Challenges for health spending
George Stoye
© Institute for Fiscal Studies
Past and present UK health spending
160
8
140
7
% of national income (right axis)
© Institute for Fiscal Studies
Notes and sources: see Figure 8.1 of The IFS Green Budget: February 2015.
2013–14
2009–10
2005–06
0
2001–02
0
1997–98
1
1993–94
20
1989–90
2
1985–86
40
1981–82
3
1977–78
60
1973–74
4
1969–70
80
1965–66
5
1961–62
100
1957–58
6
1953–54
120
Percentage of national income
Real spending (left axis)
1949–50
Real spending (£ billion, 2015‒16 prices)
Previous governments:
Average
Last Conservative
Annual
3.7%Real
Last
Growth:
government:
Labour3.8%
government:
3.4%
5.6%
160
8
140
7
% of national income (right axis)
© Institute for Fiscal Studies
Notes and sources: see Figure 8.1 of The IFS Green Budget: February 2015.
2013–14
2009–10
2005–06
0
2001–02
0
1997–98
1
1993–94
20
1989–90
2
1985–86
40
1981–82
3
1977–78
60
1973–74
4
1969–70
80
1965–66
5
1961–62
100
1957–58
6
1953–54
120
Percentage of national income
Real spending (left axis)
1949–50
Real spending (£ billion, 2015‒16 prices)
Past and present UK health spending
UK health spending as a % of total public and
public service spending
35%
% of total public spending /
public service spending
Share of total public spending
30%
Share of public service spending
25%
20%
15%
10%
5%
© Institute for Fiscal Studies
Notes and sources: see Figure X.2 of The IFS Green Budget: February 2015.
2013–14
2009–10
2005–06
2001–02
1997–98
1993–94
1989–90
1985–86
1981–82
1977–78
1973–74
1969–70
1965–66
1961–62
1957–58
1953–54
1949–50
0%
Recent Department of Health spending
• The Department of Health (DH) is responsible for the vast majority
of health spending in England
• Real terms change in departmental spending from 2010-11 to
2015-16:
– DH: 6.2% (1.2% p.a.)
– Other departments: -15.3% (-3.3% p.a.)
• DH faces a number of demand and cost pressures which may
require real budget increases
© Institute for Fiscal Studies
Demand pressures
• Demographic pressures
– Increasing size of the UK population: forecast growth of 0.7% p.a.
– An increasing proportion of older individuals
© Institute for Fiscal Studies
Average health spending
(index, age 30 =1 )
Current age profile of English health spending
8
7
6
5
4
3
2
1
0
0
© Institute for Fiscal Studies
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Age
Notes and sources: see Figure 8.4 of The IFS Green Budget: February 2015.
Average health spending
(index, age 30 =1 )
Current age profile of English health spending
8
7
6
5
4
3
2
1
0
0
© Institute for Fiscal Studies
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Age
Notes and sources: see Figure 8.4 of The IFS Green Budget: February 2015.
Average health spending
(index, age 30 =1 )
Current age profile of English health spending
8
7
6
5
4
3
2
1
0
0
© Institute for Fiscal Studies
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Age
Notes and sources: see Figure 8.4 of The IFS Green Budget: February 2015.
Average health spending
(index, age 30 =1 )
Current age profile of English health spending
8
7
6
5
4
3
2
1
0
0
© Institute for Fiscal Studies
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Age
Notes and sources: see Figure 8.4 of The IFS Green Budget: February 2015.
Demand pressures
• Demographic pressures
– Increasing size of the UK population: forecast growth of 0.7% p.a.
– An increasing proportion of elderly individuals
– Real increase of 1.2% p.a. to keep pace with both population growth
and the changing age structure (assuming age profile unchanged)
• Increased prevalence of chronic conditions
– Nuffield Trust estimate these increase demand pressures by 2% p.a.
