NHS Finance

18.01.17

OBR: NHS needs £88bn extra by 2067 to cope with rising costs

The Office of Budget Responsibility (OBR) has said that the NHS budget will need to increase by at least £88bn by 2067, ruling out chancellor Phillip Hammond’s chances of balancing the Treasury’s budget in the next Parliament. 

The rising costs of healthcare due to an ageing population with chronic long-term conditions and non-demographic factors such as slow growth and technological advances risk putting public finances on an “unsustainable” path unless the government increases taxes or cuts spending in other areas, said the UK’s independent fiscal watchdog in its fiscal sustainability report.

Overall, the government is expected to have to increase health spending from an expected 6.9% of GDP in 2020-21 to 12.6% by 2066-67, an overall budget of £228bn.

“Evidence from the UK and other countries suggests that health spending will grow faster than the economy over time, thanks in part to the ageing population, but more importantly to non-demographic factors, such as technological advances and relatively low productivity growth,” the OBR said.

“The fiscal challenge from rising healthcare costs – assuming that future governments spend more to accommodate them – is substantial over the longer term, but they would also make the current chancellor’s nearer-term goal of balancing the budget in the next Parliament harder to achieve.”

The information casts doubt on the government’s short-term spending plans as their average annual NHS budget increase of 1% a year since 2010 have been half as much as the average rise of 2% that the OBR predicts will be required.

Last week NHS England’s chief executive Simon Stevens told the Public Accounts Committee that under the government’s current plans, health funding will actually begin to fall starting from 2018-19.

Richard Murray, director of policy at the King’s Fund, welcomed the OBR’s acceptance of a long-term increase in GDP spending on health as a “welcome dose of realism” while warning that it illustrates the pressures currently facing the NHS.

“Given that plans for the rest of this parliament will see health spending fall as a proportion of GDP, it is another reminder that it is unrealistic to expect the NHS to continue to operate within spending plans at the same time as continuing to offer the same level of service,” Murray said.

However, Prof John Appleby, chief economist at the Nuffield Trust, stressed that the projected £88bn rise, while it sounds large, would be gradual, with the necessary annual increase of 2% barely half than the 3.8% annual increase the NHS has seen in real terms since the late 1970s.

“These are projections, not forecasts,” Prof Appleby said. “We will have many opportunities to choose a path of more controlled spending or somewhat higher taxation over the coming decades.”

A government spokesman said that it had made “significant progress in repairing the public finances” as it has reduced the deficit from 10% of GDP to 4% since 2010.

However, he stressed that the government is committed to the “sustainable” funding of the NHS, repeating its claim that the NHS will receive an extra £10bn per year by 2020-21.

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