This chapter is part of of the IFS Green Budget 2017.
In 2015–16, the UK public sector spent £220.2 billion (2016–17 prices) on health, social care, and benefits to support people with disabilities and health conditions. This is equivalent to 11.5% of UK national income and 28.7% of total public spending. The majority, £140.6 billion (63.9%), of this was spent on health; £49.7 billion (22.5%) was spent on benefits and £29.9 billion (13.6%) was spent on social care. While Chapter 6 looks at spending on disability and incapacity benefits, this chapter describes spending on health and social care.
The last six years have seen health spending rise slowly by historical standards. Despite this, the share of public service spending accounted for by health is at a historical high of 29.7% in 2015–16. This share has also increased at the same rate over the past few years as it did during the 2000s, when health spending was growing at a historically high rate. This is because the health budget has been protected from the cuts to public spending implemented since 2010. This is especially the case in England, where Department of Health (DH) spending grew by 9.0% in real terms between 2009–10 and 2015–16. The increase in health spending in England is larger than that seen in Scotland, Wales and Northern Ireland, where the respective devolved administrations made different decisions about health spending, resulting in real-terms growth between 2009–10 and 2014–15 of only 4.5% in Northern Ireland, and a real-terms freeze in health spending in Scotland and Wales over this period.
The National Health Service (NHS) settlement in the 2015 Spending Review was (and continues to be) surrounded by a great deal of debate. English NHS spending is set to increase in real terms by 11.6% between 2014–15 and 2020–21. This is more than is required to meet the government’s commitment to provide the £7 billion (2016–17 prices) requested by NHS England Chief Executive Simon Stevens in 2014. The estimates below indicate that these increases should just about meet the additional spending required to meet demographic pressures. However, given increasing demand and cost pressures from other sources faced by NHS providers, it seems likely that calls for further funding increases (such as those seen at the time of the 2016 Autumn Statement) will continue. It is also noticeable that NHS funding – to which the government’s £7 billion commitment applies – will increase at the cost of other parts of Department of Health spending. As a result, the non-NHS part of the DH budget will fall by £3.2 billion (or 20.9%) between 2014–15 and 2020–21.
If the NHS has struggled with modest budget increases, the experience of social care funding has been markedly different over the last six years. In England, real-terms public spending on local-authority-organised social care has fallen by 1.0% since 2009–10. Some of this burden has been transferred to the NHS, with a growing share of spending funded by transfers from the NHS to local authorities (these made up 7.5% of public spending on social care organised by local authorities in 2015–16, and come at the cost of reducing NHS spending on other services). Ignoring these transfers, social care spending by local authorities from their own revenues has fallen by 8.4% in real terms over this period, with substantially bigger falls for adult social care.
While pressures exist for both health and social care funding in the short run, the long-term forecasts suggest that a steadily increasing share of national income will need to be spent on providing these services. New forecasts from the Office for Budget Responsibility (OBR), released in January 2017, indicate that rising demographic and cost pressures could result in 14.7% of national income needing to be spent on health and long-term care by 2066–67. This is around a third higher than the previous estimates, published in June 2015, though the reported increase reflects better recognition of likely cost pressures rather than any substantive change. As a result, policymakers must consider whether, and if so how, to fund these future increases, either through increased taxes or cuts to other spending.
The period between 2009–10 and 2014–15 saw historically slow increases in UK public spending on health, averaging 1.1% per year.
This was the lowest five-year growth rate since a consistent time series of health spending began in 1955–56. However, due to cuts to other services, health spending continued to increase as a share of public service spending.
NHS spending in England is set to increase by £11.6 billion between 2014–15 and 2020–21: more than the £7 billion increase pledged.
However, Department of Health (DH) spending – a wider measure of health spending in England – will increase by only £8.4 billion. This is because the non-NHS part of the DH budget (which includes the funding of education and medical research) will be cut by 20.9%.
Over the decade from 2009–10 to 2019–20, the population is growing and ageing, placing additional pressure on the health care system.
The extra NHS spending is enough to compensate the NHS for pressure created by a growing and ageing population over the next few years, but it does not account for other cost and demand pressures.
But looking at all DH spending rather than the NHS only, after adjusting for the ageing of the population, per-capita real spending will be lower in 2019–20 than in 2009–10. An additional £1.3 billion of DH spending would be required in 2019–20 just to maintain 2009–10 levels.
Real public spending on social care organised by English local authorities fell by 1.0% between 2009–10 and 2015–16. Within this, spending on adult social care fell by 6.4%, during a period when the population aged 65 and above grew by 15.6%.
Looking forward, the ability of councils to maintain 2015–16 levels of social care will depend on how much revenue is raised through council tax, and whether they want and can continue to protect social care relative to other services. Overall, it looks very challenging for councils to maintain per-adult social spending at current levels over the next few years.
The latest projections from the Office for Budget Responsibility (OBR) indicate substantial long-run spending pressures in health and long-term care. They suggest spending could rise from 8.0% of national income in 2021–22 to 14.7% by the mid 2060s.
These new estimates take account of both the ageing of the population and other cost pressures, and are more realistic than previous OBR projections which accounted only for demographic change. We have some big choices to make about how we deliver health and social care, and about the size and shape of the state.