What does the Autumn Budget 2025 mean for health and care?

Introduction

Sometimes Chancellors don’t need to hit the ground running, they need to hit the ground sprinting.

Just three and a bit months after the 2024 general election, the Chancellor held her Autumn Budget 2024. It gave the health and care service a significant funding boost and laid the ground for the Spending Review 2025, which the government surely hoped would be its last major word on health and care spending this parliament.

But, of course, plans change. So, let’s quickly recap the main announcements from the Autumn Budget 2025, before taking a step back to work out what it all might mean for health and social care services and the people who rely on them.

What was announced?

Technology

There is £300m of genuinely new funding for capital investment in digital technology in 2027/28. It comes on top of the £10bn of technology and transformation funding that was announced at the Spending Review 2025. What will this be spent on? That’s still to be determined in further plans and negotiations between NHS England, the Department of Health and Social Care (DHSC) and the Treasury – though it is likely to include further investment in the NHS App and single patient care records.

But even if the details aren’t clear, it’s important to clock that the single biggest bit of new funding for health and care at this budget was dedicated towards the NHS going further and faster on its use of technology. Everything from greater productivity to delivery of the ambitions of the 10 Year Health Plan is riding – at least in part – on the marvels of technology. So you can understand why the leitmotif of 10-Year Health Plan has been described as ‘…the answer is technology, now what’s the question?’.

And for a final bit of context – the £300m extra capital funding is something like a 2% increase on previously planned capital spending in 2027/28 – and the entire capital spending budget for the health service would still not be enough to cover the costs of today’s problems with the existing hospital and other secondary care estate. So, an increase, yes. But not a bonanza.

Neighbourhood health

There are two important parts of today’s announcements on neighbourhood health centres (i.e. one-stop shops that will help deliver care closer to our homes and communities and tip the focus of the NHS away from hospital care).

The first is more clarity about the pace of delivery. 43 parts of the country have already been selected to pilot neighbourhood health services. The ambition is now for 120 of these centres to be operational by 2030, with the full set of 250 open by the end of the 10 Year Health Plan period in 2035.

The second is about the funding to construct new buildings and refurb existing buildings. Of the first 120 centres, up to 50 will use public funding to upgrade existing estate. The Spending Review 2025 provided around £425m over four years for a utilisation and modernisation fund, of which up to half would support the refurbishment of this tranche of neighbourhood health centres.

The remaining 70 facilities will be new and built using a mix of public private partnerships (PPP) (80%) and public investment (20%). And unlike some previous PPP schemes, the government has committed to putting all this investment on its balance sheet from day one – though not all of it counting against the DHSC’s managed budget (ie the department expenditure limit (DEL)).

20% of the GP estate – which will be a core part of many neighbourhood centres – pre-dates the founding of the NHS, so this investment is sorely needed. But the government will have to prove it really has learned from past Private Finance Initiative (PFI) schemes. Lord Darzi’s 2024 audit of the NHS found even recent buildings built by PFI-type schemes ‘give GPs too little control over their space and… charges that are unreasonably high’. And it was not long ago that the state had to step in to finish building NHS hospitals when Carillion went bust. So, the government will also make sure that when the Chancellor she says she wants to get ‘spades in the ground’ – it isn’t the state that is eventually left to do most of the digging.

NHS redundancy payments

The bombshell announcement to abolish NHS England and dramatically reduce the headcount and running costs of Integrated Care Boards (ICBs) was followed by a Whitehall stand-off over who would foot the bill for these changes. The answer to that question is a little unusual.

The DHSC has been given extra-ordinary permission to reopen and reprofile its Spending Review settlement to front-load redundancy payments. It will overspend its originally planned budget in 2025/26 and 2026/27 by about £430m each year, for a total of £860m across the two years. That will then unlock savings of around £1bn a year by the end of the parliament due to lower staffing and running costs by that point.

Will this be enough to cover all the costs of redundancy? It is difficult to tell. ICBs are still working through how to reduce their running costs and the costs of merging different ICBs together. And the national bodies are still working through what functions are really duplicated across the DHSC and NHS England.

So, the best guess is that the redundancy funding will be phased, with a focus on 2025/26 on reducing staffing and running costs in ICBs, and a greater focus on national body redundancies in 2026/27 as the NHS Reform Bill starts and (hopefully) ends its journey through parliament. And if the eventual costs are higher than planned, either the DHSC will require further reprofiling of its settlement, or it will be expected to meet the costs by reprioritising local ICB and national funding.

