Posted by: ayrshirehealth | November 19, 2014

Can we afford the NHS? by @micmac650

A promise to protect

UK politicians are currently promising to protect, or even raise NHS spending. Yet on the front line, wages are continuing to fall in real terms, and the pressures on budgets are increasingly difficult to manage. Why are we struggling with our “protected” budget?Protection

The Conservative Party have said that they will protect NHS spending in real terms, which in effect means at least zero real terms growth.

The Labour Party have promised a £2.5bn increase in spending by 2017-18, phased in from 2016-17. The Liberal Democrats commitments lie between the two main parties, and so I have not considered them further.

Health Spending in the UK

Let’s start with actual spending. It’s gone up enormously over the history of the NHS, from £0.5bn in 1950-51 to £129.5bn in 2013-14. These sort of statistics feed the idea that there is an insatiable demand for healthcare. Spending has gone up every year bar one (1953-4). For the current government, spending has gone up by 8.1% from 2010-11 to 2013-14.

 

Fig 1Fig 1. UK health spending (Total Managed Expenditure in nominal terms).

Recent data from PESA and historic data from House of Commons Library Paper.

Conservative projected spending in blue dotted line.

Labour projected spending in red dotted line.

Effect of Inflation

Of course, the cost of providing even the same services, will go up year on year because of inflation. For example, the 1970s was a time of substantial increases in NHS spending at an average of 18% per year, but also a time of substantial inflation. Once inflation is taken into account, NHS spending in the 1970s increased at 4.4% per year.

In figure 2, UK health spending adjusted for inflation is shown in 2013-14 money. I’ve used the GDP deflator to adjust for inflation, which is conventional when looking at government spending. NHS spending still appears to rise in most years, but there are now six years when spending went down (1951-52, 1953-54, 1955-56, 1977-78, 2010-11, 2011-12). Real terms spending by the current government has increased by 2.8% from 2010-11 to 2013-14.

 

Fig 2Fig 2. UK health spending (Total Managed Expenditure in real terms, 2013-14 money). Recent data from PESA and historic data from House of Commons Library Paper. GDP deflator from ONS.

Conservative projected spending in blue dotted line.

Labour projected spending in red dotted line.

Effect of Population Growth

One primary driver for health care costs is the size of the population. On average, the more people there are, the more healthcare will be required. This is particularly relevant in the UK, with population growth of 28% from 1950-2013. In Figure 3, real terms spending is adjusted for population. There are now eight years in which spending went down (1951-52, 1953-54, 1955-56, 1961-62, 1969-70, 1977-78, 2010-11, 2011-12). Real terms spending per capita by the current government has increased by 0.6% from £2,008 per person in 2010-11, to £2,020 in 2013-14.

The projected spending plans of the Conservatives will be the longest period of financial constraint in the history of the NHS, and will mean a reduction in healthcare spending to £1,929 per person, below 2008-9 levels. The Labour proposals are not much better, at £1,994 by 2020-21.

 

Fig 3Fig 3. UK health spending per capita (Total Managed Expenditure in real terms, 2013-14 money).

Recent data from  PESA and historic data from House of Commons Library Paper. GDP deflator and population data from ONS.

Conservative projected spending in blue dotted line.

Labour projected spending in red dotted line.

Can We Afford the NHS?

Lots of people are telling us that we can no longer afford the NHS, and that we have to start making difficult choices: about patient charges, and what is provided by the NHS. One major factor, that determines how much we can spend on health is the size of the overall economy. Expressing health spending as a percentage of GDP is one way to assess that. Typically the UK has spent less on health than comparable European neighbours.

EU flagFamously, in 2000, Tony Blair committed to raise health spending to the EU average (8.3% of GDP in 2000), and made progress towards that goal by 2009. However, since then we have stopped catching up with the average, and are falling behind our more successful northern European neighbours. Figure 4 shows UK health spending as a percentage of GDP, and compares this to the EU15 average (the 15 countries that were EU members at the time of Tony Blair’s promise).

