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, although poor on some health outcomes.

According to a 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 currently spends 9.9% of its Gross Domestic Product on health.  This significantly less than countries like France and Germany, which spend around 11% of GDP on health.  To close the gap between the UK and such countries, the UK would require an increase in spending of over 10%, or an extra £26 billion a year.

[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 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 – due, for example, 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;
  • In 2016 alone, local authorities in England faced a £1bn shortfall in funding for social care. For example, 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). 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 the year 2018-19, for example, the minimum contribution expected from CCGs will be £3.65 billion. 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 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.
  • 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.

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 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.

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 a 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.

Update

In June 2018, as attention focused on the forthcoming 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 funding is to be 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.

The extra funding represents around a 3.3% annual increase above inflation. According to the Audit Commission’s comptroller, this increase will only serve to maintain current service levels, and is not enough to meet the rapidly increasing need for services.  In addition, some of this funding will be swallowed up by NHS Trusts’ debts – around  £1 billion at the last count.

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 June 2018

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