Funding

The NHS has been widely regarded as one of the most efficient healthcare systems in the developed world. For example, a Commonwealth Fund  study comparing the healthcare systems of 11 countries between 2011 and 2013 found that the NHS scored highest on quality, access and efficiency.

Since then a new way to define spending on health has been introduced by the Organisation for Economic Cooperation and Development (OECD). The old definition estimated that the UK spent 8.7% of Gross Domestic Product (GDP) on health in 2014., while the new definition suggests that in 2016 we are spending 9.9% of GDP on health. However, for the first time, the new definition includes spending on health-related social care and long-term care.

While the UK was keeping to the old OECD definition, it appeared that we spent considerably less on health than other comparable countries. With the new definition, the gap has narrowed, but we still spend significantly less than countries like France and Germany.  To close the gap between the UK and countries like Germany and France and the UK would require an increase in spending of over 10%, or an extra £26 billion a year. (France and Germany, for example, spends around 11.% of GDP on health).

However, direct comparisons with other OECD countries are not straightforward. Take Germany, for example. Germany is a richer country, creating more ‘value’ than the UK and so the difference in the percentage of GDP spent on health care means a bigger difference in spending per capita. In 2016, Germany spent $5,551 per person compared with the UK’s $4,192 (i.e nearly a third more). Plus, there is greater inequality in the UK and, as poverty is closely linked to poor health, the incidence of ill-health in the UK is greater. This means that even if the UK were to spend as much on health care as Germany, the outcomes it achieved would not be as good.

That said, our spending on health care is likely to sink further down the international league tables by 2020/21 as we experience the biggest sustained fall in NHS spending during any period since 1951. The total health budget will rise by £4.5 billion over the years 2015 -2020, an increase of less than 1% a year above inflation.

“This means real terms health spending per person will be broadly the same by the end of this decade as it was at the start – despite the growing needs of an ageing population.”

According to the Kings Fund, an organisation generally supportive of current government policy, both our access to NHS services and the quality of care provided will be at risk because of insufficient funding.

At the same time that funding is getting tighter, the NHS has to cope with:

  • An increased need for services – for example, due to an increased incidence of obesity and diabetes, and a growing elderly population with complex needs;
  • A 4% increase in the costs of new medical treatments (as well as the scurrilous practice of some drug  (for example, in 2016 the pharmaceutical company Actavis UK raised its prices for hydrocortisone tablets by more than 12,00% when it upped the price paid by the NHS from 77p a pack in 2008 to £88;
  • In 2016 alone, local authorities in England faced a £1bn shortfall in funding for social care. According to Age UK there were 1.3 million requests for help in 2015/16, of which only 46.5% received any type of direct support. To make matters worse, the Local Government Association has estimated councils will face an overall funding shortfall of £5.8bn by 2020, £2.6bn of which is specifically related to social-care services.  This shortfall has knock-on effects for the NHS – such as increased use of A&E and hospital services.
  • Contributing annually to the Better Care Fund (BCF). The BCF, first announced in 2013, reallocates existing funding, shifting money every year from the NHS into social care, with a view to saving money by improving local services and so keeping more patients out of hospital. The money comes mostly from the budgets of Clinical Commissioning Groups (CCGs). In the year 2018-19, for example, the minimum contribution expected from CCGs will be £3.65 billion. Since its implementation the BCF has not been a great success: in 2017 the National Audit Office reported that the project was not providing value for money in terms of savings, patient outcomes or reduced hospital admissions;
  • The claw back of money from the Department of Health by the Treasury. In the two-year period 2010-12, nearly £3 billion was taken back by the Treasury. In 2016, NHS England refused to explain what happened to £162 million earmarked for, but not spent on,  primary care and dental services: accountants suggest it went back to the Treasury;
  • The annually recurring costs of running the NHS as a market (at least £4.5 billion p.a.) following the Health and Social Care Act of 2012;
  • The huge cost of Private Finance Initiative repayments on debt owed by NHS trusts and Foundation trusts following the end of government lending for capital projects such as new hospital buildings. It’s been estimated that the NHS is spending more than £3,700 every minute to pay for privately financed hospitals;
  • A cut of £200 million in Local Authority public health budgets which fund many services such as school nursing, screening programmes, and smoking cessation programmes – despite recognition by the boss of NHS England of the need for “a radical upgrade in prevention and public health”.  This cut will not only affect preventative and public health services but will also have a serious knock on effect on NHS healthcare services;
  • A cut in the money paid by the government to NHS providers for their work under the Payment by Results system from 2010/11. Until now, over three-quarters of each hospital’s funding has come from this system through which hospitals are paid per treatment, according to prices set by a tariff (new payment systems will come in with the introduction of new systems for ‘integrated care’).  In recent years, payments have been cut by over 40% for a quarter of the treatments that hospitals provide. So, for example, a hospital providing routine knee surgery would have been paid £3,077 for each procedure in 2009/10, but by 2013/14, the hospital would have received £1,673 for the same procedure.

