Saturday, July 13, 2024

Health Spending and NHS Performance: Key Issues for Upcoming General Election

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Health spending and the performance of the National Health Service (NHS) will be central themes in the upcoming general election campaign. Various factors influence NHS performance and the overall health of the population, but a significant factor is the level of spending on health services. This briefing by the Institute for Fiscal Studies (IFS) examines UK government health spending over the past seven decades and discusses the outlook for health spending in the coming years.

Over the current parliament, real-term UK health spending has grown below the long-term average rate, increasing by 2.4% per year compared to the longer-term average of 3.6% per year. Despite this, the poor economic performance of the UK means that health spending as a share of national income has increased by an average of 0.13 percentage points per year, compared to the long-term average of 0.06 percentage points. Historically, health spending has tended to rise faster than planned, but recent years have seen higher-than-expected inflation reversing this trend. The Department of Health and Social Care (DHSC) budget has grown by less than planned over this parliament, with cash top-ups insufficient to offset the effects of higher inflation.

Health spending has increased not only in real terms but also as a share of government spending over time. The DHSC’s day-to-day budget has risen from 26% of the all-departmental total in 1998-99 to 43% in 2022-23. However, capital spending has been much more volatile than day-to-day health spending. After being cut sharply in the 2010s, capital spending has increased in recent years, though in 2023-24, the capital budget in England was raided to fund day-to-day pressures. This return to the bad practice of the late 2010s has led to a deterioration of the NHS estate in England, with the maintenance backlog more than doubling over the past decade.

Health Spending Per Person Higher in Devolved Nations and Rising in International Rankings

Health spending per person has been consistently higher in Scotland, Wales, and Northern Ireland than in England since the start of devolution, though the gap in spending has narrowed over time. In 1999-2000, Scotland spent 22% more per person than England, Wales spent 12% more, and Northern Ireland spent 15% more. By 2019-20, Scotland spent just 3% more, while Wales and Northern Ireland each spent 7% more. Within England, NHS spending this year is planned to be 32% higher per person in the area with the highest funding (Cheshire and Merseyside) than in the area with the lowest funding (Buckinghamshire, Oxfordshire, and Berkshire West).

International comparisons of government health spending are challenging, but available data suggest that the UK has moved up the ranks of health spending among comparable countries over the last three decades. The UK has gone from comfortably below the European average in the early 1990s to around the average in the mid-2000s and slightly above average from the late 2000s onwards. Since the start of the pandemic, UK health spending has surged further up the European ranks, standing behind only France and Germany in 2022.

Health Spending

Future Health Spending in England Faces Uncertainty and Fiscal Challenges

There are no published plans for health spending in England beyond this year (2024-25) when the current Spending Review period ends. Although the Chancellor announced additional funding for new technology in future years in the Spring Budget, there were no pre-existing budgets to serve as a meaningful counterfactual, making it difficult to assess whether this funding is genuinely ‘additional’.

Further increases in health spending are almost certain. The NHS workforce plan for England, endorsed by both major UK parties, implies real-term funding increases of around 3.6% per year if it is to be achieved. This is equal to the long-run average increase in health spending but much larger than the increases provided since 2010 and would need to be delivered amidst weaker economic growth than in the past.

The size of the NHS means that any increases in health spending will force difficult fiscal trade-offs elsewhere. Under the government’s current plans for public service spending from next year onwards, delivering the NHS workforce plan in England implies flat real-terms budgets for all other government departments. Other spending commitments on childcare, defense, and other areas imply large real-terms cuts to remaining departments. To avoid these cuts, a higher overall spending envelope would be required, which, in the absence of a marked improvement in economic growth, would need to be funded by some combination of increased borrowing or higher taxes.

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In conclusion, the upcoming general election will see health spending and NHS performance as prominent issues. The past trends and future outlook for health spending indicate significant fiscal challenges and trade-offs that the next government will need to address to meet the growing demands of an ageing population and the pressures on the NHS.

 

Resource: The Institute for Fiscal Studies, May 14, 2024

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