• Changes in available treatments
– New drugs and changes in guidelines for approved treatments
© Institute for Fiscal Studies
Cost pressures
• Pressures that tend to increase real cost of healthcare:
– Non-labour goods and services: roughly increasing in line with
economy-wide inflation
– Staffing costs: increasing at a quicker rate than economy-wide
inflation
• Not all labour cost increases represent genuine cost pressures
– Some increases represent gains in productivity
– Others driven by need to keep pace with economy-wide wage growth
– Distinguishing between these types of costs is very difficult
© Institute for Fiscal Studies
Estimated impact of pressures up to 2020-21
• Combined effect of demand and cost pressures:
– NHS England estimate 3.5% p.a.
– Funding pressures of £30 billion p.a. (2020-21 prices) by 2020-21
• Funding gap could be reduced by productivity improvements
© Institute for Fiscal Studies
Notes and sources: see Table 8.4 of The IFS Green Budget: February 2015.
Estimated impact of pressures up to 2020-21
• Combined effect of demand and cost pressures:
– NHS England estimate 3.5% p.a.
– Funding pressures of £30 billion p.a. (2020-21 prices) by 2020-21
• Funding gap could be reduced by productivity improvements
Demand pressures met by:
NHS productivity improvement:
© Institute for Fiscal Studies
Real increase in NHS England budget by
2020-21 (2015-16 prices):
Notes and sources: see Table 8.4 of The IFS Green Budget: February 2015.
Estimated impact of pressures up to 2020-21
• Combined effect of demand and cost pressures:
– NHS England estimate 3.5% p.a.
– Funding pressures of £30 billion p.a. (2020-21 prices) by 2020-21
• Funding gap could be reduced by productivity improvements
Demand pressures met by:
NHS productivity improvement:
Real increase in NHS England budget by
2020-21 (2015-16 prices):
0.0% per year
© Institute for Fiscal Studies
Notes and sources: see Table 8.4 of The IFS Green Budget: February 2015.
Estimated impact of pressures up to 2020-21
• Combined effect of demand and cost pressures:
– NHS England estimate 3.5% p.a.
– Funding pressures of £30 billion p.a. (2020-21 prices) by 2020-21
• Funding gap could be reduced by productivity improvements
Demand pressures met by:
NHS productivity improvement:
Real increase in NHS England budget by
2020-21 (2015-16 prices):
0.0% per year
£27 billion
© Institute for Fiscal Studies
Notes and sources: see Table 8.4 of The IFS Green Budget: February 2015.
Estimated impact of pressures up to 2020-21
• Combined effect of demand and cost pressures:
– NHS England estimate 3.5% p.a.
– Funding pressures of £30 billion p.a. (2020-21 prices) by 2020-21
• Funding gap could be reduced by productivity improvements
Demand pressures met by:
NHS productivity improvement:
Real increase in NHS England budget by
2020-21 (2015-16 prices):
0.0% per year
£27 billion
0.8% per year
© Institute for Fiscal Studies
Notes and sources: see Table 8.4 of The IFS Green Budget: February 2015.
Estimated impact of pressures up to 2020-21
• Combined effect of demand and cost pressures:
– NHS England estimate 3.5% p.a.
– Funding pressures of £30 billion p.a. (2020-21 prices) by 2020-21
• Funding gap could be reduced by productivity improvements
Demand pressures met by:
NHS productivity improvement:
Real increase in NHS England budget by
2020-21 (2015-16 prices):
0.0% per year
£27 billion
0.8% per year
£19 billion
© Institute for Fiscal Studies
Notes and sources: see Table 8.4 of The IFS Green Budget: February 2015.
Estimated impact of pressures up to 2020-21
• Combined effect of demand and cost pressures:
– NHS England estimate 3.5% p.a.
– Funding pressures of £30 billion p.a. (2020-21 prices) by 2020-21
• Funding gap could be reduced by productivity improvements
Demand pressures met by:
NHS productivity improvement:
Real increase in NHS England budget by
2020-21 (2015-16 prices):
0.0% per year
£27 billion
0.8% per year
£19 billion
1.5% per year
£15 billion
© Institute for Fiscal Studies
Notes and sources: see Table 8.4 of The IFS Green Budget: February 2015.
Estimated impact of pressures up to 2020-21
• Combined effect of demand and cost pressures:
– NHS England estimate 3.5% p.a.
