Rising costs and flat economic growth set to prolong the NHS financial squeeze for a further decade

The NHS could experience a £44-£54 billion funding gap by 2022 unless it delivers unprecedented productivity gains or public finances improve to allow health funding to increase faster than inflation.

Press release

Published: 03/12/2012

The NHS could experience a £44-£54 billion funding gap in 2021/22 unless it delivers unprecedented productivity gains over the next decade, or public finances improve enough to allow health funding to increase faster than inflation.

The shortfall would shrink to between £28 billion and £34 billion in 2021/22 assuming that productivity improves in line with the ‘Nicholson Challenge’ target of four per cent per annum up to 2014/15 but funding then remained flat in real terms.*

The figures are based on new modelling carried out by the Nuffield Trust and published in a report ahead of the Autumn Statement. The findings are released alongside new Ipsos MORI polling data – commissioned by the Nuffield Trust – which shows that the NHS is the number one area the public want to be protected from cuts.

Almost half of those polled said they would not support cuts to the NHS, and instead think taxes should increase to maintain the current level of care and services provided by the NHS.

Particular attention should be placed on improving quality and performance, and turning these improvements into cash releasing efficiency savingsAnita Charlesworth, Chief Economist, Nuffield Trust

Together the data suggests that the Government faces very tough choices in the next spending review. Even if health is protected from possible future cuts in public spending, it is clear that funding increases will not return to the sort of levels experienced in the past.

It represents a profound challenge for those running NHS hospitals and other organisations, effectively requiring them to extend the scope of their already ambitious savings plans beyond the expected four years of austerity to at least a decade – that is if they are to stay ahead of rising demand and maintain a comprehensive, universal health service, without requiring other parts of the public sector to face further large funding reductions.

Commenting on the opinion poll findings, Ben Page, Chief Executive of Ipsos MORI, said:

“The results of this poll show the lengths the public say they are willing to go to, to protect current NHS services. Whether they appreciate the scale of the challenge is another matter.”

Commenting on the report, Nuffield Trust Chief Economist and report co-author Anita Charlesworth said :

“There are no easy options for health beyond the current spending review. Without unprecedented, sustained increases in productivity, funding for health in England will need to increase in real terms after 2014/15 to avoid cuts to the service or a fall in the quality of care patients receive.

“The pressures from demography, illness and increasing costs will remain. It is very unlikely that under current tax and spending policies growth in NHS funding at rates experienced prior to 2010 could resume, particularly as other areas of public spending have already been cut much more than health.

“Productivity must increase and be sustained. Management and clinical leadership will need to focus beyond the current four year plans, extending them for at least a decade. Particular attention should be placed on improving quality and performance, and turning these improvements into cash releasing efficiency savings.”

The report: A decade of austerity: the funding pressures facing the NHS from 2010/11 to 2021/22 is based on modelling carried out by the Nuffield Trust into the future pressures on NHS services in England.

Health care activity costs over the next decade, derived from trends in population growth, fertility, mortality, hospital activity for selected chronic conditions and primary care activity were combined with the most likely growth and spending scenarios to identify the scale of the financial gap, as determined by a range of policy variables.

Costs that the Nuffield Trust model assumes are set to rise include:

  • Input costs, particularly wages: salaries are likely to increase again after 2014/15, once the current spending period – characterised by pay freezes – draws to an end;
  • GP consultations: by 2021/22 general practice consultations per person per year will have risen to 7.8 (from 5.5. in 2008/9);
  • Mental health services: the proportion of people aged over 65 using mental health services will grow by just over 50 per cent between 2010/11 and 2021/22;
  • Prescribing: these costs are set to rise by two per cent per year from £8 billion in 2010/11 to £10 billion in 2021/22.

The report goes on to illustrate how large dents could be made in the funding shortfall through different combinations of national policy and local efficiency programmes.

However the authors also admit that their estimates are ‘only a beginning’, and many more factors that might help reduce funding pressures could be modelled in line with emerging evidence from the research findings, for example the impact of major service reconfiguration, greater integration of services, changing workforce skill mix and the effective use of telehealth and telecare.

To meet this challenge they argue that there needs to be a much more comprehensive and transparent analysis of the assumptions underpinning current NHS productivity plans and this must include more robust evaluations and reporting on policies and local initiatives that if rolled out could impact positively on quality and costs.

* If after 2014/15 NHS funding increased in line with its historic average (four per cent a year) this would be sufficient to meet the projected demands on the service. However, that scenario is considered highly unlikely.

Notes to editors

  • In addition to these documents the Nuffield Trust has published a supporting report setting out projections of public expenditure on social care and continuing health care for people aged 65 or over in England from 2010 to 2022. The key finding is that net public expenditure on social care and continuing health care for older people is projected to rise from £9.3 billion (0.74 per cent of GDP) in 2010 to £12.7 billion (0.78 per cent of GDP) in 2022, assuming that current patterns of care and the ONS principal population projections keep pace with expected demographic and unit cost pressures. The study was conducted by the Personal Social Service Research Unit (PSSRU) at the London School of Economics and Political Science;
  • The Nuffield Trust commissioned Ipsos MORI to conduct a representative sample of the public on three key questions related to the NHS. Ipsos MORI interviewed 1,006 British adults (18+) by telephone between 22 and 25 November 2012. The data are weighted to the national population profile;
  • As part of the Government’s efforts to reduce the deficit the NHS has the toughest financial settlement in its history with funding broadly flat in real terms until 2014-15. To meet the pressures of rising demand the NHS needs to deliver productivity improvements of around four per cent per year – a total of £20 billion in 2014/15 (as set out in the ‘QIPP’ or ‘Nicholson challenge’).