Cost pressures on the NHS will only grow It needs a long term funding solution, and that is likely to mean substantial tax rise

With the older population growing rapidly, along with the numbers suffering chronic health problems, and a growing pay and drugs bill, demands on the health service will only continue to grow.

Just to keep the NHS providing the level of service it does today will require us to increase spending by an average 3.3% a year for the next 15 years – with slightly bigger increases in the short run to address immediate funding problems. This would mean health spending rising faster than national income and would take health spending from 7.3% of national income today to 8.9% of national income by 2033/34.

That looks like a formidable increase, but would imply annual spending increases below their long-run average. And this would come after eight years of the tightest spending settlements in the NHS’s history.

To secure some modest improvements in NHS services, funding increases of nearer 4% a year would be required over the medium term, with 5% annual increases in the short run. This would allow some immediate catch-up, enable waiting time targets to be met, and tackle some of the underfunding in mental health services. This would take spending in 2033/34 to 9.9% of national income, an increase of 2.6% of national income relative to 2018/19.

At the same time, pressures on social care spending are increasing and, if we continue with something like the current funding arrangements, adult social care spending is likely to have to rise by 3.9% a year over the next 15 years taking an extra 0.4% of national income, relative to today.

Put these figures together and health and social care spending is likely to have to rise by 2–3% of national income over the next 15 years.

These are the results of careful ‘bottom-up’ modelling of supply and demand factors in the health and social care sectors carried out by researchers from the Health Foundation and the Institute for Fiscal Studies, in association with the NHS Confederation. This work uses a different approach from the more usual ‘top-down’ methods for forecasting spending. It builds up spending needs from detailed models of demographic change, population health and cost data.

If we choose to meet these pressures, we would almost certainly need to increase taxes. In that sense the future may look different from the past. Government spending on health rose from 3% of national income in the 1950s to 5% by the year 2000 and over 7% today without us needing to increase overall public spending, or the overall tax burden, as a share of national income. That was possible because of sharp cuts in spending on other services, particularly defence. It is very hard to see how higher health spending in the future could be financed by big cuts to other areas of public spending, especially after eight years of austerity.

Funding these projected increases in health spending through the tax system would require taxes to rise by between 1.6 and 2.6% of GDP – that’s between £34 billion and £56bn in present-day terms, equivalent to between £1,200 and £2,000 per household (out of projected net income growth of about £8,500 per household). Any such increases would of course need to be phased in gradually over the next 15 years. 

Paul Johnson, Director of IFS and an author of the report, said: 'We are finally coming face to face with one of the biggest choices in a generation. If we are to have a health and social care system which meets our needs and aspirations, we will have to pay a lot more for it over the next 15 years. This time we won’t be able to rely on cutting spending elsewhere – we will have to pay more in tax. But it is a choice: higher taxes and a health and social care system which meets our expectations and improves over time, or taxes at current levels and a more constrained health service delivering less than we have become accustomed to.'

Anita Charlesworth, Director of Research and Economics at the Health Foundation and an author of the report, said: 'After eight years of austerity, the health service will need a sustained injection of funding just to get back on an even keel, let alone to modernise. The Prime Minister has committed to a long-term funding settlement for the NHS. Maintaining current provision and dealing with the backlog of funding problems will require NHS funding to grow by around 4% a year for the next five years. Meaningful progress on waiting times, staffing shortages and mental health will need growth of around 5% a year over that period. Much less than growth of 4% a year and the NHS will be able to do little more than tread water. It will struggle to fulfil Nye Bevan’s vision of 70 years ago.'

Niall Dickson, Chief Executive of the NHS Confederation, said: 'This objective and independent report makes clear that the next 15 years are going to be even more challenging than the last. Unless we tackle the funding issue, and build up the workforce, we will see further strain on NHS finances and services.  Yes, there are more efficiencies to be made and our services need to be much better at supporting people in the community, but if we want a high quality NHS and care system we will have to pay for it.'

Media contact

Susannah McIntyre
susannah.mcintyre@health.org.uk
020 7257 4658