Spending Review 2021 announced a substantial increase in health spending, with day-to-day spend in 2024/25 to be 13% higher in real terms than in 2021/22.
Health continues to fare better than other areas of government when it comes to spending. By 2024/25, day-to-day spending on health will be 39% of total day-to-day spending on public services by central government – up from 29% in 2009/10.
Social care funding has not fared well, with funding barely sufficient to meet future demand, and not even beginning to tackle other pressing challenges. To meet future demand, increase the prices paid for care (so that providers can raise quality and wages) and tackle unmet need, adult social care in England would require additional funding of around £7.6bn in 2022/23 rising to £9.0bn in 2024/25.
Day-to-day spending on the NHS will rise by 3.8% between 2021/22 and 2024/25, reaching a total of £166bn (in today’s prices) by 2024/25. The capital budget to cover NHS infrastructure costs will reach £10.5bn in 2024/25 (in today’s prices), in line with the REAL Centre’s projection of what is needed over this period.
Most notably, the Spending Review provided no extra funding or a plan for training the future NHS workforce. Workforce shortages remain the biggest threat to the ability of the NHS to recover. To address this, sustained real-terms increases in the Health Education England (HEE) budget, at least in line with those for the NHS, will be a crucial first step. An update on the HEE budget for the coming year is urgently needed.
The Spending Review also failed to give sufficient priority to the public health grant. It will be maintained in real terms until 2024/25, but this does not reverse the 24% real-terms cut to the grant since 2015/16. By taking into account trends in population growth, need and the cost of provision for elements of the public health grant, we estimate that an additional £1.3bn a year in 2021/22 price terms is required by 2024/25.
Spending Review 2021 saw welcome increases in public sector spending but fortunes for different departments varied greatly. For the NHS and social care, much of the funding settlement had been announced prior to the Spending Review as part of the new Health and Social Care Levy. But there were still vital areas of funding that needed attention.
In this analysis we take a deeper look at what the Spending Review means for health and social care. We explore the picture for overall health spending and day-to-day spending on the NHS, before revisiting the four priority areas we highlighted ahead of the Spending Review for continued investment: social care, NHS capital, NHS workforce and public health.
Overall health spending
The Spending Review announced real-terms increases in spending for almost all government departments – with an average increase of 10% over the period 2021/22 to 2024/25. By 2024/25, however, only three departments will have higher real-terms spending than in 2010: Health and Social Care (40% higher); the Home Office (25% higher) and Education (3% higher). As the IFS has noted, ‘austerity is over but not undone’.
Because health services have been prioritised over other public services, health has had a growing share of overall spending. By 2024/25, day-to-day spending on health will be 46% of total day-to-day spending on public services by central government – up from 34% in 2009/10.
The increases for health are partly funded by the additional taxes raised by the Health and Social Care Levy. However, even with the increases in spending, the NHS is likely to struggle to meet public expectations over the next few years. Other public services, with lower funding increases, may find it even harder. The government will be hoping for faster economic growth, otherwise further tax rises – as with the Health and Social Care Levy – may become increasingly necessary to fund the higher costs of health care and other public services.
But spending on health services is only one part of what matters for health. If the government is going to achieve its ambition to increase healthy life expectancy, and ‘level up’ health across the country, a whole-government approach will be needed – one that places improving health front and centre of all major policies.
Day-to-day NHS spending
The Spending Review announced that core day-to-day spending on the NHS would rise by 3.8% between 2021/22 and 2024/25, reaching a total of £152bn (in today’s prices) in 2024/25. This is slightly higher than the Health and Social Care Levy increase announced in September, because of the need to meet additional wage costs from rises to employers’ National Insurance contributions.
The cumulative funding now being allocated to the NHS over the period 2022/23 to 2024/25 is nearly £18bn higher than previously planned. Over the period 2018/19 to 2024/25, annual growth in NHS spending will be 3.5% a year. This is compared with the 3.1% growth implied by the NHS Long Term Plan (2018/19–2023/24) and the long-term historical average rate of 3.7% growth in health funding.
The funding increase for the NHS is frontloaded – with 9% growth next year and 1% growth in each of the 2 following years – reflecting COVID-19 pressures and efforts to tackle the elective care backlog. The amounts allocated are broadly in line with REAL Centre projections of what is needed to stabilise the system. But they may not be enough to fully recover services, including meeting new mental health demand and returning to the waiting times standards for A&E and elective care. With funding now announced to the end of the parliament, the focus will turn to delivery. On this settlement, the NHS faces a challenging period ahead with no guarantee that waiting times will fall quickly.
The four priority areas
Ahead of the Spending Review, we highlighted four key areas where continued investment – in addition to the extra money already pledged for the NHS in September – is most needed: social care, NHS capital, NHS workforce and public health.
Here we look at how each of these areas fared in the Spending Review and what the funding picture looks like up to 2024/25:
As part of the announcement of the Health and Social Care Levy, reforms were set out to the way we pay for adult social care, including a lifetime cap on care costs of £86,000 and more generous means test limits. These were supported by £5.4bn funding over the 3 years to 2024/25. But little or none of this was intended to address the funding related challenges within the existing system – high levels of unmet need, staff shortages and poor workforce pay and conditions, and a fragile provider market. The big question for adult social care in the Spending Review was: how much money would be available to stabilise and recover the current system.
