? Their most recent central projection – a combination of spending pressures and productivity increases – for health spending suggests an increase of £59 billion by 2028, which is equivalent to 3.3% per year.
  • Finally, given the deviation from the long-term 4% increase per year trend since 2009, what would it take to get back on course by 2028? Well to get back to where spending matches the long run average within 10 years’ time, that would take an increase of £135 billion (or 6.6% per year).

Choices and decisions ahead

All these futures imply a political choice of course. Maintaining spending as a constant share of GDP is easiest, as long as tax revenues mirror such growth (and that the OBR’s projections for GDP turn out to be correct). But growing health spend at a faster rate will take decisions about the balance between tax increases, borrowing and reprioritisation across all public spending. The question is, what do we want, and what are we prepared to give up to have it?

Assuming that at some point in the not-too-distant future, NHS funding starts to return to a higher trajectory, the debate will then be what any extra money should buy. Should it be more of the same? Should it be guided in a utilitarian way to sectors and services that produce the biggest bang per buck? Or to satisfy the public’s main concerns, such as reducing waiting times? Or perhaps it could be spent on cost-effective interventions to reduce health inequalities?

Whatever the spending choices, the outcome will have to be a something-for-something deal.

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