Reports of the strain on the NHS were ever-present this winter, with missed A&E waiting time targets, cancelled operations and poor morale among staff. Funding pressures are only expected to intensify over the coming decades.
A growing number of older people, an increase in the numbers suffering with expensive chronic health conditions, demands for higher pay, and a rising drugs bill will all increase the costs of healthcare.
In new work with the Health Foundation, we estimate that it would require an average growth in health spending of 3.3 per cent for the next 15 years just to keep the NHS providing the level of service it does today — with a slightly bigger increase to address immediate funding requirements.
If we instead decided that we wanted some improvements in NHS services — enabling some immediate catch-up, the meeting of waiting time targets, and improved provision of mental health — rates of increase would need to be higher. This modernised NHS would require annual spending increases of 4 per cent over the entire period, again with higher increases in the next five years.
These growth rates are not extraordinary, and lay either side of the average increase in NHS spending in the 70 years of its existence (3.7 per cent). Funding increases sufficient to maintain current services would mean health spending as a share of national income would reach 9 per cent in 15 years time; funding service improvements would increase this to 10 per cent.
This compares to just over 7 per cent today and would mark a continuation of the long trend of increases in government spending as a share of national income, in both the UK and almost every other developed country.
While the rate of funding increases required by the NHS is nothing new, the choices we have about how to pay for it are now more limited. Government spending on health has risen as a share of national income without us needing to increase overall public spending, or the overall tax burden, as a share of national income.
That was possible because of sharp cuts in spending on other services, particularly defence. It is very hard to see how higher health spending in the future could be financed by big cuts to other areas of public spending, especially after eight years of austerity. This almost certainly means that taxes will have to rise.
If we were to pay for increased NHS spending by increasing taxes, what would it mean for the average family? Spending increases of 3.3 per cent or 4 per cent would require additional tax revenues of 1.6 per cent and 2.6 per cent of GDP by 2033-34, between £34 billion and £56 billion in present-day terms. This is equivalent to between £1,200 and £2,000 per household by 2033-34 (out of projected net income growth of about £8,500 per household). Any such increases would of course need to be phased in gradually over the next 15 years.
As ever, the government and the public face difficult choices. In this case, the choice is almost certainly whether to pay more tax, or lower our expectations about the services the NHS can provide.
This article was first published by The Times and is reproduced here in full with permission.
Authors
Elaine Kelly
Elaine works in the Public Finance and Pensions sector and she joined the IFS in 2009 and became a member of the research staff in 2011.
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