In this section we look at the current economic context and explore past and future trends in health care spending in the UK.
- Future funding scenarios for health and social care
Current funding prospects for health and social care suggest a continuing period of financial austerity, with funding just covering inflation. But there is considerable uncertainty after 2015/16. For the Office for Budget Responsibility’s central projections to hold true for health, the NHS would face a further significant productivity challenge on top of the current Nicholson challenge of £20 billion, amounting to annual gains of over 2 per cent per year to 2021/2. This contrasts with a long-term trend of annual real-terms growth in NHS funding of around 4 per cent per annum.
- Future funding for health and social care
Will health and social care receive settlements above or below the rate of GDP growth in the future? And how will the future demand for health and social care affect the need for continuing productivity gains?
- Economic prosperity
The economic prosperity of the UK is increasingly dependent on the economies of other countries. The most stark example of this is the current economic threat posed by the crisis in the Euro zone.
Current economic context
The UK economy is currently still mired in one of the most prolonged economic downturns since the economic depression of the 1930s (1)(2).
It is now nearly five years since the start of the recession and UK GDP remains around 4 per cent below the level it was in 2008.
The impact of the banking crisis and the recession – and the government’s response – on the nation’s economy has been significant (3):
- national debt in 2007/8 was 36.4 per cent of GDP: in 2011/12 it was 66.1 per cent.
- government borrowing to bridge the gap between revenue and spending was £37 billion in 2007/8: in 2011/12 it had more than trebled to over £120 billion.
The period of austerity is set to continue to 2017. While the 2012 Autumn Statement confirmed some protection for the NHS into 2015, future prospects are unclear. Further financial protection for the NHS would mean a combination of significant cuts in other spending areas and tax increases.
Historic trends in health care spending
Average annual real spending has increased by around 4 per cent over the lifetime of the NHS: during the 20th century the average was 3.5 per cent, and in this century 6.6 per cent (4).
This is a pattern of growth that matches most other countries. In 2010 the UK devoted more than twice the share of its gross domestic product (GDP) to public plus private health care spending than it did in 1960. For more on this, see John Appleby's article on rises in health care spending in the British Medical Journal.
If projecting future funding scenarios to 2032, the long-term trend of 4% real-terms growth would suggest funding reaches a total of £170 billion, £34 billion greater than the Office of Budgetary Responsibility's central projection of £136 billion.
Future funding scenarios
Source: J Appleby 2012
Long-term projections for UK health and social care spend
The Office for Budget Responsibility (OBR) – the independent body charged with producing government economic forecasts – has recently developed a range of scenarios for future health and social care spending.
These are based on varying assumptions about future population growth, health status, and NHS productivity. They all suggest that health spending will continue to take a growing proportion of GDP. The so called 'central projection' assumes year-on-year productivity growth of 2.2 per cent in health care. While in line with productivity gains in the wider economy, historically this represents an extremely ambitious goal (5).
Projected health spending
Source: Office for Budget Responsibility (2012). Report. Fiscal Sustainability report – July 2012
- National Institute of Economic and Social Research (2012). Press release. Estimates of monthly GDP: December 2012
- Office for Budgetary Responsibility (2012). Report. The economic and fiscal outlook
- Office for National Statistics (2012). Statistical Bulletin. Public sector finances, September 2012
- Appleby J, Crawford R, Emerson C (2009). Report. How cold will it be: Prospects for NHS funding 2011-2017
- Office for Budget Responsibility (2012). Report. Fiscal Sustainability report – July 2012