Funding the National Health Service is now the biggest single thing the government does. But health spending is almost certainly going to have to take a growing share of national income over time.
In this briefing note, we look at how health spending has changed over the last 70 years and place funding increases since 2010 in the context of the pressures associated with an ageing population. We then compare existing spending plans for the NHS to those implied by the political parties’ manifestos at the 2017 general election and examine capital spending on the health service. Finally, we consider the longer term outlook for health spending.
- Health spending has grown rapidly over the past 70 years but the rate of growth has varied substantially over time. UK public spending on health grew in real terms by an average annual rate of 3.6% between 1949−50 and 2018−19. Since 2009−10 it has grown at the much slower rate of 1.3% pa. This followed a period of unusually sharp increases at 6.0% pa between 1996−97 and 2009−10, such that the average growth between 1996−97 and 2018−19 was 4.1% pa (above the long-run average). Increases were particularly low under the coalition government (2009−10 to 2014−15) at just 1.0% pa, while spending increased at a rate of 1.6% pa between 2014−15 and 2018−19.
- Health is now the largest single item of government expenditure and accounts for a steadily increasing share of all public spending. Public spending on health increased from 7.7% of total public spending in the mid-1950s (and 10.4% of public service spending) to 13.4% in 1999−00 (20.2% of public service spending), to 17.9% in 2018−19 (25.9% of public service spending).
- Department of Health and Social Care spending has only just met demographic pressures since 2009−10. After accounting for the growth and ageing of the population, DHSC spending was broadly flat between 2009−10 and 2016−17, before rising over the three years to 2018−19. Therefore while recent funding increases have been sufficient to meet demographic pressures, they are unlikely to have been sufficient to also meet all other pressures (such as changes in population health, new medical technology and treatments, and wage pressures).
- The path for future NHS spending now looks considerably more generous than that implied by all parties’ plans at the last election. Recent NHS funding pledges are far more generous than those made in the Conservative 2017 manifesto . The current government’s spending plans imply total DHSC spending in 2019−20 (the year in progress) similar to that implied by Labour’s 2017 manifesto; current plans are considerably more generous for future years but are still only broadly enough to keep pace with demand and cost pressures on the NHS. These plans should be viewed as a lower bound on future NHS spending, as such plans are almost always topped up.
- The government’s approach to capital spending on the NHS in recent years has left a great deal to be desired. Repeatedly siphoning money out of capital budgets to fund day-to-day spending, and making ad hoc capital spending announcements outside of the usual budgetary process, is unlikely to lend itself to effective planning and delivery of investment in the health service.
- Health spending is almost certainly going to have to take a growing share of national income over time. In the years and decades to come, a combination of demographic and other cost pressures are set to push health spending ever upwards. Recent OBR projections imply that on current policy spending on health would increase from around 7.2% of national income today to 10.2% in 20 years’ time (equivalent to an extra £66 billion in today’s terms). Finding a sustainable way to fund health care will be a key challenge in the years and decades to come.