NHS funding: our position

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Part of The King's Fund position

Last updated: 22 October 2020

While the current five-year funding settlement and subsequent announcements of additional funding for the NHS are very welcome, they are not enough to restore NHS finances, meet waiting times standards and deliver much-needed changes to services, let alone respond to the impact of the Covid-19 pandemic.

What we think

•	Planned spending for the Department of Health and Social Care was approximately £140 billion in 2019/20. The majority of this (£133 billion) is spending on day-to-day running costs such as staff salaries and medicines (revenue), with £7 billion spent on facilities and equipment (capital).
Source: HM Treasury, 2019

The current five-year financial settlement for the NHS provides welcome relief for services after a decade of sustained funding pressure. The deal will see the NHS budget increase by 3.4 per cent on average each year, generous compared to the 1 per cent increases over the past decade but less than the long-term average of 3.7 per cent and not sufficient to restore provider finances, improve performance against waiting time targets and kick-start the process of reform. It also excludes important areas of health and care spending, such as investment in buildings and equipment, training for clinical staff and local authority budgets for public health and adult social care. To fulfil the ambitions of The NHS Long-Term Plan, a more coherent and consistent approach to NHS funding is needed.

The NHS also faces a very different task to the one envisaged when the five-year funding deal was agreed. Responding to the Covid-19 pandemic, including tackling the rising backlog for NHS treatment, will require substantial additional investment in future years. Additional, multi-year, funding will also be required to deliver the government’s commitments to increase the number of clinical staff, deliver more primary care appointments and build more NHS hospitals.

The government faces difficult decisions as a result of the uncertain economic context due to Covid-19 and the United Kingdom leaving the European Union. Ultimately, funding levels for public services are a political choice. 

In making these choices, politicians should be honest about the shortcomings in the availability and quality of care that will arise if services do not receive the resources they need.
 

The context

Most funding for publicly funded health services in England comes from central taxation, with overall NHS budgets set by national government. This model is fundamentally sound, being both efficient and equitable, and is strongly supported by the public. However, for decades, NHS funding has faced repeated cycles of ‘boom and bust’, with periods of chronic under-investment followed by intervals of rapid growth.

Over the 70-year history of the NHS, health spending has grown by 3.7 per cent each year
Source: The King's Fund, 2020

In the decade following the global financial crisis, the health service faced the most prolonged spending squeeze in its history, as increases in funding failed to keep pace with demand for services due to a growing population, people living longer, often with multiple long-term conditions, and advances in technology and treatment. This led to trade-offs between different areas of health expenditure; spending on buildings, equipment, investing in training more staff and prevention was deprioritised in order to pay for the day-to-day running of services. This was a false economy that has stored up problems for the future. 

As a result, many NHS providers and commissioners have run significant deficits in their budgets for recent years; key waiting times standards are being missed all year round; and there is evidence that commissioners of care have been forced to limit access to services and that quality of care has been diminished in some services. These challenges have not gone unnoticed by the public, with survey data suggesting that a majority of the public think the NHS is facing a major or severe funding problem

In response to these ongoing pressures, in July 2018 the government announced a new five-year funding deal for some areas of health spending, covering the period from 2019/20 to 2023/24. Under this deal, spending for services covered by the NHS mandate is set to rise by an average of 3.4 per cent each year in real terms. 

There have been several iterative increases to health spending since the five-year NHS funding deal was announced. The Spring Budget in March 2020 provided an additional boost to NHS funding over this parliament, to support the new government’s manifesto commitments on more clinical staff, more primary care appointments and free hospital car parking for some groups. 

Similarly, a number of announcements on capital investment designed to help meet the government’s pledge to build forty new hospitals have been made. Taken together, they make up a £3.7 billion capital funding package that will support implementation of The Health Infrastructure Plan

In response to the 2020 Covid-19 pandemic, the government has allocated £31.9 billion for health services, including funding for personal protective equipment for staff, developing of the Test, Track, Contain and Enable programme, and extended use of the independent sector to increase capacity. 
 

Key spokespeople on NHS funding

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Siva Anandaciva

Chief Analyst

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Richard Murray

Chief Executive

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David Maguire

Senior Analyst

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