As the country’s top priority and biggest employer, the NHS receives a lot of attention. With the diversity of messages reported, it can be confusing. On the one hand there are reports of staff shortages and of hospitals struggling due to lack of money. But at the same time we hear that the NHS has more money than ever before, supposedly receiving an extra £10bn in England, and that more patients are being treated.

How can both true?

The NHS across the UK is undoubtedly under pressure. 43% of NHS acute core services have been rated as ‘inadequate’ or ‘requires improvement’ in a new report by the CQC about English providers, and key access targets, such as the four hour A&E target, have been continuously missed.

Finances are unambiguously dire: 65% of English NHS providers ended last year in deficit (totalling £2.5bn, although this situation improved at the beginning of this year). This is against the back drop of needing to make £22bn of efficiency savings by 2020/21. And it’s not just England. Health boards in Wales overspent by £50m last year. In our latest report, we highlight the need to improve efficiency growth in Wales to at least 1.5% a year to 2019/20 to close a potential funding gap while protecting patient care.

It’s also true that the NHS has more money than ever before. As has been true every year since the NHS was created. But as the money rises, so too does the demand for that money. Pretty much every year since the NHS’ creation, stuff has got more expensive (inflation) and the size and age of the population has grown.

Inflation is particularly tricky for health as most spending is on wages – which rise to keep pace with other areas but with no corresponding rise in productivity. The Office for Budget Responsibility report that in health ‘cost and price pressures have generally been stronger... while productivity growth has tended to be lower’.

Spending on the NHS across the UK has grown over and above these factors for almost all of its history, and this is seen in most health systems. As countries get richer, they choose to spend more on health. So health tends to grow with GDP, if not a little faster.

Until now. Health spending in the UK has not kept pace with demand. The period from 2009/10 to 2020/21 will be most austere decade that the NHS has experienced. Health spending per head will be flat over the decade (accounting for inflation). The NHS is the public finance equivalent of Lewis Carroll’s Red Queen: it takes all the running you can do, just to keep in the same place.

Moreover, spending in the UK is falling as a share of GDP—from a peak of 7.6% in 2009/10, to an estimated 6.9% by 2019/20.

There is some more money coming into the NHS above inflation (not accounting for demand): in England about £4.5bn over the spending review period, with a 0.7% increase next year. Perhaps heeding the Red Queen’s words that ‘if you want to get somewhere else, you must run at least twice as fast as that’, the Welsh government have increased spending more substantially, increasing NHS funding by 2.5%.

Running alongside is social care. The CQC report states that in England, ‘social care is approaching a tipping point’. But cuts have already impacted social care—so I think the question is how much further we’ll let it tip. It’s lead to 29% fewer people receiving social services over a five year period and the gap growing between the provision for the well-off and for the poor. And social care providers are feeling the impact: with some not continuing, others not far off, and some even handing back contracts to councils.

No matter the formal division, at their best the NHS and social care create a synergistic system. With one part of this system in reverse, NHS performance will be dragged down with it.

Despite all this, the CQC highlight that that there are areas that have improved. Of those inspected in 2015/16 who had previously been found ‘inadequate’, 76% had improved and 45% of those found as ‘requires improvement’ had improved. What’s underpinning these improvements? A big part is the need for strong and transparent leadership.

In fact, the CQC’s report found that most health and care services in England are providing good quality care. 72% of adult social care services, and 87% of GP practices inspected recently were rated good or excellent. Over half (56%) of core services provided by acute care were found to be good or excellent, although this clearly could be better.

There are also areas of the UK NHS and social care system where exceptional care is being delivered, it’s just not very evenly distributed.

The challenge – as much an opportunity as a necessity – is partly how we spread this excellence. But more than that it’s how we can support and encourage areas up and down the country to improve and thrive—to run further, faster. Heroic leadership won’t be enough. A smattering of ground-breaking care won’t be enough. Learning from excellence in order to turn the NHS into a health system which improves top to bottom, end to end just might be.

Ben Gershlick is Economics Analyst at the Health Foundation,


William Beckett

The NHS problem is not one of income, it is one of expenditure. £billions are wasted on curative treatments such as hip repairs, when preventive measures for those likely to fall and break a hip are largely ignored. £billions are wasted on PPI financing as was over £20bn on the patients records systems, yet no-one senior in the NHS stands up and says these are bad, wasteful ideas. Generally speaking the UK population is getting healthier and living longer, except for those determined on a personal mission of self-destruction, and why should the rest of us pay for their selfishness?

