The outlook for public spending on the NHS

It is remarkable that over the current parliament, while total spending by government departments on public services has been cut by 10%, the Department of Health (DH) has seen its budget increased by over 6%. This favourable treatment has increased the severity of the squeeze felt by other departments, with many having seen their budgets cut by 20% or more over just five years. In 2009– 10 the DH accounted for just over one-quarter of all departmental spending; in 2015–16 it is expected to account for nearly one-third.

Yet it is further increased funding for the NHS over the next parliament that is never far from the top of the political agenda in the run up to the general election in May. Only last week the leaders of six medical royal colleges called on politicians to “formally commit to investing £8 billion a year more in the delivery of healthcare by the end of the next parliament”.

The repeated calls for above-inflation increases in spending on the NHS over the next parliament arise from concern over the demand and cost pressures faced by the NHS. The growing and ageing population increase demand for NHS services, as does an increasing prevalence of chronic conditions and the ability to treat more complex conditions. The NHS also typically faces above-inflation pressures on its budget from rising wages and high-cost drugs. NHS England recently estimated that together these could amount to pressure on the NHS budget of around 3.5% per year.

To meet these pressures without reducing quality would require either increases in real (inflationadjusted) funding, increases in productivity, or both. If these pressures were met entirely by funding increases, the NHS budget would need to be around £30 billion higher in 2020–21 than it was in 2013–14. However, NHS Chief Executive Simon Stevens has argued that average annual productivity improvements of 2.4% are possible, and therefore that the NHS needs an £8 billion per year funding increase by 2020–21 to meet budget pressures without reducing quality.

Read the repot at The Institute for Fiscal Studies.