– Funding pressures of £30 billion p.a. (2020-21 prices) by 2020-21
• Funding gap could be reduced by productivity improvements
Demand pressures met by:
NHS productivity improvement:
Real increase in NHS England budget by
2020-21 (2015-16 prices):
0.0% per year
£27 billion
0.8% per year
£19 billion
1.5% per year
£15 billion
2.4% per year
£7 billion
• Alternatively, could choose not to meet all demand pressures
© Institute for Fiscal Studies
Notes and sources: see Table 8.4 of The IFS Green Budget: February 2015.
More funding for NHS England implies higher
cuts elsewhere
Average annual real change to other
departmental spending
• Departmental spending: -3.7% p.a. as of Autumn Statement 2014
-5.0%
-5.5%
-6.0%
-6.5%
-7.0%
-7.5%
-8.0%
-8.5%
-9.0%
0.0%
© Institute for Fiscal Studies
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Average annual real change in Department of Health budget
(2015-16 to 2019-20)
4.0%
More funding for NHS England implies higher
cuts elsewhere
Average annual real change to other
departmental spending
• Departmental spending: -3.7% p.a. as of Autumn Statement 2014
-5.0%
-5.5%
-6.0%
-6.5%
-7.0%
-7.5%
-8.0%
-8.5%
-9.0%
0.0%
© Institute for Fiscal Studies
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Average annual real change in Department of Health budget
(2015-16 to 2019-20)
4.0%
More funding for NHS England implies higher
cuts elsewhere
Average annual real change to other
departmental spending
• Departmental spending: -3.7% p.a. as of Autumn Statement 2014
-5.0%
-5.5%
NHS productivity: 0.0% p.a.
-6.0%
-6.5%
-7.0%
-7.5%
-8.0%
-8.5%
-9.0%
0.0%
© Institute for Fiscal Studies
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Average annual real change in Department of Health budget
(2015-16 to 2019-20)
4.0%
More funding for NHS England implies higher
cuts elsewhere
Average annual real change to other
departmental spending
• Departmental spending: -3.7% p.a. as of Autumn Statement 2014
-5.0%
-5.5%
-6.0%
NHS productivity: 0.0% p.a.
DH: 3.9% p.a.
-6.5%
-7.0%
-7.5%
-8.0%
-8.5%
-9.0%
0.0%
© Institute for Fiscal Studies
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Average annual real change in Department of Health budget
(2015-16 to 2019-20)
4.0%
More funding for NHS England implies higher
cuts elsewhere
Average annual real change to other
departmental spending
• Departmental spending: -3.7% p.a. as of Autumn Statement 2014
-5.0%
-5.5%
-6.0%
NHS productivity: 0.0% p.a.
DH: 3.9% p.a.
Other departments: -8.0%
-6.5%
-7.0%
-7.5%
-8.0%
-8.5%
-9.0%
0.0%
© Institute for Fiscal Studies
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Average annual real change in Department of Health budget
(2015-16 to 2019-20)
4.0%
More funding for NHS England implies higher
cuts elsewhere
Average annual real change to other
departmental spending
• Departmental spending: -3.7% p.a. as of Autumn Statement 2014
-5.0%
-5.5%
NHS productivity: 2.4% p.a.
-6.0%
-6.5%
-7.0%
-7.5%
-8.0%
-8.5%
-9.0%
0.0%
© Institute for Fiscal Studies
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Average annual real change in Department of Health budget
(2015-16 to 2019-20)
4.0%
More funding for NHS England implies higher
cuts elsewhere
Average annual real change to other
departmental spending
• Departmental spending: -3.7% p.a. as of Autumn Statement 2014
-5.0%
-5.5%
-6.0%
NHS productivity:
2.4% p.a.
NHS productivity: 2.4% p.a.
DH:p.a.
0.8% p.a
DH: 0.8%
Other departments: -6.1% p.a.