Other NHS announcements

There were a few other NHS announcements that might not grab the headlines but are still important. The first is the Chancellor’s decision to freeze prescription charges. Many people are exempt from prescription charge in England, so nearly 90% of prescription items are dispensed in the community free of charge. But freezing charges for those who do still pay fits with the Chancellor’s wider narrative around recognising the cost of living. Prescription charges for single items will now stay just under a tenner. This will save patients around £12m and NHS England’s budget will not be affected because its allocated funding will be raised in an equal and opposite direction to cover the shortfall.

The second area is the ramping up of efficiency expectations. The government has asked for a further £2.8bn of efficiency savings across government departments in 2028/29 (equivalent to 0.5% of departmental budgets set at the Spending Review 2025). The NHS and Defence will be given special permission to hold onto these savings to reinvest in services, rather than handing the savings back to the Treasury. And to give just one indication of the scale of ambition – the NHS is expected to eliminate the use of all agency staffing by the end of this parliament.

Wider health

The Chancellor announced a few different measures that will boost the nation's health and have next-to-nothing to do with direct NHS funding.

The first was the removal of the two-child limit in Universal Credit. This is estimated to lift 450,000 children out of poverty (rising to 550,000 children when other measures like expanding free school meals are included).

The second was new or extended duties on gambling and gaming. It’s worth reading the entire 2023 evidence review Public Health England did on gambling-related harms, but you can start with the sentence: ‘A high quality quantitative study showed that people with gambling disorder have an increased risk of dying from any cause, in a given time period, relative to the general population.’

Third, as Wes Streeting first announced at our Children’s Health Conference the day before the budget, the Soft Drinks Industry Levy (the ‘sugar tax’) has been changed. The threshold at which the levy applies will move from 5g of sugar per 100ml to 4.5g. Milk-based and milk substitute drinks will be brought into the levy (the ‘milkshake tax’). And the levy will increase in line with inflation.

Total health spending

The Chancellor said her budget will ‘maintain investment’ in the NHS. And that is what the budget does – not much more, and not much less. So, when we look at health spending, there are changes, but these are tremors rather than earthquakes on the fiscal seismograph. But that is not meant to damn with faint praise, given the wider fiscal outlook the Chancellor is facing.

In her budget speech, the Chancellor said ‘I’ve made my choices’. And these were clearly not easy choices to make. As the Chancellor also noted in her speech, the calls on the public finances include not just crumbling NHS buildings but crumbling schools and classrooms. Previous work by the OBR showed the share of GDP taken up by health has tripled from 2.8% in 1955/56 to 10.5% during the Covid-19 pandemic. In part, this steady rise was afforded by falling spending on defence and debt interest – and it’s highly unlikely that further falls in those areas will be possible.

So, while the NHS has been protected, it will face a boost rather than a flood of funding. Day-to-day health and social care spending will rise by 2.4% on average in real terms between 2025/26 and 2028/29 (based on OBR figures that include adjustments for the immigration health surcharge funding). This is below average historical increases, and somewhere between the ‘managed decline’ and ‘maintain current performance’ scenarios in our rule-of-thumb below.

Adult Social Care

The words ‘social care’ do appear in the budget, but only when they have the words ‘Department of Health and’ or ‘Children’s’ in front of them. So no news then either on extra funding to support the adult social care sector on top of the Spending Review allocations, or the early findings from the Casey Commission or on the changes to the Better Care Fund that have been mooted.

The sector will still be affected by the measures announced in the budget though. The Autumn Budget 2025 increases to the National Living Wage and National Minimum Wage will be welcomed by many while at the same they create an unfunded cost pressure for employers in the sector. And there is a cost to all this pressure. Three quarters of surveyed directors of adult social services say they have partial or no confidence that their budgets are sufficient to meet their legal duties for prevention and wellbeing – to help people live independent, healthier lives for longer.

And finally, in their budget documents the OBR note labour supply growth is expected to slow, in part because of falls in net migration. This will particularly affect the adult social care sector which has a higher share of vacant posts than the general economy, a reliance on international staff, who will now find it harder to join the sector because of the withdrawal of the health and care visa and other immigration policy changes, and a decreasing share of posts filled by British nationals. The day after the budget, a former Cabinet Minister told me this was the single biggest challenge facing the sector at the moment, which only emphasises that the government needs to up its policy incentives to attract more domestic workers into the sector.

