Capital is a critical component of health care. It includes the buildings, machinery, equipment and IT that allow staff to deliver services. As technology continues to advance, capital investment can help transform services for patients and improve the productivity of staff.

With the Prime Minister’s promises in August and September 2019 to provide funding for new hospital buildings and improved facilities, funding for capital in the NHS is now in the spotlight. However, while the new money is much needed following years of underinvestment, the amount pledged falls well short of the scale of the challenge.

For the NHS in England, funding for capital is mostly allocated through the capital budget of the Department of Health and Social Care (DHSC). Following years of decline, since 2016/17 the capital budget for the DHSC in England has increased. The capital budget in England will be £7.1bn in 2019/20 and 2020/21 – over £2bn more than in 2016/17. This includes the funding announced by the government earlier this year

Our previous analysis found that the UK has had historically low levels of investment in capital compared to similar countries. This has been made worse in recent years by transfers from the capital budget to the revenue budget, which pays for the day-to-day running of the NHS. NHS Improvement has also noted that the capital spending by NHS trusts in England, as a share of revenue spending, is about half that of comparable countries. 

The falling value of health care capital in the UK

Our new analysis has found that between 2000 and 2017, the total value of capital in health care in the UK has fallen by 3%. Over this period, most other countries have seen significant increases in the value of their health care capital, driven by higher spending.

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This long read presents new analysis exploring these trends in full. It covers how the amount spent on health care capital has contributed to the total value of health care capital in the UK, as well as how this compares to other countries. 

It also raises questions about why the UK is lagging far behind other countries and concerns about the possible implications for staff and patients.

The UK spends significantly less on capital in health care as a share of GDP than comparable countries.

In 2017, the UK spent 0.31% of GDP on capital in health care, compared to 0.51% in similar countries. Aside from the few years between 2007 and 2009, the UK has been consistently below the average since 2000. This is true both of spending as a share of GDP and as a share of total health care spending.

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How much spending is needed to bring the UK up to the average?

We estimate that bringing the UK up to the average spending on health care capital as a share of GDP would require approximately £11.2bn in total annual spending. In England alone, this figure would be about £9.6bn. This would include all health care capital spending, including that outside the NHS. However, the overall trend is consistent with the capital budget of the DHSC, as it is the largest contributor to overall capital spending in health care. Closing this gap through the DHSC capital budget would take £2.5bn in additional capital spending this year (see note 1 below). 

Within overall health care capital spending, the UK also spends less on equipment and machinery, which includes spending on medical technology, as a share of its total capital spending. In 2017, the UK devoted just 36% of its total capital spending towards machinery and equipment, compared to 48% in other countries (see note 2 below).

While these data are for the UK as a whole, we expect the NHS in England to be the major driver behind these trends because it is by far the biggest contributor to UK health spending. This is also consistent with our previous work examining capital spending in NHS trusts in England.

So how do these trends in health care capital spending contribute to the total value of capital in health care in the UK?

The chart below shows the changes in the value of capital in health care across European countries between 2000 and 2017, revealing a 3% fall in the value of capital in the UK. Over this period in the UK there were three distinct trends. From 2000 to 2006, the value of health care capital was relatively flat, then from 2007 to 2010 it increased by 8%. This coincides with the large increase in capital spending shown in the previous chart. But since 2010, the value of health care capital has fallen by 11% which has coincided with the decline in health care capital spending.

The value of health care capital provides an estimate of the resources available to help staff deliver quality services efficiently to patients.

While health care is a service-intensive industry, capital also plays a crucial role in delivering care. A key measure of the capacity of the workforce is the capital to labour ratio. This presents an estimate of the resources available to each worker to deliver health services.

Since 2000, the UK has seen a large increase in the number of health care workers. This is consistent with a growing and ageing population leading to increased health care activity. Despite this increase there are major ongoing issues in the NHS workforce in England, with an estimated 100,000 vacancies in NHS trusts alone as demand for NHS services grows. Similarly, since 2000, most of the other countries analysed also had significant increases in the size of their health workforce.

We can combine the data on capital and the workforce to estimate the value of health care capital per health care worker across these countries (see note 1 below).

More capital per worker is generally viewed to be a positive contributor to productivity as staff can work more efficiently with more and newer facilities and equipment at their disposal. It influences the productivity of staff and contributes to both the total quantity and quality of health care that staff can deliver.

