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NHS long-term funding: what's in store?

Anita Charlesworth, director of research and economics at the Health Foundation, discusses Theresa May’s recent announcements on long-term NHS funding and considers the options available.

The prime minister’s appearance in front  of the Liaison Committee of the House of Commons last month has caused quite a stir in the health world and no doubt a fair amount of angst in the Treasury. This is not the first time a prime minister has made large, blank cheque commitments for NHS funding. In 2000, Tony Blair famously told Breakfast with Frost that he’d bring health spending up to the EU average. In the decade that followed, health spending increased by 7% a year in real terms, waiting times fell from 18 months to 18 weeks, and the NHS employed 70,000 more nurses. In keeping with May’s very different political style, her statement was less bold and clear-cut, but her promise to “provide a multi-year funding settlement” in conjunction with NHS leaders has clearly raised expectations.

The political case for extra NHS funding is clear: Ipsos MORI’s monthly polling reports that the NHS and Brexit are tied as the biggest issues facing Britain, with 54% citing the health service as a big concern. Notably, the NHS is a worry for Conservative as well as Labour supporters.

While the world looks very different today compared to 2000, some things are the same. Most importantly, the pressures on the NHS continue to grow at a much faster rate than either inflation or economic growth. The Office for Budget Responsibility (OBR) estimates that, over the next decade, demand and cost pressures on the NHS will increase by more than 4% a year in real terms. The picture is the same across the EU and developed economies, no matter how their healthcare system is funded. Populations are ageing, chronic health problems are increasing, technological advances mean an ever-expanding array of treatments, and more people are surviving the historic big killers of cancer, stroke and heart disease. Modern medicine’s huge successes in improving life expectancy have a price tag.

But these triumphs cause a massive Treasury headache. If the government announces a long-term funding settlement that falls short of what the OBR estimates is needed, something will have to give and the government will have to explain this to the public. This decade has already seen the lowest funding increase of any decade in NHS history. To try to protect  frontline  services, the government has held down pay and had a big push to improve productivity. The NHS is more efficient today than it was in 2010, but it can’t work miracles and continue indefinitely to outperform productivity growth across the economy as a whole. The health service is struggling with staff shortages and rising emergency demand. Just as there is no magic money tree, there is no magic productivity tree.

One other lesson from this decade of austerity is that funding the NHS while cutting social care is bad for patients and bad for the taxpayer. The distinction between a health need and a social care need is increasingly tenuous with an ageing population, and a credible long-term funding plan must cover health and social care. To do that, the government will need to bite the bullet with this summer’s social care green paper and make firm decisions about the future of this Cinderella service.

But the biggest challenge will be how to pay for a long-term settlement for the NHS and social care. The sums of money are huge – in England alone, the two services account for almost £1 in every £5 of public spending. Providing more for health and care at the expense of other public services, many of which, like education and housing, impact on people’s health, would be a false economy. The level of funding growth the NHS and care system need cannot be found within current government spending plans. Plan B might be to borrow more. In his Spring Statement, the chancellor was ‘Tiggerish,’ but it is worth remembering that even with a more positive forecast the UK’s debt to GDP ratio is over 80%, and taxes aren’t expected to match spending until well into the middle of the next decade.

While the funding commitment is laudable and much needed, long-term funding growth for the NHS and care system at the level required will almost certainly require  a commitment to increase tax. This is how the Labour government met Tony Blair’s pledge almost 20 years ago. Gordon Brown increased national insurance by 1p in the pound and earmarked the money raised for the NHS. This was a remarkably popular tax increase. A similar increase today would raise about £11bn, which is a lot of money, but only about half the £20bn-plus funding gap the NHS alone is facing by the end of the current parliament. Is the government warming up the public for a repeat of that history and hoping for a similarly popular response?

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