Cuts to tariff payments made up nearly half of the £20 billion ‘efficacy savings’ that the NHS was told to achieve by 2015 (ie over five years) under the ‘Nicholson Challenge’, dreamed up by the last Labour government and included in the NHS funding settlement agreed by the Coalition Government when it came to power. Apart from cuts in tariffs, attempts to meet the Nicholson Challenge resulted in pay restraint, cuts in central budgets and a reduction of managerial staff.

  • An unpublicised cut to the NHS repairs budget. This capital budget, used to fund maintenance and replace out-of-date or broken equipment, was slashed by £1.1bn in  George Osborne’s 2016 Budget. In 2017, the government raided £1 billion from NHS funds earmarked for maintenance and repair in order to keep services running. This is the fourth consecutive year that the Treasury has allowed the Department of Health to take funds from capital budgets to manage day-to-day costs.

Funding the NHS

In August 2017, the Chair of the Commons Select Committee, Conservative MP Sarah Wollastone, called for a major increase in funding for health and social care – to 12% of GDP. And in November 2017, Simon Stevens (CEO of NHS England) acknowledged that the NHS is currently underfunded by £20 to £30 billion a year, with what ‘growth’ there has been in funding due to nose dive over the next couple of years.

Others expressing concern over the state of NHS funding include the Care Quality Commission, NHS Providers, the Health Foundation, NHS Confederation, the National Audit Office, the Royal College of Physicians, the Royal College of Surgeons, the Royal College of General Practitioners, and the Royal College of Nursing, the King’s Fund and Nuffield Trust.

In May 2018 the Institute for Fiscal Studies in partnership with the Health Foundation and NHS Federation produced a report on securing the future of the NHS. This outlined how  funding pressures are only going to grow, with an increasing and ageing population. It suggests that UK spending on healthcare will have to rise by an average 3.3% a year over the next 15 years just to maintain NHS provision at current levels, and by at least 4% a year if services are to be improved. Social care funding will need to increase by 3.9% a year to meet the needs of an ageing population and an increasing number of younger adults living with disabilities.

Relying solely on increased taxation (around an additional 6.5p in the pound on income tax, for example) to pay for what they call a “modernised NHS” would increase the tax we pay to a historically high level – but still below that of other European countries. In terms of social care, the report calls for the government to think not just about the overall level of public spending on social care, but also how that funding is structured, who qualifies for public support, and how much those who do not qualify should be expected to pay. While the report recognises that social care differs from the NHS in that it is funded locally, there is no mention of the current move towards integration of health and social care, and the issues raised by the fact that one is free at the point of use, and the other is not.

To find out how much funding your local NHS will get compared to what it needs; and what you can do about this, visit https://healthcheck.nhsfunding.info/fundournhs.

See also our page on Cuts, the Five Year Plan and STPs.

Further reading

https://opendemocracy.net/john-lister/jeremy-hunt-s-solution-for-cash-strapped-nhs-trusts-cut-375-nurses-each

http://www.kingsfund.org.uk/projects/verdict/nhs-heading-financial-crisis

https://www.opendemocracy.net/ournhs/richard-grimes/government-moves-to-consider-nhs-user-charges

https://www.rcplondon.ac.uk/guidelines-policy/underfunded-underdoctored-overstretched-nhs-2016

For information about government funding for the NHS see http://blogs.telegraph.co.uk/news/danielknowles/100168975/why-the-nhs-will-define-the-2015-election/

Francis R (2013) Report of the Mid Staffordshire NHS Foundation Trust public inquiry. http://www.midstaffspublicinquiry.com/report

For an argument on how the ‘need for austerity’ is being used as a strategy for introducing rapid social change, not least dismantling the welfare state, see http://www.guardian.co.uk/society/2012/jul/03/financial-austerity-dismantle-state-gabriel-scally?INTCMP=SRCH.)

For an explanation of NHS payment systems, such as Payment by Results, see http://www.nuffieldtrust.org.uk/sites/files/nuffield/publication/140220_nhs_payment_research_report.pdf

updated May 2018

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