The NHS Funding Challenge‘productivity isn’t everything, but in the long

run it is almost everything’ - Paul Krugman

Anita Charlesworth

Chief Economist

5th February 2015

Public spending on health in the UK, in real terms

and as a percentage of GDP (2014/15 prices)

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Average yearly change in UK health spending over

different parliaments (2014/15 prices)

3

The annual change in English NHS spending since

2009/10

4

Public and private health care spending in the UK

(£bn) – 1997-2012 (2014/15 prices)

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Total health spending as a percentage of GDP for

the EU-15 countries, 2000 and 2012

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Average annual percentage change in health

spending per head in real terms, 2008-2012

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Meeting the Challenge – the NHS approach

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Reducing input costs

National public sector pay policy

Reducing administrative costs

Reducing prices of pharmaceuticals

Improving technical efficiency

Real terms reduction in the unit prices paid for hospital care

More competitive tender and choice based competition for NHS

funded care

Improving allocative efficiency

Shifting care from hospital to community settings

Better integration of care

Demand management

Where is the NHS now?

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Overall NHS in balance last year (just £247m under-spend for DH as a

whole in 2013/14).

Quality broadly being maintained but cracks beginning to appear.

But significant pressure points.

Specialised services budget over-spending.

Access targets getting more difficult to sustain.

66 NHS providers in deficit in 2013/14 – almost 141 at Q2 2014/15.

Most have a small deficit but up to 20 with large, persistent deficits.

40% of acute providers in deficit in 2013/14, 80% at Q2 2014/15.

Surpluses falling, EBITDA and CIPs lower and a reliance on one-off

savings building cumulative underlying deficits.

2014-15 very difficult for the service to recover and not overspend.

-2%

-1%

0%

1%

2%

3%

4%

5%

2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 Annualaveragegrowth

Productivity Growth Year on Year

Annual change in English NHS productivity

10Source: Centre for Health Economics, Research Paper 94

Annual change in English NHS funding, 2010/11

to 2015/16, following the 2014 Autumn Statement

NHS administration costs from 2009/10 to

2015/16, real terms

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Percentage change from previous year in funding

for a range of services

13

Purchase of health care from non-NHS providers

from 2006/07 to 2013/14 (2013/14 prices)

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Annual change in the number of nurses from

2011/12 to 2013/14

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Average NHS staff earnings from 2009/10 to

2013/14

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Net reported year-to-date surplus/deficit by

sector, 2014/15 Q2

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Quality, Innovation and Productivity (QIPP)

savings, 2011/12 to 2014/15

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Public spending on health in the UK, as a percentage

of total public spending

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NHS England estimates of funding pressures facing

the NHS in England by the end of the decade

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Health care outputs, inputs and productivity estimates

for the UK, 1995-2010 (index numbers 1995=100)

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Projected funding gap for English NHS in

2030/31 under three assumptions for productivity

22Source: The Health Foundation (2015)

Funding pressures on English NHS in 2030/31

(2014/15 prices)

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OECD projections for average public spending on health for

EU15 countries, as a percentage of GDP between 2006 and 2010,

with projected spend in 2060 under both cost-containment and

cost-pressure assumptions

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Conclusions

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The NHS has been protected from the full impact of the government’s austerity

drive to tackle the fiscal deficit. Despite this, the service is showing growing signs of

financial distress and in December 2014, the Government found itself having to

inject significant additional resources into the service for both 2014/15 and 2015/16.

After the election, all political parties are committed to reducing the fiscal deficit,

which will involve cuts to public spending. Health care now accounts for almost £1

in every £5 of government spending – just sustaining, let alone improving, the

quality of care while delivering fiscal balance will be one of the major challenges

facing any incoming government.

NHS England has set out an ambitious programme of reform for the NHS in the

recent Five year forward view. This is designed to improve the system’s productivity

and modernise care to ensure that it meets the needs of an ageing population with

growing rates of chronic disease.

There is no doubt that change on this scale is required. The key question is can it

be delivered quickly enough to unlock the required productivity savings. Under NHS

England’s most demanding productivity assumption, they recognise that the NHS

will still need an addition £8bn extra over and above inflation by 2020/21.

Conclusions

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An incoming government needs to:

Provide meaningful support for rapid progress on the new models of care set out in the Five year

forward view. A key part of this support will be to establish and resource a ‘transformation’ fund to

provide the financial assistance necessary to underpin change.

