Health care accounts for £1 in every £5 spent by the government – more than £150bn across the UK in 2019/20. Over the past decade of austerity, the NHS has been protected from the real-terms funding cuts other public services have seen. But its funding growth has been severely constrained, at just 1.4% per year since 2010 – less than half the long-run average, and just a fifth of the 6.5% it averaged the decade before. This growth rate is similar to that for health systems in other Western European nations over the same time period.

Decisions about the funding and management of health services are devolved to the different UK nations. The remainder of this long read focuses on the NHS in England, which is the responsibility of the Department of Health and Social Care (DHSC).

Between 2014/15 and 2019/20 total health spending will have grown at 2% a year on average, from £124bn to £137bn.

This period has seen NHS pay growth constrained, staffing shortages grow, waiting times rise markedly and NHS provider deficits escalate, as the cost of delivering care has outstripped funding for hospitals. As a result, funding has focused increasingly on day-to-day spending at the expense of wider investment in the NHS. 

NHS England’s budget accounts for £9 in every £10 of health spending – spent largely through local commissioners. In 2018, the government set out (and updated, alongside the NHS long term plan) the funding increase that NHS England would receive between 2018/19 and 2023/24. Allowing for the latest inflation estimates, NHS England’s budget is due to increase in real terms by £20.7bn – an average of 3.3% per year.

Within this funding, the NHS has ambitions for spending on mental health services to rise by £2.3bn over this period (4.6% per year) and primary and community health services by £4.5bn (3.8% per year). This represents a genuine increased focus on mental health and primary and community services. But there remain real challenges to ensuring that the NHS’s ability to spend this money well is not undermined by understaffing in these areas. 

Increasing funding for mental health, community and GP services at this faster rate means that, if the NHS is to live within this 3.3%, less money remains for growth in the funding for hospitals. If the NHS can’t moderate the rate of growth in acute demand, funding will need to be diverted back to hospitals or waiting times will increase.

However, the current funding settlement only applies to the NHS England budget. This excludes key areas of NHS spending, such as health visiting, training doctors and nurses, and the investment needed to build, equip and maintain hospitals, community and primary care facilities. The full DHSC budget remains the most accurate way to define health care spending, as it provides the full picture of resources available for patient care.

Whether the NHS will be able to start to transform care and outcomes over the coming years will depend to a large degree on spending on the areas of health that fall outside NHS England’s budget. If these budgets are not increased in real terms, total health spending will rise by an average of just 2.9% a year for the next 5 years. This is below the minimum level that Health Foundation and Institute for Fiscal Studies (IFS) analysis found is needed to maintain quality and access to care.

Education and training

Health Education England (HEE), the body responsible for the education and training of NHS staff, has a budget of £4.2bn for 2019/20. Without investing more into two key areas of need – current staff and the training pipeline of new staff – the NHS’s major staffing shortages will worsen (as outlined in our recent analysis with The King’s Fund and the Nuffield Trust).

Investing £900m in HEE’s budget would allow national investment in workforce development to return to previous levels. It would also provide financial support for student nurses to improve their retention and engagement.

In the 2019 Spending Round, the government announced an increase of 3.4% in HEE’s programme spending next year (2020/21). This included £150m for workforce development and £60m for priorities set out in the upcoming People Plan. This falls short of the money required, but reverses some of the cuts to the development budget in recent years.

Capital spending

In 2019/20, the government has allocated £7.1bn for capital investment in buildings, equipment and IT – spending vitally important to delivering high-quality patient care. As set out previously, the UK spends significantly less on health care capital than most other comparable countries as a share of GDP.

As a result, the value of total health care capital per health worker – an estimate of the resources available to staff to deliver care to patients – has fallen by 35% since 2000. In England, looking at NHS providers alone, capital per worker in NHS trusts reduced by 17% between 2010/11 and 2017/18.

In recent years, capital spending has been cut to meet pressures on day-to-day running costs, with 6 years of transfers from the capital budget to the revenue budget totalling more than £5bn. The result is a rising backlog of maintenance in NHS trusts valued at £6.6bn in 2018/19 – more than half of which are high or significant risk. This doesn’t include outdated or inadequate facilities in primary care.

The government recently announced an increase to the capital budget for 2019/20, including an additional £1bn for upgrade programmes and ‘tackling the most urgent infrastructure projects’, £0.85bn of spending on 20 hospital upgrades, £200m to improve diagnostic capacity and a Health Infrastructure Plan, albeit with no additional funding attached. However, there remains a lack of clarity about future budgets beyond 2020/21, and the lack of urgency around the scale of the issues is concerning. As capital projects are funded over multiple years, a long-term settlement is required to enable the NHS to plan projects effectively.

Despite this additional spending, we estimate that an extra £2.5bn is needed in 2019/20 to bring capital spending in England up to the average of comparable countries, growing to £3bn by 2023/24. We have assumed this would be phased in, as there may be challenges in a sudden jump to the OECD average.

Total DHSC budget

If the areas of health spending beyond NHS England’s budget do not grow over and above current plans and inflation in the next 4 years, total health spending in England will increase from £139bn in 2019/20 to £156bn in 2023/24 (including the additional money to cover pension costs). This would be a growth rate of just 2.9% per year – below the level required to maintain current standards of care. As growth in demand and cost outstrip funding, these standards are likely to deteriorate.

