Underfunding and debt

Recent research by the King’s Fund that was commissioned by the Department of Health and Social Care, has found that years of underfunding by the Cameron government onwards, along with failures to address the growing workforce crisis, has left the NHS with too few staff, too little equipment and too many outdated buildings to tackle the £7 million backlog of care. As one of the experts interviewed for the research put it

“We have had essentially 10 years of managed decline. This is not a Covid problem. This is an austerity problem.”

The report attributes one of the key reasons for the NHS’s loss of capacity as Cameron’s decision to reduce the NHS’s annual budget increases from Labour’s 3.6% to an average of just 1.5%. The service’s performance on waiting times started to plunge in 2015 and has deteriorated every year since.

The King’s Fund has tended to be uncritical of government policy until now. Its report, published in December 2022, states that the NHS’s lack of resources, combined with the difficult political, financial and economic circumstances of today mean that it is highly unlikely that politically-important promises made in NHS England’s “elective recovery plan” will be met.

Even before this report, evidence gathered by the British Medical Association showed that the UK’s health services were ill-prepared for the pandemic as a result of “historical underfunding and under-resourcing in the decade preceding the virus”.  In 2019, the UK was spending around 10.2% of GDP on healthcare compared with 11.7% by Germany and 11.1% by France. Data from 2020 suggests spending increased, but this was largely due to spending in response to the pandemic audits impact on the economy: waiting lists had already hit 4.43 million by February 2020, the average daily total of available beds had shrunk by 8.3% between 2010 and 2019/20 in England. The equivalent of 1,348 fewer fully qualified full-time GPs were working in the NHS when the pandemic hit in March 2020 than there were in 2015.

How spending on health has slowed down  (with proposed increase from HCT)

At the same time, the lack of funding led to a maintenance backlog (including high risk and urgent repairs) of £9.2 billion.

NHS debt

Historically, NHS funding has lurched between under-investment and rapid growth in spending. Following the global financial crisis in 2008, the health service faced the most prolonged spending squeeze in its history: between 2009/10 and 2018/19 health spending increased by an average of just 1.5% per year in real terms, compared to a long-term average increase of 3.6 per cent per year. Yet the pressures on the NHS, such as the proportion of people aged over 65 (and most likely to have complex needs) increased. The funding squeeze led to trade offs in how funds were spent: expenditure on buildings, equipment, and staff training was deprioritised in order to pay for day-to-day running of services – “a false economy that stored up problems for the future”. It also led to the majority of NHS Trusts falling into debt.

In April 2020, in the midst of the Corona virus pandemic, Matt Hancock, then Secretary of State for Health before his fall from grace, announced that he had written off £13.4 billion of historic NHS debt. He said this would both put the NHS in a stronger position to respond to the pandemic and ensure the NHS had stronger foundations in future.

The political economist Richard Murphy has put this in context. He notes how strange it is that it’s Matt Hancock and not the Chancellor who has written off debt, that NHS debt was created by the government and that debt is a form of control.  He argues:

  • the NHS actually had no debt: what has been classed as debt was a matter of book-keeping. “It was owed from NHS agencies, owed by the government to the government itself.”
  • this system of book-keeping was set up to reinforce the so-called reforms introduced in 20212 (the Health and Social Care Act) that facilitated NHS privatisation. This system dismantled the NHS as a national service, and diverted effort and funds into unnecessary corporate management, PR and accounting: “no-one needed to sell the NHS to anyone”.
  • The NHS ‘debt’ was deliberately punitive: NHS trusts that ran into deficit were expected to recover this in the following year, and if they failed to do so, the penalties were compounded. Many of the Trusts in the most vulnerable areas of the UK were heavily penalised by this process, meaning  we have subsequently seen significant increases in health inequality.
  • Writing off this debt does not mean these inequalities are now being addressed.

He concluded that if the NHS is to be made stronger, it’s not enough to write of ‘NHS debt’: what is required is nothing less than the renationalisation of NHS.

Funding announcements may be misleading 

The government has announced that between 2021 and 2024, total health spending will rise on average by £3.8% a year in real terms, although substantial costs for services such as public health and adult social care are not covered as they are provided by local government. Local authorities however face cuts and growing pressure on these services, which in turn, will impact on the NHS.

The total health budget for 2022/23 is £178.5 billion, of which £167.9 is for day-to-day spending, and £10.6 is for longer term capital investment in buildings and equipment. However, according to KONP, those working in the health service estimated that the NHS needed an additional £10bn in 2022-23 to cover ongoing COVID-19 costs, address the care backlog and make appropriate allowance for lost efficiency savings. Plus, the gap between what is needed and what is available has become even greater because the high rate of inflation has eroded the value of the funding.

In March 2022 the government announced there would be no extra funding to resolve the workforce crisis and the additional ring-fenced funding to support care for people discharged from hospital which was introduced during the pandemic has been ended . This has contributed to thousands of people being stuck in hospital because care cannot be provided for them once they are discharged.