Excluding the new funding for the cap and associated reforms, local authorities’ spending power (and the amount available for core social care services) is expected to increase by around 2% a year. With social care demographic pressures and rising care provider prices amounting to around 3.5% a year, the settlement is only enough to cover the future demand pressures if unspecified ‘efficiencies’ are made, or local authorities prioritise social care over other vital services. In fact, 3.5% a year may be on the low side as providers face additional costs from the rise in National Insurance contributions and the National Living Wage. Around 21% of care workers are paid the National Living Wage, so this increase will particularly affect care providers.
If funding is barely sufficient to meet future demand, it will not begin to tackle the other challenges. Meeting future demand, increasing the prices paid for care so that providers can raise quality and wages and increasing the number of care packages by 10% to make some inroads into unmet need, would require additional funding of around £7.6bn in 2022/23. This would rise to £9.0bn in 2024/25, over and above that provided for in the Spending Review, including by the levy.
The major new health care funding announcement in the Spending Review was an increase in the capital budget. Following a decade of underfunding of the NHS estate, DHSC capital expenditure rose during the COVID-19 pandemic. And government announced a further increase equating to 3.7% growth per year by the end of this parliament (2021/22–2024/25) in real terms. This will see capital expenditure in 2024/25 reach £10.5bn in today’s prices, in line with REAL Centre projections of what would be needed.
We estimate this would take UK health capital spending to a level similar to other OECD countries – assuming no large rises elsewhere. Capital investment plays a crucial role in delivering a safe, resilient and effective health care service; therefore, this is a level that should be sustained rather than considered a short-term boost.
Much of this additional funding has been allocated for specific purposes, including diagnostic equipment to support clearing the elective care backlog. While welcome, this leaves less of the funding increase for things like routine maintenance and operations. With £4.9bn of the maintenance backlog classified as ‘significant’ or ‘high’ risk, it is vital for patient safety that hospitals have the funding to tackle the backlog.
The Spending Review delivered welcome additional investment in NHS capital and infrastructure. But this investment will not deliver better health care outcomes without sufficient staffing. Even before the pandemic, workforce shortages were the single largest challenge for the NHS in England, with registered nursing being the biggest area of shortfall. The pandemic has exacerbated these pressures and we estimate that clearing the NHS care backlog and delivering the 18-week waiting time standard by 2024/25 would require 4,400 more consultants and over 18,000 more nurses. In that context, the lack of both a comprehensive long-term workforce strategy and plans for additional funding for HEE are concerning.
Undergraduate university degree education is the most important long-term source of nurse supply. The UK ranks below both the EU14 and OECD averages when it comes to the number of nursing graduates relative to its population. The UK ratio is well below comparable countries such as Germany, Australia and the US. To address this, sustained real-terms increases in the HEE budget, at least in line with those for the NHS, will be a crucial first step. An update on the HEE budget for the coming year is urgently needed.
The public health grant has a key role to play in improving health by funding vital services, such as smoking cessation, drug and alcohol services, children's health services, as well as broader public health support across local authorities and the NHS.
The grant is paid to local authorities from the DHSC budget. Since 2015/16 there has been a 24% real-terms per capita cut in the value of the grant. For 2021/22, the allocation for the public health grant was £3.3bn.
This Spending Review committed to maintaining the public health grant in real terms until 2024/25. However, our previous analysis has shown that trends in the indicators of underlying need for services provided by the grant have remained similar to historical levels, or have increased and likely been exacerbated by the pandemic.
By taking into account trends in population growth, need and the cost of provision for elements of the public health grant, we have estimated that an additional £1.3bn a year in 2021/22 price terms is required by 2024/25. Over the next 3 years this implies an average real-terms growth in spend of 13% a year. Instead, there will be no real-terms growth.
There is good evidence that specific public health interventions can help to reduce health inequalities, many of which have been exacerbated by the pandemic. Opportunities to prevent the early deterioration of health are being missed, while the need for such interventions is increasing. Failure to invest in vital preventive services will mean health worsening further, widening health inequalities, and the costs of dealing with this poor health will be felt across society and the economy.
While the Spending Review saw welcome investment in public services, it is evident that some areas will face much greater funding challenges than others over the remainder of this parliament.
The big winner was the NHS, but despite this our estimates suggest that the funding planned may not be enough to recover NHS performance and fully clear the backlog of unmet care by the end of the parliament. The main challenge will be the NHS workforce, as without sufficient staff, funding will only go so far in the recovery of services. The lack of a workforce plan and commitments to increase HEE funding are therefore concerning and need to be addressed urgently.
Yet again, social care has lost out. Although the Spending Review made funding available for welcome reforms such as a cap and improved means-test – funding for the current system is barely enough to meet future demands, let alone address the challenges social care faces. These challenges include high levels of unmet need, poor workforce pay and conditions, and a fragile provider market.
The commitment to maintain the current level of the public health grant in real terms falls well short of what is required. The Spending Review has demonstrated that spend continues to be skewed towards health care and away from the wider funding that helps to maintain and improve people’s health. Alongside proper funding for public health, a coordinated cross-government strategy is now required to improve the nation’s health.