NHS finances: Running the Red Queen's race

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 (@BenGershlick) is Economics Analyst at the Health Foundation