Andrew Anderson

I'm always puzzled when I read that most NHS providers are "in deficit". Does this simply mean that they've spent more than their budget? The NHS's constituent parts are cost centres, not profit centres, and a £2.5bn overspend is only about 2% of total spending, so why the air of crisis? Hospitals and other services can't be expected to know exactly how many people will require cancer treatment or an emergency operation up to a year a head, nor do they have any control over demand. In contrast, a private sector organisation has far more flexibility, with the option of increasing (or decreasing) its charges and finding cost-saving measures in a way that will improve overall cashflow without driving customers away - unless it chooses to do so, say by increasing subscription rates to get rid of those customers it doesn't make enough money from. The NHS can do very little of this, except perhaps by improving its procurement, which is I believe still too decentralised. It can't turn people away, or tell them that they'll have to undergo an operation without anaesthetics unless they're prepared to pay.

Am I missing something obvious (or not so obvious)? The constant talk of deficits seems confused, misplaced and unproductive, but perhaps those who know far more than I do can explain why I'm wrong.

Martin Smith

Ben describes the low level of productivity growth in health relative to other sectors and inflationary cost increases. While this reflects historical experience, I feel we should be more questioning and challenging of the health sector in this regard. I can see no fundamental reason why a sector that essentially employs staff, operates from buildings and utilises information should not be able to sustain a reasonable (at least) level of productivity gain. Some of the obstacles to this are clear and are challenging to resolve, but no more so that the current pursuit of preventative approaches that are predicated on changes to population behaviour.

Andrew - in response to your point, are you aware that one feature of the NHS internal market is that hospitals get 'paid' per unit of activity. So if it treats more patients its budget increases accordingly (and vice versa).

Mark Holder MSc BSc

We have a Tory Government who are deliberately underfunding the NHS in order to close down NHS services & replace with privatised heath care. The aim is to close close down NHS services on the grounds of safety. This is the basis of STP. Under this Government NHS finances have been in its worse state since the foundation of the NHS. The Tories have put members of REFORM in positions of power in NHS England who's structure is set up to undermine a publicly funded NHS. The BBC asks health trust bosses for his prescription for NHS ills after yet another kick for this Government. He says the NHS is failing & we must charge for some NHS services. Its not mentioned that he is a member of REFORM with a vested interest in NHS Privatisation. Yet again we have a Tory politician rubbishing the NHS citing a Cancer specialist who works for a private health care company. An ex NHS trust boss is flogging his book roughly titled "In search of the perfect health care system". He now runs the Healthcare arm of an accountancy firm. He helped to undermine the NHS. The fact the 71 MPs have financial interests in private Healthcare companies & private Healthcare companies have donated over £20million to the Tory Party says it all. The privatisation of Social Care has been a disaster as has the effective privatisation of the benefit system. Please fight for OUR NHS & don't let it go the same way.

Ben Gershlick

William: It's a fair point that there is waste in the NHS, both in terms of costs being higher than they could have been with proper prevention and some investment decisions which end up being costly in the long run. Even when you factor in these things (short of a major change in the way we think about and invest in prevention), health care is likely to keep getting more expensive as the population grows and lives longer with more long term conditions. And so it comes back to the challenge in the blog: you have to cut out all this waste and make better investment decisions just to keep up with the rising costs of delivering health care.

Andrew: the terminology is a bit weird, and the danger is we 'blame' those with deficits when as you rightly say they basically have to treat whoever turns up as that's the idea the NHS is based on. The hospitals are mostly paid based on the average cost of doing a bit of health care. So if they do 50 hip operations, they'll be paid by the commissioners the average cost (across hospitals) for doing a hip operation x50. It gets much trickier as there are lots of costs that aren't as simple as hip operations, and the 'average cost' is adjusted downwards to try and encourage hospitals to reduce their costs. The size of the deficit is a big deal not just because of the amount of money but also because it suggests sector-wide difficulties in providing care for the price they're being paid.

Martin: I think that makes a lot of sense. I touch on Baumol's cost disease which I think helps to explain a bit of why the NHS finds it hard to improve productivity. About two thirds of costs are staff, and it's very hard to replace staff or significantly cut your pay bill in health. But it shouldn't be an excuse, and it shouldn't undermine the drive to be more productive and find new ways to improve productivity. It might, however, help us understand why it's hard and what is - and isn't - achievable.

Mark: Privatisation is obviously a very tricky and complicated subject. While it is important to the debate on NHS financing, it's important to remember a lot of the other pressures and public finance issues involved, some of which are touched on in this blog. If you're interested in privatisation specifically we produced a briefing on this issue last year:

Gary Ferone

Gary Ferone, Stamford, CT is the franchise owner of Assisting Hands Home Care which provides home care services such as preparing meals, helping with daily routines, housekeeping, assisting in shopping, etc. to elders and disabled individuals.
<a href="">Gary Ferone Stamford CT</a>

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