The NHS is funded mainly from general taxation and National Insurance contributions. In 2001, an increase in National Insurance rates intended to boost NHS funding increased the proportion paid for by National Insurance, although general taxation still accounts for around 80 per cent of NHS funding.
Some funding is generated by user charges. Charges for prescriptions, dental treatment and spectacles were first introduced in the early 1950s. These charges account for only a small proportion of NHS income – for example, income from patient fees and charges for prescriptions and dental care was £1.3 billion in 2015/16, which was 1.1 per cent of the Department of Health budget. The NHS also generates some income, for example, through parking charges and land sales.
The level of NHS funding in a given year is set by central government through the Spending Review process. This process estimates how much income the NHS will receive from sources such as user charges, National Insurance and general taxation. If National Insurance or patient charges raise less funding for the NHS than originally estimated, funds from general taxation are used to ensure the NHS receives the level of funding it was originally allocated.
Read our series on How health care is funded for more information on different ways of funding health care services.