Economic growth and NHS spending

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If the chancellor sticks to Derek Wanless's 'fully engaged' scenario for future NHS spending, the next few spending rounds are likely to see smaller rises for the NHS than the last two as total healthcare spending flattens out at around 10.5 per cent of GDP across the UK. This is similar to spending in Germany in 2001.

But why stop there? One reason to apply the brakes is affordability; could the economy bear to spend much more while also satisfying other, public and private, demands?

Since 1950, the UK economy has grown around three-fold in real terms, NHS spending by around seven-fold, and the NHS share of GDP more than doubled (to around 7 per cent). This has been achieved while increasing real spending on all non-NHS goods and services by nearly three-fold.

What about the next 50 years? Could the UK economy support NHS spending of 30 per cent of GDP? The answer, surprisingly, is almost certainly yes – all other things being equal.

The maths is simple. Assume the economy grows at 2 per cent per year, and NHS spending increases at 5 per cent. Then, by 2055, the economy will have increased by around 170 per cent, NHS spending grown more than ten-fold, and the proportion of total national wealth spent on the NHS increased to around 30 per cent.

This means that spending on all other non-NHS goods and services, both public and private, will have reduced from 93 per cent of GDP to 70 per cent over 50 years. However, as the economy has grown, real spending on all non-NHS goods and services will have doubled – despite their share of GDP falling by a quarter.

If spending 30 per cent of GDP on healthcare seems incredible, then consider what faces the US over the next 70 years: it devotes the largest share of its GDP – 13.9 per cent – to healthcare, and it spends more on healthcare than all other Organisation for Economic Development and Cooperation countries put together. Estimates of spending up to 2075 are produced by the Medicare trustees board with underlying assumptions investigated by an independent panel.

On these estimates, if healthcare spending were to exceed GDP growth by 2 per cent a year – which is less than the historic average – by 2075 it would consume 79 per cent of GDP. Even the middle-range estimate of a 1 per cent excess growth would imply healthcare spending of 38 per cent of GDP by 2075 - a figure which the independent panel of economists did not view as 'implausible' or 'necessarily unsustainable'.

Published in Health Service Journal, vol II5, no 5937, pp 23

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