The cost of protecting the NHS budget: how do the parties' pledges fare?

The NHS will form a fundamental part of debate in the run up to the election in May next year. The Conservatives, Labour and Lib Dems have all made promises to increase the NHS budget should they win.

But how do the promises of the parties compare to the amount of money the NHS in England will need? The precise details of exactly what they’re planning are hard to attain, given the number of ways these figures can be described (cash or real-terms, one-off or annual etc), but I’ve looked at three scenarios which resemble them (using a single measure for comparison):

• Funding rises by £2.5bn in real-terms (ie above inflation) in the first year, then rises with inflation for the rest of the parliament (similar to Labour). This equates to an average of 0.4% a year in real-terms.
• Funding rises by £1bn in real-terms each year (similar to Lib Dems), or 0.9% a year.
• The average increase for the current government of 0.8% a year in real-terms continues (my estimate for the Conservatives' promise to continue protecting the budget).

So the parties appear to pledging between 0.4–0.9% a year in real-terms. Will this be enough?

For this question, I’ve taken two estimates for the rate at which spending would need to grow over the next parliament to allow the NHS in England to continue providing the same quality of service:

• The Nuffield Trust projected that pressures on the NHS in England will grow by around 4% a year in real-terms, assuming no additional productivity beyond 2015.
• The Office for Budget Responsibility (OBR) have a more conservative estimate, projecting that spending would need to rise by an average of 2.4% a year in real-terms (this assumes productivity of 2.2% a year, and that the NHS budget is not constrained by the overall envelope for public spending).

These are shown in chart 1 against the three funding scenarios, starting from the planned spend for the NHS in England this year of £111bn (using the total departmental expenditure limit excluding depreciation).

The key difference between these estimates for pressures is the assumption about productivity (no productivity versus 2.2% a year). Estimates for current NHS productivity range between 1.0% and 1.3% a year. So actual spending pressures are likely to fall somewhere between the Nuffield Trust and OBR's projections, between 2.4% and 4% a year. Substantially higher than the pledged increases of 0.4–0.9% a year.

So why hasn’t anyone promised more?

To answer this we need to consider what the government has had to forego in order to protect the NHS budget (what an economist would call the ‘opportunity cost’ of this decision). While spending on the NHS in England has risen by an average of 0.8% a year in real-terms between 2009/10 and 2013/14¹, the total amount spent by government departments fell by an average of 1.8% a year in real-terms. So other areas of public spending must have fallen.

Chart 2 shows the average annual change in total government spending in real-terms for selected areas of public spending between 2009/10 and last year. Spending on education has fallen by an average of 2.3% a year, local government spending by 2.7% a year (which includes social care funding), and transport by 5.2%. While spending on work and pensions has risen over time, it’s worth highlighting that this is due to rising pressures from pensions.

The good news is that the economy is growing. By the end of the next parliament, UK national income after inflation is projected to be more than £260bn higher than this year. And so the key choice is how we choose to share the proceeds of growth.

Clearly the pressures coming from the health system are substantial and additional funding is required if quality and access are to be maintained. But if overall public spending falls as a share of GDP, the impact that this has on other public spending should not be underestimated. And, however much the next government increases the budget, where the extra money is spent will be vital. Simply using it to prop up the current system will not work.

Adam is a Senior Economics Fellow at the Health Foundation, www.twitter.com/ADRoberts777

Footnote

1. We have used total managed expenditure here to allow for comparison between different departments. We note that the government’s promise to protect the NHS budget was based on the department expenditure limit excluding depreciation (read an explanation of the difference).