Commit to the additional annual funding for the NHS specified by NHS England, which rises to £8

billion of additional funding over and above inflation in 2020/21, while recognising that this is a low

estimate and if pay pressures turn out to be higher than anticipated, the NHS will need further

resources to maintain quality and access.

The funding challenge facing the NHS doesn’t disappear beyond the current parliament

even if the NHS succeeds in implementing the vision set out in the Five year forward

view.

Even with unprecedented productivity improvements of over 2 per cent a year the funding

pressures facing the NHS would rise to £48 billion more than inflation by 2030/31.

Our central estimates using the recent trend of 1.5% productivity improvements see funding

pressures increasing to £65 billion more than inflation by 2030/31.

If successive governments are to meet these pressures NHS funding needs to grow

slightly faster than GDP. Over recent decades other public services have reduced as a

share of GDP, creating headroom for the health service without the need to increase

taxes. It is difficult to see how this can continue indefinitely and there needs to be

societal agreement about how to sustain the health service in the longer term.

The four steps used to project funding pressures

Regression results

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Model: AE OP

Age split: 0 01-19 20-49 50-84 85+ 0 01-19 20-49 50-84 85+

Intercept -0.6403 -0.6555 -0.2141 -1.764 -1.2116 -0.3276 -0.459 -0.5608 -1.0967 0.9262

Female -0.1843 -0.1687 -0.1061 0 0 -0.1762 0.0224 0.7969 0.0464 -0.2718

Agecat 0 -0.0607 -0.112 0 0 0 0.022 0.0104 0.0991 0

Diedinyear 0 0.2948 0.7057 0.2715 -0.1321 0.1983 0.7421 0.1455 -0.483 -1.0498

Gor_B 0.2138 -0.0508 0.0542 0.0961 0.1369 0.1089 -0.1299 0.0356 0.1153 0.1269

Gor_D -0.0313 -0.1905 -0.1857 -0.0974 -0.0063 -0.0888 -0.1455 -0.1782 0.0039 0.0653

Gor_E -0.1832 -0.295 -0.2692 -0.1582 -0.1264 0.0306 -0.2367 -0.183 -0.0559 -0.047

Gor_F 0.0546 -0.1564 -0.0331 0.0471 0.0689 0.2798 -0.0566 0.088 0.1964 0.1982

Gor_G -0.2545 -0.4819 -0.4141 -0.253 -0.1051 0.1938 -0.2372 -0.1661 -0.0715 -0.0564

Gor_H 0.3691 0.0308 0.0054 0.3736 0.3134 0.1484 -0.0777 0.0759 0.3236 0.4349

Gor_J -0.3327 -0.459 -0.3825 -0.1739 -0.0619 0.2504 -0.2298 -0.2413 -0.1213 -0.0662

Gor_K -0.3657 -0.3064 -0.2747 -0.151 -0.1981 0.057 -0.0668 -0.1598 -0.0016 0.0583

