NHS funding: our position

This content relates to the following topics:

Part of The King's Fund position

Last updated: 26 February 2021

Despite a five-year funding settlement, the NHS was struggling to meet all the challenges it was facing even before the Covid-19 pandemic – this settlement will need to be revisited to meet these challenges and deal with the legacy of the pandemic.

What we think

In June 2018, the Prime Minister announced a five-year funding settlement: a 3.4 per cent average real-terms increase in NHS England’s budget between 2019/20 and 2023/24. This is generous compared to the 1.4 per cent increases over much of the past decade but less than the long-term average of 3.7 per cent and not enough to respond to all the challenges facing the NHS before the Covid-19 pandemic. These challenges include the need 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 now 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 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 stored up problems for the future. 

As a result, many NHS providers and commissioners ran significant deficits in their budgets for a number of years; key waiting times standards were missed all year round; and evidence emerged that access to some services was being limited and that the quality of some care had been diminished. These challenges did not go unnoticed by the public – even before the pandemic, survey data suggested that a majority of the public thought the NHS faced 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 was 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 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 invest in new or refurbished hospitals have been made.

In response to the Covid-19 pandemic, the government has to date allocated more than £50 billion of extra funding for health services in 2020/21, 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. Despite these funding boosts, waiting lists for care are continuing to grow and the NHS is building up a substantial backlog of care.

Key spokespeople on NHS funding

Thumbnail

Siva Anandaciva

Chief Analyst

Thumbnail

Richard Murray

Chief Executive

Thumbnail

David Maguire

Senior Analyst

Now read this...