Notably, by 2020 under Conservative plans, spending will have declined to 6.7% of GDP, taking us back to the level of spending in the 2004. Labour plans are not much better, at 6.8% of GDP. So it is actually not so much a question of whether we can afford the NHS, but what proportion of our wealth we choose to spend on it. It will also be interesting to see whether the public allows such draconian restrictions in NHS funding.

Why Does Health Spending Have to Go Up?

 

Fig 4Figure 4. Health spending as a percentage of GDP.

Data from OECD. GDP projections from ONS.

It’s not unreasonable to ask why health spending needs to go up every year in real terms. There are, of course, many upwards pressures on health spending, including higher aspirations for quality, more expensive technology, and an ageing population. However, productivity is the main driver of per capita economic growth. Service industries such as health, are intrinsically less able to increase productivity (Baumol’s cost disease), and so need to take a larger share of a rising GDP simply to stand still.

A 10% commitment?

Overall, both parties’ spending plans are likely to cause significant difficulties for the NHS. It has been good to at last hear some commitments to raising the spending on the NHS, but we need to hear louder and more ambitious voices. We can commit to 0.7% of GDP on international aid, and also to 2% of GDP on defence.

How about a commitment to 10% of GDP on health (the current EU15 average, which is exceeded by Austria, Belgium, Denmark, France, Germany and the Netherlands)?

This week’s blog was by @micmac650 (Dr Mark McGregor) who is a Associate Medical Director, Division of Surgery | Consultant physician and Nephrologist, NHS Ayrshire & Arran.

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Responses

  1. A political essay. Not a single mention of NHS Scotland. Is the author aware of who pays his salary. I would have expected, as a minimum, to see some recognition of a NHS Scotland’s block grant to Scotland (based on England’s spend). There is no unitary NHS in the UK as implied. Disappointing.

    • Sorry to disappoint. You are quite right that there is no unitary NHS in the UK – NHS Scotland was founded by a different Act of (the UK) Parliament, and since devolution has become increasingly different from NHS England.

      Two responses to you, however. First, my interests and Ayrshire Health’s audience are not parochial. The funding of NHS England, and the effects on the English population are surely of interest.

      More selfishly, if NHS England’s spending falls to 6.7% of GDP, this will have a substantial impact on the block grant to the Scottish Government. Although the Scottish Government can redirect spending from other areas, health is such a large portion, that it cannot compensate to any great extent. There is certainly nothing that a Scottish Government can do (even with the new powers promised in “the vow”) to get that back to 8.3%.

      Those issues were so extensively discussed in the referendum campaign, it didn’t seem necessary to cover them in a short blog!

  2. Very interesting reading based on facts I wasn’t aware of. Has helped me to understand it more. What the public allows is a valid point.Thanks.

  3. Hopefully you guys are able to keep the NHS! In the US we have a terrible system where part of our taxes go towards building health facilities and subsidizing public hospitals.

    Yet, even if you are a tax paying citizen, if you want to use any public/private facility you have to either pay outrageous prices for a treatment out of your own pocket(Doctor visit: $100-$200, prescription: $50-$4,000+, minor surgery: $10,000-$400,000+, etc) or pay for your own insurance which can run you anywhere in between $50-$700 per month plus if you use it a lot you could end up paying $1,500- $7500 per person in your insurance per year.

    I hope that one day our country catches up and creates a system similarly to the NHS. We can’t say we can’t afford it if we are already paying for it! And a system like that of the US only treats sick people like animals and not like people.

    • I’m not an expert on the US system, but the fact that the US Government spends more on healthcare than the UK came as a surprise to me. To spend that money and not get universal healthcare is even more surprising. Hopefully, Obamacare is getting you there – if you have it in your state. Medicare started small.

  4. […] per year away from more cost-effective interventions, when we are experiencing the most severe financial constraint in the history of the […]


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