Health spending across the UK nations: Who decides how much?

What is the truth about where decisions in funding are taken, and what difference could the election make? Mark Dayan looks at the facts.


Published: 10/04/2015

The health services of Scotland, Wales and Northern Ireland are governed by those countries’ respective governments, not by Westminster or Whitehall. The tricky task of comparing the systems is an important case study in how this kind of change in responsibility changes how health systems work – or doesn’t.

Yet the health services in all UK countries are looming large in this Westminster election. This is because the Treasury and Parliament in London play a crucial role in determining one very important fact about the devolved governments and health services: their budgets.

In Wales, the Labour-run Government is fending off accusations that struggles in NHS performance are due to its budget cuts. In Scotland, the SNP has been emphasising that even though it disagrees with the existence of a parliament legislating across the UK, it will enter the House of Commons ready to “restore England’s NHS” – for the sake of the knock-on effect on the Scottish budget.

So what is the truth about where decisions in funding are taken, and what difference could this election make?

Spending across the National Health Services

First off, how much does each country spend? The figure below shows health care spending per person for the latest comparable year, 2012/13.

Scotland and Northern Ireland spend significantly more than England and Wales. On a simple per capita basis, England spends least. But after adjusting these figures to reflect the fact that older populations have higher health care needs and therefore higher health care costs, Wales is the UK’s lowest spending country.

Why the differences? The Barnett effect

The devolved governments each receive a block grant for public services from UK-wide taxes. They are free to use it as they see fit: it must cover almost all the cost for their responsibilities, including health. The size of this grant is determined by the Barnett Formula.

The formula ensures that any change in English public spending announced for a devolved area, like the NHS, is reflected by a change in the block grants. For example, if English public spending on health goes up by £100 million, the Welsh block grant will increase by around £6 million because the Welsh population is about 6 per cent of England’s.

But many people, including a special House of Lords committee, and even the formula’s creator, have cast doubt on whether this is fair. Today, most of the money each country receives is a reflection of historic English spending changes throughout the 1980s, 1990s and 2000s. That means it was based on population proportions that are significantly different to those that exist in the UK today.

Within England and Scotland, sophisticated formulas distribute NHS money based on age, public health, poverty and rurality. Yet none of this is included in the Barnett Formula.

Academics at the University of Stirling tried to see what would happen if these needs-based formulas were applied to the UK countries. Their findings suggest that the Welsh NHS would receive around 10% more funding than the English health service, much more than it currently does when decisions are made by the Welsh government within the envelope set by Barnett. On the other hand, Northern Irish health services would receive considerably less than they currently spend relative to England. Scotland’s health service funding level would be similar or slightly less.

Decisions within the devolved countries

The Coalition government in England and the SNP in Scotland have both kept health service spending per person roughly flat since 2010. In England’s case, however, this meant a trade-off with cuts to local authorities, which are responsible for paying for social care for older people. This led to sharp reductions in the number of older people receiving council-funded support – support which can keep pressure off the health service.

Wales cut healthcare spending in the first years of this Parliament – from its already low base. Compared to England, the other low-spending country, Wales took the decision to protect local authority (and therefore social care) spending at the expense of health. But in 2014, following a Nuffield Trust report into the scale of the financial problems facing the NHS, the Welsh Government changed course. It committed to spend an additional £200m in 2014/15, and £225m in 2015/16 – at the cost of cuts to local authorities.

What voters need to know

Voters in Wales should realise their NHS is indeed on a tight budget compared to some other UK countries, explaining some of its recent struggles. But there is no easy answer to this. Potential increases in core NHS spending from the block grant mean cuts elsewhere: perhaps in social care, which has been squeezed to protect the NHS budget in England. In the medium term, Wales’s lower average wages and incomes mean that the option of getting more tax powers devolved, as Scotland is doing, will not open up huge opportunities for additional revenues.

Scotland’s more favourable treatment by Barnett has allowed it to maintain higher health spending than Wales while only setting aside around the same proportion of money. With real fiscal autonomy an uncertain prospect, Scottish First Minister Nicola Sturgeon is right that funding decisions in London will determine whether this can continue.

However, the argument that privatisation in England of the sort seen under Labour and the Coalition – with more companies delivering state-funded care for profit – will reduce spending for Scotland is not convincing. There’s no reason why giving more health spending to private providers of care should result in less being spent, which would be what determined the effect via the Barnett formula. Most other developed countries have far more private provision than the NHS, but their systems are more expensive, not less.

The picture in Northern Ireland looks stormy. The performance of the country’s health system is already faltering, even with very high funding. And health spending is almost certain to fall, meaning that very tough decisions will have to be taken. The diagnosis of repeated inquiries that Northern Irish hospital services are stretched over too many sites – and that some need to be closed – will be harder to ignore than ever.

Lastly, voters in all three devolved countries – and England – should be aware of what the arcane workings of the Barnett formula mean for their public services. While we cannot be completely sure in which direction it fails to reflect the needs of today’s UK population, it would be a miracle if such a crude calculation got it right. Wales would receive more under a system that took healthcare needs into account more. Northern Ireland and perhaps Scotland might receive less. The financial squeeze the NHS now faces across the UK, linked to growing struggles with waiting times, might make it difficult to ignore this issue much longer.

Suggested citation

Dayan M (2015) 'Health spending across the UK nations: Who decides how much?'. Nuffield Trust briefing, 10 April 2015.