In November 2022, it was announced that, to cope with inflation, NHS England (NHSE) will receive an additional  £3.3 million in each of the next two years, temporarily raising the overall budget by 2.17% in real terms. However, this is half of what NHSE said it needed, and is below half of the current annual inflation rate for health spending, which is 4.2% and still rising.

Background

The NHS used to be 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, although poor on some health outcomes. More recently (2018), according to the Nuffield Trust, the NHS has been acknowledged as world-leading in ensuring people are protected from hardship when they need treatment, but underperforms compared to other similar countries in preventing deaths from diseases like cancer and heart disease. The NHS has fewer doctors, nurses, hospital beds and CT and MRI scanners than other countries with a similar economy and spends a slightly below average proportion of national income on healthcare.

According to a new way of defining spending on health introduced by the Organisation for Economic Cooperation and Development (OECD) that now includes spending on health-related social care and long-term care,  the UK spends 10.2% of its Gross Domestic Product on health (2019 figures).  This is less than countries like France and Germany that  respectively, spent 11.1% and 11.7% of GDP on health in the same year.  Using figures from 2016, the Health Foundation calculated that to close the gap between the UK and such countries the UK would need an increase in spending of over 10%.

[Having said that, 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.]

A wide range of organisations such as the Institute for Fiscal Studies, NHS Providers and various think tanks have argued that the NHS needs an annual rise in funding of at least 4%. But from 2010 to 2018, the NHS has received annual rises in its budget of just over 1%. In 2018 an extra £20 billion was found for the NHS  to be spread over five years. This represents an 3.4% annual increase, although the increase in inflation expected over this time means the funding will be less in real terms. Much of this funding will have to go towards addressing the backlog of problems arising from underfunding over previous years.

Despite underfunding, the NHS has to cope with:

  • An increased need for services – due, for example, to an increased incidence of obesity and diabetes, and a growing elderly population with complex needs;
  • the significant loss of staff, particularly post-Brexit but also because of poor investment in training, pay as not kept up with inflation and high attrition rates because pressures on remaining staff have affected health and morale;
  • An increase in the costs of new medical treatments and equipment, especially with the surge in the cost of living in 2022;
  • Knock-on effects (such as increased use of A&E services) resulting from a shortage of GPs and a shortfall of funding for social care. (For example, government cuts resulted in a £4.6bn reduction in social care budgets in England between 2011 and 2016, representing a real-terms net budget cut of 31%.)
  • Contributing annually to the Better Care Fund (BCF). Each year, the BCF  shifts NHS funding from Clinical Commissioning Groups to social care, with a view to making savings by improving local services and so keeping more patients out of hospital.  In 2017 the National Audit Office reported that the BCF was not providing value for money in terms of savings, patient outcomes or reduced hospital admissions;
  • 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;
  •  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.
  • 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 was the fourth consecutive year that the Treasury had 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 funding for health and social care to increase to 12% of GDP. And in November 2017, Simon Stevens (CEO of NHS England) acknowledged that the NHS was currently underfunded by £20 to £30 billion a year. Others expressing concern over the state of NHS funding have included 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 a report by the Institute for Fiscal Studies and the Health Foundation in association with NHS Confederation on securing the future of the NHS outlined how, with an increasing and ageing population,  funding pressures are only going to grow. It suggested that UK spending on healthcare should 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.

The report outlined how 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, it called for the government to think not just about the overall level of public spending on social care, but also how that funding should be structured, who qualifies for public support, and how much those who do not qualify should be expected to pay for social care. While the report recognised 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.

Until recently, around 80% of NHS funding came from general taxation: international comparisons show that funding from taxation is the most efficient way of raising money due to very low overheads relative to the money raised.  Taxation is usually the most equitable approach to funding as tax is progressive: companies and individuals with more income and wealth pay more; financial and health risks are pooled, so sick people do not pay more than those who are well. And surveys have shown that the British public is willing to pay more tax in exchange for well-funded, free and comprehensive healthcare. However, in 2021 the government introduced a new 1.25% Health and Social Care, alongside an increase of tax on dividend payments for those who have company shares). The Levy initially will be added to National Insurance contributions, but will become a tax in its own right from April 2023. It aims to raise £12 billion p.a. over the initial three years for the whole UK, with only a fraction of this going to social care.

There have been calls before now to fund the NHS through a hypothecated tax – i.e a tax specifically meant for spending on the NHS, for example through National Insurance (NI) contributions. NI currently funds state benefits, including unemployment, maternity allowance, sickness benefits and state pension. The argument has been that this kind of tax is a way of safeguarding the NHS in future and protecting it from austerity measures. But healthcare campaigners see a hypothecated NI tax as regressive: there is a cap on the top contribution and contribution levels are not related to ability to pay. It also leaves untouched unearned income such as rental income. What’s more, this form of taxation makes it easier for governments in future to restrict an individual’s access to healthcare according to the level of NI payments they have made.

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 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’ was 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 June 2018

Comments are closed.