Free Lunch: Health spending and the UK election

Δημοσιεύθηκε: 5 Μαΐου 2015 - 11:51

Do the maths, and be scared

The UK general election is two days away, and the Labour opposition has decided to return to healthcare spending as its best bet with doggedly undecided voters.

Regardless of whether this will work for Labour, the funding of the National Health Service is clearly one of the big issues facing Britain in the next five years, and one of the biggest challenges to be confronted by whoever enters 10 Downing Street later this month. The numbers are staggering - and worrying.

Ed Miliband, the Labour leader, has just "leaked" a new document showing a £2bn deficit in NHS England, the Guardian writes. They would call it that - but there is little in this "leak" that wasn't known already (but no doubt calling it a shock adds to the campaigning value). The King's Fund already described the awful outlook English NHS trust directors hold for their 2015-16 finances in its latest quarterly report: about two-thirds are "very concerned" they will fail to balance the books. To understand where these deficits appear - many are hidden from the central government-level accounts - read the FT's investigation into the problem. Three weeks ago, that analysis found a £1.6bn "black hole" for NHS England in the financial year just ended and estimated another £2.3bn gap this year.

Where does the squeeze on the NHS come from, how bad is it, and what do the parties propose? A briefing from the LSE's Centre for Economic Performance is as good a summary of the situation as any. Focusing on the bulk of health spending that is not devolved away from Westminster, it states that all parties "agree that they will not devote substantially more resources to the NHS in real terms" (my emphasis). That's not how Messrs Miliband, Cameron and Clegg would put it - they prefer to stress that they will not let health spending fall (or increase it slightly) in real terms - but it's the only honest way.

In the decade leading up to the financial crisis, total public spending on health increased in real terms by about 7 per cent (about 5 per cent on a per-capita basis, says the OECD). Growth has been one-tenth of that pace since 2010, for a total budget of around £130bn today - about one-fifth of all public spending and 8 per cent of GDP (this number counts all parts of the NHS, not just England). The earlier spending brought the UK up to just over the European average, but it remains significantly below countries such as France, Germany and the Netherlands. The UK has one of the lowest rates of practising doctors per capita in Europe even after a growth spurt in doctor numbers in the 2000s. Its number of nurses is about average.

Are the politicians' promises enough? They differ in how much they will add to a flat real-terms settlement (for non-devolved spending). Labour has promised £2.5bn and said where the money is to come from; the Tories promise £8bn but don't identify the revenue source. Before judging that difference, however, realise how hopeless a benchmark flat real spending is. The population is both growing fast and set to age - which means a fast-rising number of patients to treat out of a constant or somewhat larger total budget. Last November, the FT examined the promises for health spending in per-patient terms, and this is how it looked:

Two weeks ago, the Nuffield Trust updated this in a recent blog post on the NHS bidding war. Its analysis takes into account the Conservatives' recent unfunded promise to add £8bn by the end of the next parliament, and makes the important point that when the money actually becomes available matters a lot for whether the squeeze can be avoided. If it's phased in from now on, per-patient spending can be held roughly constant. If it only comes towards 2020, there will be a big squeeze in the first few years.

Why £8bn? It's the number NHS England has asked for to meet its challenges. Or not quite. It's arguably the most its leaders thought they could ask for and get. The real shortfall is predicted to be £30bn by 2020 - £8bn is what would remain if the NHS manages to increase its productivity by 2-3 per cent every year. That's a tall order. It's unprecedented over any longer historical period, where the norm is closer to 0.5 per cent, according to the CEP analysis. Up to 4 per cent was achieved in recent years - but not throughout the whole of the last parliament, and not in the hospital sector which needed a huge infusion of extra resources in 2013. Taking these factors into account brings the recorded productivity increases down to a range of 0.4-1.2 per cent per year.

Given the UK economy's struggle with productivity more generally, it is wise not to hope for too much from the health sector. When the time moves from promising to delivering, expect a much larger NHS bill than what is talked about today.