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, although poor on some health outcomes.

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 appears to have 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.

A wide range of organisations such as the Institute for Fiscal Studies, NHS Providers and various think tanks are arguing that the NHS needs an annual rise in funding of at least 4%. But since 2010, the NHS has received annual rises in its budget of just over 1%.

While funding has been 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 that 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.

Others that have expressed 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 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 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.


In June 2018, as attention focused on the 70th birthday of the NHS, the Prime Minister announced an extra £20 billion a year for NHS front line services in England, dependant on the NHS coming up with a sound 10 year plan.  This represents around a 3.3% annual increase above inflation. However, some of this funding will be swallowed up by NHS Trusts’ debts – around  £1 billion at the last count.

It seems the funding aimed at improving access to mental health care, improving Britain’s poor cancer survival rates, making maternity care safer and completing the government’s mission of ‘integrating’ health and social care services.

Any extra funding for other health related services, such as public health, and social care are to be dealt with in the Autumn Budget.

It is currently unclear where this funding will come from.

Funding the NHS

At the moment, around 80% of NHS funding comes 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 also the most equitable approach to funding: 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 the British public is willing to pay more tax in exchange for well-funded, free and comprehensive healthcare.

Some politicians are calling for funding the NHS through  National Insurance. NI currently funds  state benefits, including unemployment, maternity allowance, sickness benefits and state pension. The proposal is for a hypothecated NI tax – i.e it would be tax specifically meant for spending on the NHS. The argument is 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, contributions stop when the individual reaches pension age, and contribution levels are not related to ability to pay. 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

For information about government funding for the NHS see

Francis R (2013) Report of the Mid Staffordshire NHS Foundation Trust public inquiry.

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

For an explanation of NHS payment systems, such as Payment by Results, see

updated June 2018

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