Overspent and overlooked: Why Britain's politicians need to talk NHS funding again

With a general election approaching, conversations on public spending and the NHS may need to move to the fore, despite political reluctance to entertain the idea of further money for the health service in such cash-strapped times. So what is the realistic scenario with NHS finances in the post-pandemic era? Sally Gainsbury pores over recent budgets and spending in health to uncover a bleaker picture than leaders may be ready to admit.

Blog post

Published: 02/10/2023

With party conference season under way and concern about the NHS leading to a proliferation of headlines and opinion polls, politicians are turning their attention to ever-more ingenious ways to promise a better NHS while avoiding a commitment to find extra money to pay for it.

The bad news, however, is that whoever is in charge of public spending next week (let alone next year) is going to have to find the health service extra cash immediately, and in substantial quantities. 

In January 2019, the NHS in England published its Long Term Plan (LTP), setting out its ambitions for the health service over the 10 years that were to follow – including improving mental health, community and primary care, and raising clinical standards in key areas such as cancer, cardiovascular disease and maternal, child and neonatal health. Those ambitions received a reasonable level of cross-party support and agreement from clinicians and patient groups, and they remain the overriding policy framework today.

The plan was accompanied by a five-year funding settlement to pay for its first half-decade. This set out a funding growth trajectory for NHS England, awarding the health service increases in its budget for everyday spending averaging 3.4% above inflation each year between 2019/20 and 2023/24. The settlement would deliver on Prime Minister Theresa May’s promise – on the eve of the NHS’s 70th 'birthday' – that its funding in 2023/24 would be £20.5 billion more in real terms than in 2018/19.

Best laid plans?

In practice, the pandemic intervened during the second year of that funding settlement, which meant a radical departure from the LTP funding trajectory. In 2020/21, the budget for the NHS in England was around £14 billion more than the trajectory had pencilled in. And in 2021/22 it was around £9 billion more, as the service dealt with the direct and indirect costs of Covid – aided by then-chancellor Rishi Sunak's pledge to give the NHS “whatever it needs” to do so.

However, by 2022, the government and chancellor had run out of patience with the NHS’s additional spending and NHS England was asked to rapidly “converge” back to the original LTP funding trajectory.

Crash course

What should that convergence back onto the LTP trajectory have looked like? As the original trajectory was set in real terms, the sharp rise in inflation that accompanied the pandemic requires us to recalculate the cash figures entailed by it using the government’s preferred measure of inflation – the GDP deflator – the same measure on which the original promised trajectory was based.

Comparing that to the actual budget awarded to NHS England in reality is slightly more complex, as there have been significant additions to NHS England’s remit (or “mandate”) over the last few years – most notably from this year, when it absorbed Health Education England’s £5 billion budget, and with it £5 billion worth of responsibility for medical and clinical training in England. However, an NHS England board report from December 2022 usefully sets out the announced budget without these mandate additions.

Converging with reality

Comparing that to the recalculated trajectory shows the stark reality of what this “convergence” has meant for the NHS: a 3.7% real-terms cut in the original NHS budget for the financial year that ended in March, as extra spending growth related to Covid was very rapidly clawed back.

Long Term Plan funding trajectory as set out in NHS England board paper January 2019; GDP deflators National Statistics, June 30, 2023; NHS England funding summary post Autumn Statement 2022, published in NHS England board paper December 2022. We have projected an LTP trajectory figure for 2024/25 on the basis of a real terms increase of 3.4%.

NHS England’s opening budget for this current financial year looked a little better on paper. But the real-terms increase for the year was substantially lower than the 4% increase originally scheduled in the LTP trajectory. That left the health service with an opening budget for the year around £2 billion lower than it would have received under the LTP trajectory and meant Mrs May’s promise of a real-terms extra £20.5 billion by 2023/24 would be missed.

The picture is bleak. In practice, in both 2022/23 and the current financial year, the government has had to find extra cash to top up NHS England’s opening budgets – not least to ensure it can afford the government’s own pay offers to staff. These in-year additions and bailouts (the full value of which have yet to be confirmed) have been provided on an ad hoc, last-minute basis, leaving the service lurching from one funding crisis to the next, and uncertain as to how much – if any – of the extra recurrent cost increases it has faced this year will be funded into the next.

A political headache…

That is a question that no political party contemplating taking office in the next 15 months can responsibly ignore. As it currently stands, the figure pencilled in for NHS England’s funding for the year starting in April 2024 is £5 billion less than the funding it would have received had the LTP trajectory rolled forward a sixth year – with a real-terms increase in funding replicating the average 3.4% in the original promise.

And that £5 billion gap is not a realistic figure. Not three years on from a pandemic; not with over 7 million patients on an NHS waiting list; not when the Long Term Plan service improvements and expansions remain the expectation; and certainly not when the current rate of actual spending means the figure will be breached many times over anyway.

…with real world consequences

Few politicians like to promise higher rates of public spending, and fewer still enjoy detailing where spending increases will come from. But the radio silence on whether politicians will fill this year's hole in the budget is having consequences now. NHS leaders are deciding how many staff to take on, whether to schedule overtime shifts and clinics, and whether to spend more on care outside hospital that can stop people getting sicker and needing hospital.

The very real risk is that without certainty and realism around the NHS budget, the wrong decisions will be made – decisions out of step from what patients and the public want and prioritise. Organisations eyeing an impossible budget will simply have to cut staff, cut clinics, cut operating theatres, and cut service investment to fit. And that is arguably an even less palatable prospect for politicians seeking election than some honesty about how much it costs to run a quality health service.

Suggested citation

Gainsbury S (2023) 'Overspent and overlooked: Why Britain's politicians need to talk NHS funding again'. Nuffield Trust blog, 2 October.

Updated 17/10/2023