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Next week parliament will return, with the government facing a number of important and pressing decisions. Looming large is the future funding of the NHS and social care.

The Chancellor has now set 27 October as the date for the Autumn Statement and it’s likely that will include the outcome of a Spending Review. To support planning in the NHS and social care, a multi-year spending review would be the preferred approach, but it might follow the pattern of previous years and only cover one year. Either way there is speculation that funding for the NHS and social care will be decided and announced in a matter of weeks.

The government will need to decide what level of funding to make available to enable the NHS to recover from the pandemic. On social care, there are outstanding decisions about whether to introduce a ‘cap’ to protect people against catastrophic costs, and at what level. But a cap is only one part of fixing social care. The government should not lose sight of the funding needed for local government to stabilise the current system and address any unmet care needs.

How much additional funding is needed?

Estimating the funding the NHS and social care needs now and in the future is never easy – even without COVID-19’s profound impact on health and services. But at the REAL Centre we’ve been doing just this: next week we will publish a summary of our analysis setting out how much funding may be needed over the remainder of this parliament (up to 2024/25) to meet future demands and allow services to recover. 

Our analysis explores the following funding pressures:

  • The immediate costs of dealing with COVID-19, such as infection prevention and control measures.
  • Rising underlying demand for health and social care services due to an ageing population with a growing number of long-term conditions.
  • Additional funding pressures, particularly the backlog of elective care and meeting NHS Long Term Plan commitments such as for primary and community care.
  • The urgent need to improve the social care system.

Our early findings show that the NHS England budget for day-to-day spending would need to rise by between £4bn and £7.1bn in 2022/23 compared with government plans before the pandemic (under the NHS Long Term Plan). These estimates include underlying pressures (eg demographic change), NHS Long Term Plan commitments, making headway on tackling the backlog of elective care and meeting increased demand for mental health services. Our lower funding estimate would mean clearing the elective care backlog more slowly over the next decade, whereas the higher figure would achieve this by 2024/25.

These totals do not include the immediate costs of dealing with COVID-19, so they should be considered a minimum. These immediate costs include caring for hospitalised patients and, crucially, any ongoing impact on the ability of the NHS to deliver care arising from things like infection prevention and control measures. We estimate these costs separately, as the impact on productivity is so uncertain and depends on how the pandemic is managed and the level of pressure on the NHS. There is likely to be some impact next year and we estimate that for every 1% hit to productivity around £1.5bn in additional funding will be needed each year.

Varying assumptions about the ongoing impact on productivity of COVID-19, and the speed with which the elective care backlog might be cleared, can lead to different estimates of the overall funding needed. This explains a large part of the difference between our estimates of NHS funding needed (£4bn to £7.1bn in 2022/23) and the estimates published today by NHS Providers and NHS Confederation. The estimate of an additional funding requirement of £10bn from NHS organisations suggests that the health service expects that it will still be operating under enhanced infection control and social distancing next year. Our analysis suggests that if this led to a fall in productivity of 2–4% (approximately an additional £3bn to £6bn) that would leave the NHS facing funding pressures of between £7bn and £13bn in 2022/23.

Our estimates also outline a substantial increase in adult social care funding, of £3.7bn or £7.9bn in 2022/23 above projected spending. The precise estimate depends on the government’s ambitions for expanding access to care, and the level of funding made available to local authorities to pay more for care to sustain the provider sector and increase staff pay (see our previous publication for detail of our approach). These increases are comparable to, or exceed, the funding needs of the NHS and partly reflect the lack of funding growth for adult social care (relative to the NHS) over the past decade. The estimates don’t include the cost of policy changes to the balance of funding between individuals and the state, such as capping care costs as recommended by the Dilnot Commission, which we have explored in a previous blog.

Beyond the costs of care

Funding is a vital part of the equation but so too is the workforce. Even before the pandemic there were significant staff shortages. Pandemic-related burnout and sickness absence have only added to the challenge. Tackling the elective care backlog and meeting rising demand will mean the NHS workforce will need to grow by almost a fifth by 2024/25 – on top of the growth needed to fill current vacancies. This can't be fixed overnight, but investment needs to start now. This means further funding for Health Education England to make sure enough doctors and nurses can be trained to meet future workforce demands.

To keep up with growth in NHS funding and improve prevention, the public health grant would need to rise too. A significant investment in capital is also needed, including for additional beds and diagnostic equipment.

Difficult choices ahead

COVID-19 has led to short-term costs for the NHS and social care, but its legacy will add significantly to funding pressures over the rest of this parliament and beyond. The government faces difficult decisions over how to balance the funding needed to (for instance) invest in prevention as envisaged by the NHS Long Term Plan, to tackle the backlog of elective care after the pandemic, and to improve the social care system. And it must do this while dealing with the immediate costs of COVID-19 and in a context of staff shortages.

The scale of the recovery and how quickly we get there will depend in part on the path of COVID-19, but also ultimately on policy choices and the level of ambition from government. A detailed report from the REAL Centre will be published later in September and will explore the short and long-term funding needs of the NHS and social care and some of the major policy decisions faced by government over the next decade. Early findings, summarising the short-term funding requirements, will be published next week.

All figures quoted in this blog are in real terms in 2021/22 prices using the GDP deflator (June 2021).

Omar Idriss is a Senior Economist in the REAL Centre team.

Stephen Rocks is an Economist in the REAL Centre team.

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