What does it all mean?

The Autumn Budget 2025 is the fourth major fiscal event from the current government. So, taking a step back from the detail of the announcements today, what does the government’s overall fiscal and reform approach mean for health and care?

The Autumn Budget is never the final word on how much the NHS will spend – because no one knows what costs the future will bring. But the OBR and others are taking pretty good guesses. It starts with inflation – which is now forecast to be higher than when the DHSC budget was set in March 2025 for the summer 2025 Spending Review. Due to changes in inflation, average annual real growth in departmental budgets reduced by 0.1 percent (before policy decisions in this budget).

The threat of US-imposed tariffs might still see the government agree to higher medicines prices within the life of this parliament. The OBR notes that the Spending Review assumed spending on branded medicines would rise by about 25% (£3.3bn) between 2025/26 and 2028/29 – and even a 5% larger rise than that would cost £0.7bn by 2028/29.

And industrial action will bring further unbudgeted costs. Strikes had a £1.7bn financial impact in 2023/24, and the July and November 2025 five-day resident doctor strikes cost £0.5bn according to the OBR. Other estimates suggest industrial action could cost as much as £1.2bn by 2028/29. So, you can see the billions starting to add up.

And the NHS is – as usual in recent years – assuming a pay uplift of 2% to 2.5% for staff in its future budgets. But this is only a placeholder for planning purposes, because the government will only announce future NHS pay deals ‘in due course’ when they have been negotiated. So, pay deals higher than 2% will put more pressure on existing budgets. And remember, affording a higher-than-budgeted pay deal in 2024/25 was already cited by the DHSC as part of the reason for cancelling social care charging reforms and delay plans to build new NHS hospitals.

The unfunded or underfunded costs of higher medicines prices, industrial action and staff pay deals are one thing. While the government is still making choices here, these are choices in the face of unpredictable macroeconomic and global headwinds.

But there are three other significant costs facing the NHS that are also still unknown. These should more clearly be laid at the door of the government and the choices it has made.

The first of these is of course the decision to restructure the NHS at a national and local level. The Parliamentary Public Accounts Committee wrote one of the most scathing paragraphs I’ve seen in the past 20 years on this – comparing the reforms to High Speed 2 because of the absence of a clear delivery plan or secured funding for such major reforms. The government has now found the funding for a large share of these redundancies, but evidence on the full costs of the changes (including their opportunity costs), the impact of the changes and overall value-for-money of the reforms to patients and taxpayers is completely absent.

And second, the government published its 10 Year Health Plan in July this year. We know that the national listening and engagement exercise to inform the plan cost some £3 million. But also completely absent from the Plan’s 170-odd pages is any sense of how much it will cost the NHS to deliver the ambitions of the plan itself, or how delivering the plan was factored into the DHSC’s Spending Review settlement. It is extraordinary that some five months on, no one knows if we can even afford the major NHS reform plan the government has committed to.

In one of its valedictory acts, the Office of Value for Money said the Chief Secretary to the Treasury will lead a review of value for money across a small number of areas of government spending ahead of the next spending review – and the first listed is ‘new models of care within the NHS and communities, as part of implementing the 10 Year Health Plan’. This will provide some welcome scrutiny over whether the costs of the 10-Year Health Plan – whatever they turn out to be – are delivering value-for-money for patients and taxpayers.

And finally, there is clearly a gap between the expectations this government has and the funding it has to meet them – and we have been on quite a journey to establish that. In its Summer 2024 manifesto, the future government committed to meeting all NHS performance standards – including waiting times for everything from A&E to ambulances. Then in December 2024, as part of its Plan for Change, the government changed tack and elevated the 18-week waiting time standard for routine hospital care as its main ‘health milestone’ – the target that is first among equals. But just last month the government changed tack once again, because new NHS planning guidance shows that – with the exception of a less ambitious target for waits in A&E – the NHS will again be expected to meet all performance targets by the end of this parliament. The figures below show just what an extraordinary effort this across-the-board improvement would require.

So, the health and care system will face unfunded, underfunded and uncosted pressures in the rest of this parliament. If there is a gap between expectations on the NHS and the funding available to meet them, then more funding is one answer to close the gap – and this is an answer the government reached for last year when they gave the NHS over £20bn of extra funding. But that’s not the only way to close the gap. And as the unfunded costs for the NHS rise between now and the next election, the government may soon have to face the possibility that their expectations are simply not realistic.