J_Diab 2.0715 1.3932 1.6104 1.3196 1.0511 0 2.2116 1.8219 1.2987 0.7136

J_Copd_Asthma 1.0337 1.5459 1.5297 1.6106 1.2884 1.19 1.5803 1.436 1.1796 0.6371

J_Arthritis 1.4887 0.9166 1.2038 1.2692 1.2351 0 2.7632 1.9332 1.4955 0.6891

J_Epilepsy 1.7454 1.719 2.0015 2.0342 1.465 2.0379 2.3319 1.511 1.1205 0.6032

J_Mh 0 1.9026 1.9337 1.9558 0.7855 0 0.7935 0.3779 0.2489 0

J_Stroke 0.8288 1.3728 1.8504 1.8854 1.4531 2.1757 2.5433 1.5959 0.8992 0.3001

J_Renal 0 1.3425 1.5858 1.5909 1.3334 1.8159 2.9531 2.3834 1.5359 0.556

J_Cancer 0 0 0.9563 1.1081 1.038 0 1.6705 2.4636 1.9831 1.128

J_Dementia 0 1.6905 2.2441 2.1142 1.6198 0 2.1456 1.4409 0.2448 -0.173

J_Chd_Hf 1.0587 1.5335 1.8939 1.6331 1.3575 1.7884 2.5896 1.6087 1.1772 0.6634

J_Diab_Copd_Asthma 0 1.7557 2.0047 1.6978 1.4417 0 2.363 1.7367 1.3034 0.6125

J_Diab_Chd_Hf 0 0 2.0736 1.7209 1.41 0 0 1.9397 1.412 0.7075

J_Copd_Asthma_Chd_Hf 0 1.6316 2.4254 2.0786 1.5914 0 2.4526 1.7264 1.2406 0.7314

J_Copd_Asthma_Cancer 0 0 1.2425 1.6223 1.3101 0 3.696 2.6113 1.9732 1.1262

J_Multiple 0 2.2356 2.6384 2.1747 1.7851 1.619 2.5909 2.1024 1.3805 0.5233

Regression resultsModel: EL NEL

Age split: 0 01-19 20-49 50-84 85+ 0 01-19 20-49 50-84 85+

Intercept -3.0911 -2.9035 -3.6236 -2.3903 -1.3798 -0.1274 -1.6552 -2.5424 -3.6048 -2.0253

Female -0.3331 -0.0381 0.3052 -0.0636 -0.5792 -0.1872 -0.0455 0.1924 -0.0169 0.0235

Agecat 0 -0.0548 0.1073 0.0302 0 0 -0.2994 -0.0555 0.0369 0

Diedinyear 0 1.3189 -0.3864 -0.4784 -1.0779 0.7439 1.3486 1.0425 0.5855 0.1176

Gor_B -0.2163 0.0693 0.1332 0.27 0.2173 0.0455 -0.0722 0.0064 -0.0141 0.0467

Gor_D -0.4522 -0.0361 0.0073 0.1123 0.1765 -0.0907 -0.1913 -0.1002 0.0118 0.0554

Gor_E -0.3998 -0.1616 -0.0832 0.0834 0.1698 -0.0405 -0.3214 -0.1623 -0.0273 0.0532

Gor_F 0.2716 -0.1452 0.033 0.2478 0.1283 0.0776 -0.2473 -0.1158 -0.073 0.0333

Gor_G 0.1583 -0.1613 -0.0834 0.156 0.1589 -0.0823 -0.5078 -0.3375 -0.1081 -0.0372

Gor_H 0.1229 0.049 -0.091 0.2691 0.2312 -0.2392 -0.4926 -0.2614 0.0631 0.0956

Gor_J -0.2929 -0.1878 -0.234 0.0645 0.1602 -0.0726 -0.3531 -0.2542 -0.0247 0.0317

Gor_K -0.0279 0.0112 0.0496 0.2435 0.2663 -0.1416 -0.3755 -0.1928 -0.0693 0.0718

J_Diab 0 2.544 2.3993 2.0987 1.4491 0 3.4513 2.9732 2.4837 1.814

J_Copd_Asthma 2.3917 2.5127 2.1941 1.9535 1.3185 1.3183 3.0093 2.6959 2.7514 2.0378

J_Arthritis 3.1775 4.2375 2.9409 2.3424 1.5695 1.5861 2.6431 2.4063 2.428 1.9785

J_Epilepsy 3.6022 3.2657 2.0034 1.8165 1.2899 1.8695 3.3684 3.1692 3.0783 2.0691

J_Mh 0 0.9711 0.1642 0.1071 0 0 3.0474 2.5109 2.3812 0.9601

J_Stroke 2.5834 3.8182 1.993 1.1163 0.3526 1.2753 3.4446 3.4052 3.1883 2.239

J_Renal 2.1591 5.0979 5.2822 4.3031 2.4376 0.8138 3.6363 3.3981 3.104 2.1817

J_Cancer 0 3.788 3.9351 3.1234 1.8148 0 2.4094 2.4854 2.5009 1.8553

J_Dementia 0 2.4983 1.7571 0.7814 0 0 4.4186 3.6701 3.2308 2.3127

J_Chd_Hf 2.8109 3.1892 2.1599 1.8811 1.2379 1.5407 3.3538 3.4068 2.875 2.1599

J_Diab_Copd_Asthma 0 2.3739 2.3066 1.9488 1.0429 0 3.9546 3.2913 2.8791 2.1382

J_Diab_Chd_Hf 0 0 2.3935 1.9036 1.3684 0 0 3.4775 3.0018 2.218

J_Copd_Asthma_Chd_Hf 0 3.1661 2.2719 1.871 1.3322 0 3.0054 3.7611 3.2692 2.4

J_Copd_Asthma_Cancer 0 3.6543 3.8641 3.0159 1.827 0 0 2.8348 2.975 2.269

J_Multiple 2.733 4.0298 3.5188 2.614 1.2044 0.73 3.9302 3.8137 3.4138 2.5759

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