Key points
- Spending on the NHS increased in real terms from £58.5 billion in 1996/7 to an estimated £115 billion in 2008/9 and is planned to rise again to £127 billion by 2010/11. Increases between 1999/2000 and 2010/11 will have averaged 6.7 per cent per year, compared to an average annual increase of 3.5 per cent in the 20th century (see How cold will it be? Prospects for NHS funding: 2011-2017).
- This period of unprecedented increases in NHS funding is set to come to an end after 2011 – public spending as a whole must be reduced following the impact of the recession on the economy (Budget 2010).
- A large portion of the additional funding has been spent on staff costs and NHS inflation. For example, of the total £43.2 billion cash increase in NHS spending between 2002/3 and 2007/8, it is estimated that 43 per cent was absorbed by higher pay and prices in the NHS (see Our Future Health Secured? A review of NHS funding and performance).
- Analysis by The King’s Fund and researchers from the IFS suggests that political pledges to increase NHS funding in real terms beyond 2011 would require deep real cuts in other spending departments and/or large tax rises. The analysis also suggests that the NHS could close the gap in funding through increases in NHS productivity, albeit an extremely challenging task.
- Productivity in the NHS fell by 4.3 per cent between 1997 and 2007 – an average yearly decrease of 0.4 per cent (according to the Office of National Statistics).
- Approximately 87 per cent of total health expenditure in the United Kingdom is funded by general taxation (OHE 2009), with the remainder coming from private sources.
- Approximately 10 per cent of the UK population had private health insurance in 2006 (OHE 2009).
- 8.3 per cent of GDP in 2008/9 was spent on NHS care in the UK and an additional 1.3 per cent of GDP on privately funded health care (OHE estimate 2009). In England this equates to a combined figure of £2,285 per capita (OHE 2009).
- Around 80 per cent of the NHS budget goes directly to primary care trusts (PCTs) to commission primary, community and acute services. The remainder is held in centrally managed budgets, which are spent on areas such as training, R&D and the National Programme for IT.
- The amount of money each PCT receives is informed by a recently revamped ‘weighted capitation formula’, designed to take account of the age and need profiles of local populations and of regional variations in input costs.
- Services for mental health, coronary heart disease and cancer consume the largest share of PCT spending, according to research by The King’s Fund in 2008.
- Hospitals are reimbursed according to a ‘pay per case’ system called Payment by Results. Reimbursement for each individual course of treatment is paid in line with a nationally set fixed price – the tariff – which is based on the average NHS cost for procedures.
- New financial incentives have been introduced to encourage improvements in service quality. The Quality and Outcomes Framework (QOF) rewards general practice services with income according to their performance against a range of criteria, including patient experience. The Comissioning for Quality and Improvement (CQUIN) payment framework makes a small proportion of providers’ income (0.5 per cent of the total contract value) conditional on quality and innovation.
- Funding policy for building – or capital – projects has also changed significantly. New schemes have been increasingly funded through the Private Finance Initiative (PFI), in which private consortiums, usually including large construction firms, are contracted to design, build, and in some cases manage new projects. The current recession combined with the credit crisis has however drastically reduced the flow of new PFI schemes.
