Clarity on health care priorities needed after Spending Review

The notion that the health service has emerged as a “winner” from the Chancellor’s Spending Review is a bit like congratulating someone who has just won back the face value of a scratch card. It certainly could have been worse, but the NHS is not going to feel materially better off compared to the last decade.

Indeed, after adjusting for changes in NHS employer pension contributions and rising national insurance costs, the Department of Health and Social Care’s (DHSC) day-to-day budget, which covers NHS costs in England, will increase by a real-terms 2.8% a year from this year onwards, compared to average increases of around 2.6% in the 10 years leading up to it.

That translates into a significantly more generous settlement than the 2011/12 to 2018/19 period, when spending increases averaged just 1.8% a year, but is less generous than the long-term plan period between 2018/19 and 2023/24 when spending grew on average by 3.3%. Of course, the average 3.3% over the five years before the change of government glosses over year-to-year turbulence, as spending levels lurched chaotically from one very large pandemic-fuelled increase in 2020/21 to a year of almost standstill, followed by two years of real-terms cuts.

Increases will not do all that is hoped

The 2.8% average annual real-terms increases from this year onwards until 2028/29 offer a more stable period of funding, but is unlikely to be sufficient to enable the NHS to keep up with the routine increases in activity expected of it, let alone implement further government asks. While it is common to attribute the demand for routine increases in activity to an ageing population, demographic factors only account for roughly a third of the annual activity increases typically seen in the NHS and health care systems in similar countries. The far more significant driver is simply the rising expectations that accompany technological advance: new treatments and tests are developed and the public, understandably, want them, as the horizon of what is possible constantly expands.

The scale of pressure to adopt new health care advances is perhaps most clearly shown in the drug spend of NHS provider trusts, which increased by 8.5% in cash terms between 2022/23 and 2023/24 to £10.8 billion – faster than both the rate of growth in their funding levels (6.7%) and their spending on staff (6.2%).

Until now, the overall health budget in England has been relatively protected from the full impact of costs created by technological advances through a series of agreements with the pharmaceutical industry, which effectively cap overall expenditure on branded medicines and result in an annual rebate being paid to the DHSC when spending on new drugs rises faster than agreed. However, that arrangement is currently being renegotiated with the industry reportedly seeking in the region of an extra £2.5 billion a year – easily wiping out over 1% of the annual real-terms uplift set out by the Chancellor.

What are the priorities?

Of course, the government may be able to settle for less, but the jeopardy created for the NHS points to how this is a spending settlement that requires the government to be clear on what its priorities for health care are and, perhaps even more importantly, what they are not.

There is growing evidence that new drugs and treatments introduced into the NHS bring a smaller population health benefit than the older, more established forms of health care they divert funding away from. While patient groups and pharmaceutical companies will lobby hard for even only very marginally cost-effective treatments to be made available in the NHS, maximising population benefits and equity within the budget allocated will require a government that stands firm against that pressure, rather than delegates the problem down to the NHS.

What goes for pharmaceutical costs also goes for the myriad of other politically salient priorities the government has attached itself and the NHS to. The Treasury has been clear that the funding envelope set in the Spending Review will not be reopened, and so there will be no additional funding to meet the government’s pledge to bring waiting times back within the 18-week standard before the next election. Nor will there be funding to “double run” services currently provided in hospitals in new community and primary care based settings.

And while the capital budget – covering buildings and equipment – received a large boost this year and last, it will now be held flat in real terms until 2029/30, making it hard to see how high ambitions on productivity improvements can be attained. This does not add up to a funding settlement that is likely to be able to pay for everything the government has so far said it wants. What we need to see next is a 10-year plan that acknowledges that and supports the NHS in getting as much equitable health care improvement out of the available budget as it can.

*This blog was originally published in the BMJ on 13 June and is reproduced with permission.