A balancing act: short-term pressures, long-term resilience and weak economic growth

A lot has happened politically since our last REAL Centre newsletter: two new governments, two budgets, the wholescale abandonment of one of those, rising interest rates and threats of public sector strikes to name a few. In this context of fluidity, policy decisions to address short-term matters could overlook long-term challenges to the health care system. Recently, the REAL Centre has continued to analyse NHS finances to shed light on short-term challenges and long-term consequences for the UK health care system, with a particular focus on resilience.

On 9 November we hosted the third REAL Challenge annual lecture on the relationship between health and wealth. Andy Haldane delivered a powerful talk, highlighting the key role that a healthier workforce has played as a driver of economic growth over the last 250 years. The lecture drew attention to some reversals in these trends, the impact on growth in recent years, and the importance of resilience in people’s health and the health care system to support a resilient economy. He challenged us at the REAL Centre to consider how the stress-testing approach used to monitor resilience of the financial system after the 2008 crisis could be replicated in the health care system. We will be exploring this and other emerging ideas from the lecture further in the coming year.

Resilience requires sustained periods of strategic funding to build up a system that is better prepared to withstand shocks. Last month we published chart-based analysis (which was featured in the Financial Times) of UK health spending across Europe in the decade preceding the pandemic. We found that on average, for the UK to have matched the average EU14 spending per person during 2010–2019, it would have needed to spend an additional £40bn (20% more) on average every year.

The difference in health capital investment was also stark, with a cumulative shortfall of £33bn over the same period (matching the EU14 average would have required the UK to invest an extra 55% between 2010 and 2019). These gaps in health care spending stem partly from the UK’s much lower tax base compared with most European neighbours, and lower economic growth than in some EU countries. The resilience narrative for the UK is one of a system run in a highly efficient, cost-effective way in normal times, but lacking the slack needed to cope with unexpected shocks.

Against this background of a weakened economy and a stretched health care system, the new government announced its Autumn Statement. Even though health spending will continue to grow in real terms over the next few years, the NHS is still required to find further efficiency improvements. We published an immediate response pointing out that the NHS funding settlement continues to be eroded by inflation and ongoing COVID-related costs. Ultimately, lower funding growth implies the NHS can increase activity less than planned. The NHS faces pressures on multiple fronts, improvements in system-wide performance will be slow and difficult trade-offs will have to be made – which may ultimately translate into a less resilient health care system.

Addressing the challenges in social care is also central to increasing system resilience. The government announced delays to the introduction of the social care cap, so that access issues will remain unaddressed for some years. We published analysis highlighting the workforce retention challenges facing the sector, with competition on pay from other sectors seeking to attract lower paid staff. Our analysis underscores the need for a comprehensive long-term workforce plan for the NHS and social care.

Overall, it is clear that in the years ahead, government finances and the health care system will continue to face short-term pressures from multiple sides. It is crucial that the REAL Centre’s long-term analysis provides an evidence base for policymakers to assess the best way to address those pressures, without compromising long-term resilience any further.

Icaro Rebolledo is Lead Economist in the REAL Centre (Research and Economic Analysis for the Long term) at the Health Foundation.