-6.5%
-7.0%
-7.5%
-8.0%
-8.5%
-9.0%
0.0%
© Institute for Fiscal Studies
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Average annual real change in Department of Health budget
(2015-16 to 2019-20)
4.0%
More funding for NHS England implies higher
cuts elsewhere
Average annual real change to other
departmental spending
• Departmental spending: -3.7% p.a. as of Autumn Statement 2014
-5.0%
-5.5%
-6.0%
NHS productivity:
2.4% p.a.
NHS productivity: 2.4% p.a.
DH:p.a.
0.8% p.a
DH: 0.8%
Other departments: -6.1% p.a.
Other departments: -6.1%
-6.5%
-7.0%
-7.5%
-8.0%
-8.5%
-9.0%
0.0%
© Institute for Fiscal Studies
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Average annual real change in Department of Health budget
(2015-16 to 2019-20)
4.0%
More funding for NHS England implies higher
cuts elsewhere
Average annual real change to other
departmental spending
• Departmental spending: -3.7% p.a. as of Autumn Statement 2014
-5.0%
-5.5%
-6.0%
Productivity: 1.8% / 0.8% p.a.
DH:
Other:
2.0% / 2.7% p.a.
-6.8% / -7.3% p.a.
-6.5%
-7.0%
-7.5%
-8.0%
-8.5%
-9.0%
0.0%
© Institute for Fiscal Studies
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Average annual real change in Department of Health budget
(2015-16 to 2019-20)
4.0%
Tradeoffs vary by the total departmental cuts
required under different fiscal rules
Average annual real change to other
departmental spending
Coalition
Conservatives
Liberal Democrats
Labour
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
-8%
-9%
-10%
0.0%
© Institute for Fiscal Studies
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Average annual real change in Department of Health budget
(2015-16 to 2019-20)
4.0%
Tradeoffs vary by the total departmental cuts
required under different fiscal rules
Average annual real change to other
departmental spending
Coalition
Conservatives
Liberal Democrats
Labour
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
-6.1%
-8%
-9%
-10%
0.0%
© Institute for Fiscal Studies
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Average annual real change in Department of Health budget
(2015-16 to 2019-20)
4.0%
Tradeoffs vary by the total departmental cuts
required under different fiscal rules
Average annual real change to other
departmental spending
Coalition
Conservatives
Liberal Democrats
Labour
0%
-1%
-2%
-3%
-3.0%
-4%
-5%
-6%
-7%
-6.1%
-8%
-9%
-10%
0.0%
© Institute for Fiscal Studies
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Average annual real change in Department of Health budget
(2015-16 to 2019-20)
4.0%
Tradeoffs vary by the total departmental cuts
required under different fiscal rules
Average annual real change to other
departmental spending
Coalition
Conservatives
Liberal Democrats
Labour
0%
-1%
-2%
-1.2%
-3%
-3.0%
-4%
-5%
-6%
-7%
-6.1%
-8%
-9%
-10%
0.0%
© Institute for Fiscal Studies
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Average annual real change in Department of Health budget
(2015-16 to 2019-20)
4.0%
Tradeoffs vary by the total departmental cuts
required under different fiscal rules
Average annual real change to other
departmental spending
Coalition
0%
Liberal Democrats
Labour
-0.9%
-1%
-2%
Conservatives
-1.2%
-3%
-3.0%
-4%
-5%
-6%
-7%
-6.1%
-8%
-9%
-10%
0.0%
© Institute for Fiscal Studies
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Average annual real change in Department of Health budget
(2015-16 to 2019-20)
4.0%
Summary
• The Department of Health budget planned to increase 1.2% p.a.
between 2010-11 and 2015-16
– Better than departmental spending (-3.3% p.a.) but below long run
average health spending growth (3.8% p.a.)
• The NHS faces budget pressures from rising demand and costs
– NHS England estimate pressures of 3.5% p.a.
– Other departments also face such pressures
• Departmental spending cuts will continue in the next parliament
– Increasing the NHS budget will imply even greater cuts for other
departments
– 0.8% p.a. increase for DH would imply a cut of 6.1% p.a. for other
departmental spending under AS 2014 plans
• The next government will have difficult choices to make
© Institute for Fiscal Studies