If the DHSC’s budget were to grow at 3.4% (the rate originally planned for NHS England in the 2018 government funding announcement), total health spending would rise to £159bn in 2023/24. This is roughly in line with estimates from our projections with the IFS of the funding levels required to maintain current standards of care, given the growing, ageing population and a rising burden of chronic disease. This would require an incoming government to commit to a further £3bn of health funding in 2023/24 over and above the current announcements on funding, both for day-to-day running costs and capital investment.

Investing in and modernising the health service would require growth of 4.1% a year, according to our projections with the IFS. This will require an incoming government to commit to at least a further £8bn of health funding in 2023/24 over and above the current announcements. This would allow the government to restore the balance between day-to-day spending and investment in the wider budget (including reinvesting at least £1bn in the public health grant) which would require a growth rate of 3.9% per year.

However, when combined with the past 5 years of slow growth, even this would equate to just 3.0% per year over the decade to 2023/24.

Adult social care

Local authorities are the main source of public funding for adult social care services. In recent years, an increasing share has also come from the NHS (from around 7% to around 12% in the past 4 years). About half of adult social care spending provides services for older people, such as help with everyday tasks at home or placements in care homes. The rest (52%) is spent on working-age adults: mainly long-term support for people with mental health conditions or learning disabilities.

These services are means tested and funded through a mixture of locally raised taxation and central government grant, with some users also contributing and a relatively large number of self-funders.

Public spending on adult social care is around £18bn. Funding for adult social care peaked in 2010/11, falling almost 2% per year from £18.7bn, until 2014/15. Funding has recovered in recent years, but the population is growing and ageing. This means the system is under greater pressure, with more people needing formal care and with reduced access to services. When adjusted for the size and age of the population, funding in 2018/19 is substantially lower than in 2010/11.

In the 2019 Spending Round the government announced an additional £1bn for adult social care in 2020/21. Of this, £500m is money that could be raised by councils increasing their adult social care precept, and the other £500m from a £1bn grant which is likely to be split evenly between children’s and adult’s social care. This is in line with our recommendation of providing an additional £1bn in 2020/21.

We have identified five priorities for government to make up for the lack of funding growth and provide greater protection against social care costs. Of these, the immediate priority is to stabilise the current social care system, including by boosting staff pay and improving access to services.

Addressing rising demand and matching NHS pay increases (where staff are generally paid more) would require total spending of £23.7bn in 2023/24. This is an increase of £4.1bn compared to the current projections of local authority adult social care spending power. Projected spending power represents an estimate of funding available to local authorities to spend on social care and assumes that adult social care services are protected.

Restoring access to 2010/11 levels of service and increasing pay would require total spending of £31.8bn by 2023/24: £12.2bn more than current spending power projections. 

More fundamental reform is also needed to make the funding system fairer and provide government protection against social care costs. Any credible option requires genuine government investment.

The cost of a Dilnot-style model depends on where you set the cap on spending. In the least generous scenario, it could be set at around £1.7bn in 2019/20, rising to £2.1bn by 2023/24 (a £78,000 cap). In the most generous scenario, where the state covers all costs of a person's eligible needs, it could start at £6.8bn in 2019/20, rising to £7.8bn in 2023/24.

The cost of implementing a Scottish-style model of free personal care could add around £4.4bn to spending in 2019/20, rising to £5bn by 2023/24 (see Table 5).

For more detail, see our long read on social care. 

These estimates are based on increasing the upper capital threshold from £23,250 to £125,000 and an individual contribution of up to £13,000 to annual living costs. They do not include extra costs needed to improve quality and access. In practice, there would be a lag in implementing a capped cost or any new funding model. Under a capped cost model, the costs would be low until significant numbers of individuals reach the cap.

Our major analysis with the IFS of health and social care pressures and funding needs concluded that the government cannot continue to rely on cutting spending elsewhere to accommodate growing health and social care pressures. The UK is currently a relatively low-taxed country – significantly below the EU-15 and G7 average.

The choice we face therefore remains: higher taxes for a health and social care system that improves to meet our changing needs, or tax remaining the same and a more constrained health service that delivers less.

If the government chooses to invest there are two clear priorities:

1. Invest in the wider health and care system outside of NHS England

This includes the public health grant, education and training and a comprehensive, long-term funding settlement for capital that is driven by the needs of patients and staff.

The current approach of looking separately at funding pots for NHS England and wider health care spending is deeply unhelpful and runs contrary to the approach used by governments in the past. The government should set out funding for the entire DHSC budget, and increase other budgets at least in line with NHS England’s, if it wants to maintain current standards of care, and by around 4% a year to make improvements.

2. Stabilise, improve and reform social care

First, the government needs to stabilise and improve the current system, which is on the edge of collapse – including boosting staff pay to alleviate problems around recruitment and retention, which may be exacerbated by Brexit.

Second, the government needs to improve access to publicly-funded care given that the cuts to local authority budgets have left many more people without the care they need.

But more fundamental reform is needed to make the funding system fairer and provide government protection against social care costs. There are choices about how the government does this including a Dilnot-style cap and free personal care.

• Closing the gap – Key areas for action on the health and care workforce (March 2019)
• Failing to capitalise – Capital spending in the NHS (March 2019)
• International comparisons of capital in health care: why is the UK falling behind? (October 2019)
• Investing in the NHS long term plan – Job done? (June 2019)
• Securing the future: funding health and social care to the 2030s (May 2019)
• What should be done to fix the crisis in social care? Five priorities for government (August 2019)