This is first of three Health Foundation briefings ahead of the 2017 General Election.
Last week the general election campaign stepped up a gear with the publication of the main political parties’ manifestos. The Labour, Conservative and Liberal Democrats’ manifestos run to over 300 pages and are awash with figures. Those figures include the spending plans for the NHS – where all parties remain committed to a tax-funded system, free at the point of use. And all have recognised the need for more money for the health service. However, teasing out what their funding pledges mean and how they compare is far from straight-forward.
At the Health Foundation, we’ve spent the days since the manifestos were published trying to get to the bottom of the funding announcements. And we’ve outlined the results of our analysis in the tables below.
Table 1 shows how much would be spent on the NHS in England under the existing plans from the 2015 Spending Review, and how this would change under the parties’ proposals.
|Current spending plans||Labour||Liberal Democrats||Conservatives||Spending pressures|
We have estimated the spending pressures on the NHS using the independent Office of Budget Responsibility’s (OBR) analysis of underlying pressures on health care, which is published in its fiscal sustainability report. The OBR estimates funding pressures rising by over 4% a year above inflation, so we have used the OBR estimate to calculate the spending pressure figures shown in the final column in table 1. (The OBR approach takes into account the pressures from demographic change, the historic relationship between health spending and rising wealth (the income elasticity of health spending), other cost pressures and the productivity of the health system.)
Our analysis shows that up to 2020/21 the Labour and Liberal Democrat proposals would see spending as a share of GDP increase very slightly but that is because GDP growth is projected to be low in this period at an average of just 1.7%. As table 2 shows, over the full parliament (up to 2022/23), without a further boost in funding beyond that announced in the manifestos, health care spending as a share of GDP would fall regardless of who wins on 8 June.
|Labour||Liberal Democrats||Conservatives||Estimated need|
|% of GDP in 2017/18||7.6%||7.3%||7.3%||-|
|% of GDP in 2020/21||7.4%||7.4%||7.2%||7.9%|
|% of GDP in 2022/23||7.2%||7.2%||7.0%||8.2%|
In 2020/21 and 2022/23, the three political parties plan to spend more in real terms than the existing funding plans for the NHS (as outlined in the 2015 spending review). But importantly all three parties’ funding plans fall significantly short of the anticipated spending pressures. This will leave a funding gap, which will need to be filled either by a continuation of the drive for very high rates of efficiency and productivity growth in the NHS, or by scaling back what the NHS delivers.
None of the parties proposes the latter – in fact the manifestos have new plans for the NHS aimed at improving the quality of care. For example, improving mental health services features in the parties’ proposals. So from that it seems reasonable to conclude that all three parties are looking to the NHS to maintain and improve quality as well as to continue to bridge the gap between funding pressures and the available budget by becoming more efficient. Table 3 shows that over the five years of a new parliament the proposals result in a funding gap and therefore contain an efficiency ask of between £17bn and £22bn. This is a similar level of efficiency savings as those required by the Five Year Forward View of around £22bn over a five year period (2015/15 to 2020/21).
|Funding gap in 2020/21||£7bn||£9bn||£12bn|
|Funding gap in 2022/23||£17bn||£19bn||£22bn|
This is a stark prospect for the NHS. While extra funding is welcome, none of the parties have found a way of avoiding five more very tough years for the health service. This doesn’t seem to be because our politicians want to accept a lower quality health care service, but rather reflects the scale of the challenge presented by growing pressures on the service with an economy still feeling the aftershocks of the 2008 recession. The NHS is not a broken model – all systems face these same pressures whether funded via tax, social insurance or, more rarely, privately. Changing the funding model of the NHS would do nothing to address the underlying forces which drive health care spending – a growing and ageing population, rising chronic disease, workforce challenges and expensive new medicines.
With huge public and political support for the NHS model, backed by robust evidence, there are three ways to respond to a growing health care budget: cut other public services, reduce what the NHS does or increase the size of the state, with the associated increase in tax. Over many decades NHS spending has increased by around 4% a year more than inflation and this has happened as other services have been cut as a share of GDP. The main change that allowed that to happen was the huge reduction in the share of GDP devoted to defence from 9.2% in 1953/54 to 1.9% in 2015/16. Over the coalition government other areas of spending also fell sharply – most notably local government which funds social care. It looks like the option of cutting other services to protect the NHS has largely run its course. There is not much political appetite for the second option (cutting what the NHS does) if the list of extra commitments for the NHS is anything to go by. Which leaves the third – raising taxes to allow for additional funding. Both the Labour and Liberal Democrat parties’ manifestos include tax increases in some form. And the Conservatives – while not proposing tax increases in their manifesto – have promised to scrap their 2015 commitment not to increase income tax or national insurance.
The problem is the huge scale of what is needed. The 2008 recession is casting a long economic shadow; average earnings at the end of the next parliament will only just have returned to their pre-crisis peak in 2007 – meaning that on average people across the UK will have been 15 years without a rise in earnings once you allow for inflation. Though interestingly, despite this, in our recent poll carried out on our behalf by Ipsos MORI, 64% of people in Britain would support increasing taxes to fund the NHS.
Anita Charlesworth is Director of Research and Economics at the Health Foundation.