Limit NHS spending increase to 2.0 – 2.5 per cent a year

7 June 2018

The long term funding settlement for the NHS will be the biggest domestic policy question for the rest of this year. Reform will cover different aspects of this question over the next seven months (such as what happened during the big Blair/Brown spending increases; ways to improve value for money, and the possibility of new revenue streams such as data). For some in government, however, the first preoccupation will be the basic level of extra spending that the Government should pledge. This blog is a first comment on that.

The NHS Confederation has made an opening bid. Its report, authored by the IFS and Health Foundation, advocated spending increases of up to 5 per cent in real terms per year. The result would be an boost to the NHS budget of £40-£60 billion in real terms in 15 years’ time, equivalent to an increase in the basic rate of income tax of 8-12p in the pound, lifting it to 28-32 per cent.

As Reform said on the Daily Politics on the day of the report launch, that kind of answer suggests that the authors were asking the wrong question. No political party proposed anything like that at the last General Election. Reform polling earlier this year suggested that while public appetite has shifted towards a tax rise for the NHS, the desired increase is only between zero p and 1p in the pound. [The polling also found that 58 per cent of British voters believe that the NHS needs reform more than it needs extra money, suggesting a scepticism that money will always be well used.]

Some might argue that the public underestimates the scale of the extra spending that is needed, and that was the sense of Martin Wolf’s (&) piece last week. Others would point out that there are risks in giving the NHS a flash flood of extra resources, as Simon Stevens has said. There is also strong evidence of poor use of resources within the existing system, as Tim Briggs has shown. The Government should choose a figure that fits with these realities, as well as being politically feasible.

A senior group of politicians has recommended a figure considerably below the NHS Confederation level. The House of Lords NHS Sustainability Committee last year suggested that NHS spending should rise in line with GDP, or around 2.0 per cent over the next few years. That would be a spending increase of £2.5 – £3 billion a year, equivalent to around 0.5 p on the basic rate of income tax.

The Health Foundation last year showed the difference between this level of increase and other, more generous ideas.

Political reality will be a factor in the Government’s decision. I think it is telling that an experienced group of politicians chose a figure for the NHS spending increase that is in line with public opinion and is far lower than the NHS Confederation-sponsored study. Given other concerns over the ability of the NHS to use resources well, it would be a good starting point for the Government’s review.

Such a figure, however, would be lower than the average rate of increase of NHS spending since its establishment. It would require the NHS to work more smoothly and smartly and to explore new income streams. More blogs on these themes to follow.

Andrew Haldenby, Director, Reform

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