Sunday, June 10, 2018
The NHS: 70 years old and counting ... the cash
Posted by David Smith at 09:00 AM
Category: David Smith's other articles


My regular column is available to subscribers on This is an excerpt.

When Philip Hammond announced that he was scrapping the spring budget and the autumn statement in favour of an annual autumn budget, many people applauded. A single “fiscal event” each year had the merit of preventing chancellors from engaging in too much tinkering, and this self-imposed restraint was why he did it.

The chancellor, however, had reckoned without birthdays which, as everybody knows, can be very expensive. The National Health Service’s 70th birthday is on July 5th and, unlike many 70 year-olds who would be happy with a new pair of slippers and a bumper bag of Werther’s Originals, it wants a big present.

The NHS, which accounts for the vast bulk of UK public spending on health, has shown a formidable appetite for consuming taxpayers’ money over its lifetime. Efforts to put it on a diet have generally been time-limited or followed by a binge.

Since the NHS was established in 1948, health spending has risen from £12.9bn to £149.2bn a year, in today’s prices; in other words it is nearly 12 times what it was. This has been achieved by an average annual rise in real terms – on top of inflation - of 3.7% a year. Taxpayer-funded health spending has risen from 3.5% of gross domestic product (GDP) to its current 7.3%.

It has also been the cuckoo in the Whitehall nest, squeezing other spending, as it is now. In the NHS’s history, health spending has risen from a low of 10% of all outlays on public services in the early 1950s to 30% now. Yes, a third of all spending on public services is on health.

In arriving at this point, successive politicians have gone with the flow. The NHS is not seen by the public as the greedy child in the corner but, according to a survey last week, is the most-loved British institution. Nigel Lawson, who as chancellor had his own battles over NHS funding memorably described it as the closest thing the English have to a religion.

At this point I would normally say that even religions encourage fasting, and that the fast the NHS has been on since 2010, during which spending has risen by between 1% and 1.5% in real terms, a third of its long-run average, has led to greater efficiency. Productivity in the NHS has grown by 1.4% a year since 2010, outstripping the rest of the economy, which is unusual.

I have written many times about the need for greater efficiency in the way the NHS is run, of reforms that spread best practice, of forcing users of the NHS to behave better – charging for appointments mixed for example – and of reforming an organisation that is vast in size, roughly 1.5m employees. Each time I do so I am assured that no effort is being spared to raise efficiency and that the NHS is not as top-heavy as it is usually painted, managers only accounting for 3% of staff.

In any case, with the 70th birthday looming, time is of the essence. The government is in the happy position of knowing what the NHS wants. Three health think tanks, the King’s Fund, the Health Foundation and the Nuffield Trust, have written to the prime minister calling for a long-term settlement for the NHS which would provide a 4% a year increase in real terms. This, they say, “is the minimum required to keep pace with rising demand for services, provide some investment in key priorities such as mental health, cancer and general practice and continue the transformation of services set out in the NHS five-year forward view”.

“Anything less than this,” they add, “risks further deterioration in standards of patient care and would delay tackling the growing backlog of buildings maintenance, including safety critical repairs. If sufficient funding is not provided, patients and families will pay the price as the service declines.” A 4% a year real increase is also backed by Jeremy Hunt, the health secretary.

On the face of it, then, if the government stumps up a 4% a year real increase for the NHS, slightly above its long-run average, nobody will ever be able to accuse it of underfunding health.

The trouble is, as the Treasury knows only too well, it would also be very expensive. The Institute for Fiscal Studies, which has done some excellent work ahead of the birthday announcement, points out how much of a bind this would put the Treasury in.

A 4% real increase from 2019-20 to 2022-23 would mean £21bn of extra spending. The government is already committed to £5bn of non-health spending cuts, 1.6% in real terms, by then, to stay on target for achieving a budget surplus by the mid-2020s. Embracing the extra NHS spending would increase the requirement for other spending cuts to £26bn, or 12.7%, which does not look, as it notes, “either feasible politically or consistent with maintaining quality”. Raising taxes, the alternative, is no more palatable or politically feasible, even if some surveys suggest people would be willing to pay more.

Funding the extra NHS spending via tax would require either a 5p increase in all rates of income tax, a £3,900 reduction in the income tax personal allowance and higher-rate threshold, a 4.5p increase in either employee or employer National Insurance contributions, an increase in VAT from 20% to 24%, or a combination of these things. It is not going to happen.

So the Treasury continues to push for a more modest settlement for the NHS, of less than 3% a year, knowing that even that will mean more borrowing and thus slippage on the ambition of ever achieving a budget surplus. Officials are sceptical about whether the recent improvement in the public finances will last. The response from the health think tanks and the unions, if the Treasury gets its way, will be that the government has been parsimonious, and that the NHS will continue to struggle.

That, sadly, may be how it has to be. Anybody thinking that a 4% settlement would convince everybody that the NHS was again properly resourced is being naïve. In the 2000s, when NHS spending was rising at double that rate, public satisfaction with it was often lower than it is now. One thing that we have learned over 70 years is that there is no amount of money that will provide sufficient resources for a service with growing, and in the end unlimited, demands. At this birthday celebration, the Treasury will have to be prepared to be a bit of a party pooper.