Health care funding

Three key questions about funding in England

The Department of Health and Social Care’s overall budget (known as DHSC TDEL) sets the limit on overall health funding in England. It is made up of revenue (RDEL) and capital (CDEL) funding. The 2024 Spring Budget set new funding plans for DHSC in 2024/25 an1.d updated the planned figures for 2023/24 following Supplementary Estimates in late February. Several outstanding issues, such as potential costs arising from any further industrial action and decisions on next year’s pay review body recommendations, mean the planned budget for 2024/25 could yet change.

The Spring Budget confirmed planned DHSC TDEL of £190bn in 2023/24 (cash terms). This is £2.8bn higher than announced at Autumn Statement 2023 following in-year transfers. The planned budget for 2024/25 is £192bn (a 1.4% increase). Adjusting for inflation, planned total health funding in 2024/25 will be £1bn higher in real terms than in 2023/24 (0.6%).

Most funding (around 86% in 2023/24) goes to NHS England to pay for the day-to-day running costs of the NHS, including for staff pay and medicines. Planned NHS England RDEL in cash terms is £163bn in 2023/24 (£165bn in real terms), up £2.1bn from planned funding in the Autumn Statement. The planned budget for 2024/25 is £164.9bn. This makes NHS RDEL essentially flat year-on-year in real terms (a small increase of 0.2%).

The remaining revenue funding covers a range of other programmes, including the cost of health care staff education and training (through Health Education England) and local government public health services (through the public health grant). Planned funding for these other areas is £15.3bn in 2023/24 (£15.4bn in real terms), up £1.8bn compared with that announced at the Autumn Statement. Planned funding for 2024/25 is £14.7bn, a 4.7% real-terms decrease).

Capital funding is used to finance long-term investments such as buildings and medical equipment. The planned capital budget for health is £11bn in 2023/24 (£11.1bn in real terms), up from £9.9bn in 2022/23 (£10.6bn in real terms), a 4.3% real-terms increase. The 2023/24 capital budget is £1.1bn less than was announced in the Autumn Statement following in-year transfers to other budgets. On current plans the capital budget will rise to £12.6bn in 2024/25 (a 13.6% real-terms increase compared to 2023/24). £3.4bn in capital funding between 2025/26 and 2027/28 was also announced at Spring Budget 2024, for digital and technological transformation and to support an NHS productivity plan.

Figure 1 shows the actual and planned spend for total DHSC funding, as well as for NHS England and other health and capital budgets.

Total health funding (DHSC TDEL) will rise by an average of 3.6% per year in real terms between 2019/20 and 2023/24. Looking at the whole parliamentary term (2019/20 to 2024/25), under current plans, average real-terms growth in health funding will fall to 3.0% per year. This is below the pre-COVID long-term average in England of 3.8% (from 1979/80 to 2019/20).

In this section, we adjust the cash terms budget increase for a range of factors that influence the amount of health funding that is needed, including changes in:

• the size and age structure of the population
• the cost of providing health care services (including staff pay and the cost of drugs)
• productivity and efficiency in delivering health care services.

Figure 4 illustrates the impact of pressures arising from price increases and demographic change (the size and age profile of the population). It shows how growth in NHS England revenue spending is considerably reduced when adjusting for inflation and population size and age.

Based on the latest spending plans, the budget for NHS England’s day-to-day running costs (NHS RDEL) will rise by an average of 5.3% per year between 2013/14 and 2024/25. However, inflation accounts for more than half of this increase, so real-terms spending will have grown by only 2.6% per year. As noted above, the budget is relatively flat in real terms between 2023/24 and 2024/25, which is based on a forecast increase in the GDP deflator (a measure of all-economy inflation) of 0.8%. Over the coming year, considering ongoing industrial disputes, pay could yet be a source of major cost pressure in 2024/25, above the GDP deflator.

Health care use also typically increases with age. The ONS recently revised upwards its population estimates and the population of England is now projected to be 8% higher in 2024/25 than in 2013/14 (0.7% growth per year), with a rising share of the population above retirement age. Adjusting for population increases, spending per person in real terms rises by 1.9% per year between 2013/14 and 2024/25. Further adjusting for ageing in the population, it will rise by just 1.6% per year over the same period. Notably, the NHS England planned budget is decreasing by an average of 1.6% per year in real terms between 2022/23 and 2024/25, when adjusted for population size and ageing.

Total health spending increased rapidly during the first half of the current parliament (2019/20 to 2022/23), driven by spending pressures during the pandemic (eg, COVID-19 vaccinations) and after the pandemic subsided (eg, tackling long waiting lists for planned care), as well as a rising capital budget. Current plans are less generous, with funding growth over the parliament as a whole (2019/20 to 2024/25) set to fall below the long-term average. Despite an extra £2.5bn in proposed cash funding, the planned NHS England budget will have decreased by an average of 1.6% per year in real terms between 2022/23 and 2024/25, when adjusted for population size and ageing.

Just as the planned budget for 2023/24 was topped up in-year, these plans may yet be revisited, especially given the backdrop of ongoing NHS performance pressures and pay disputes. Further action on pay, either following a resolution of industrial action and/or upcoming pay review body recommendations, could see government review the overall funding allocation for health. Additional capital funding was announced from 2025/26 as part of a push to increase NHS productivity, but the experience in 2023/24 shows there remains the risk of money being shifted from capital budgets to meet day-to-day pressures.