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The falling value of health care capital combined with an increase in health care workers means that capital per worker in the UK has fallen by 35% since 2000, a far greater fall than any other country. Of the countries analysed, most have increasing trends in capital per worker. As noted earlier, the health care workforce data is somewhat crude as it does not differentiate by type of worker. Some of this could be explained by differences in the composition of workforces between countries, for example more doctors and fewer support staff.

There were three periods with different trends in the UK. From 2000 to 2005, the UK had declining health care capital per health care worker, then from 2005 to 2010 the ratio stayed broadly flat. Since 2010 there has been another significant decline in capital per worker which is consistent with the UK’s relatively low spending on capital over this period (while the workforce continued to increase).

Using the broader definition of ‘health and social work’, the trends in capital per worker were similar – a large decline in capital per worker in the UK of 30%. The value of capital in health and social work increased over this period, though at a slower rate than the other countries.

Value of health care capital per health care worker

In the next chart, we examine the same data but in actual values rather than an index. It shows that in 2000, the UK was about average in terms of the value of health care capital per health care worker.

Since then, it has fallen to near the bottom of the ranking (together with France but higher than Greece), to just above half the average value of the countries analysed. It would take a nearly doubling of the value of capital to bring the UK up to the average value of health care capital per worker in these countries and over 50% more to bring capital per worker values back to their 2000 levels.

The data highlights some notable trends in the UK. To cope with increasing demand for health care, the UK has been expanding its workforce. The value of health care capital, however, has not increased, leaving each health care worker with significantly less capital to work with than previously. This trend is driven by the UK spending significantly less on health care capital as a share of GDP than other countries.

As we noted earlier, we expect most of this trend to be driven by the capital spending of the DHSC in England. At present, substantial increases in the DHSC’s capital budget following announcements of new funding are only for this year and next, and still represent far less than the average annual capital spending of other countries as a share of GDP. 

DHSC has outlined a vision for the NHS as a world leader in health technology, yet the UK is spending less on capital than most other countries and a lower proportion of its capital on machinery and equipment. As a result, the value of machinery and equipment per worker in health care in the UK lags far behind other countries – less than a fifth of the value in Austria.

While some of the differences could be driven by measurement differences or price levels between countries, this would not explain the declining values within the UK (see note 1 below). Also, data on specific medical technology (such as MRI and CT scanners) shows that the UK has far fewer of these items per capita than most comparable countries, indicating that these trends are not driven by price differences but rather, by the amount of capital.

Increasing capital per worker is not always a good thing – it is the type of capital per worker that matters. Increasing the amount of capital in health care will also require changes in the workforce. For example, becoming a world leader in health care technology requires substantial capital investment, but also investment in the workforce to build the capability to make use of the technology. There are also other costs to consider, such as the cost of preserving capital through maintenance.

While we have noted the limitations in international comparisons of capital in health care, they do provide enough evidence to support further debate about the level of capital and capital spending in the UK compared to other countries. For example, the age of NHS estates and equipment could explain some of the difference in the value of capital between the UK and other countries – buildings and equipment decline in value as they get older. The UK has a comparatively old health care estate. This in part reflects the country’s long history of health care provision, but also reflects long periods of relatively low investment in new facilities, with the associated consequences for patient care.

Where next?

Country-level trends do not necessarily suggest that the UK must raise its capital to levels of high-spending countries like Austria and Denmark. Nor do they give us the detail of where capital is lacking or where new funding should be allocated – for example, to primary care or hospitals.

Rather, they highlight the need for us to gain a better understanding of why there are differences between the UK and other countries and what the implications are for health care staff and the care that patients receive. While international comparisons can provide a useful guide to the shortfall in health care capital investment in the UK, spending decisions should be driven by a clear assessment of the needs of local health care systems.

Our previous research highlighted many of the problems with capital and capital funding in the UK. Years of underinvestment in capital have left the NHS in England with many issues, such as a rising maintenance backlog in NHS trusts, a lack of up-to-date medical equipment and scanners, and ageing estates and IT infrastructure.

Leaders in NHS trusts have highlighted the impact that the capital environment is having on staff productivity and morale, and the very real risks to patient care and safety. Much of this has been the result of underinvestment and a culture of short-termism – for example, the repeated raiding of the capital budget to fund front-line services.

These comparisons show that the UK is falling behind other countries on capital in health care. While recent funding announcements of additional capital spending for the NHS in England will provide welcome relief to the areas receiving funding, a long-term capital settlement is clearly required to address the wider problems. The capital budget must be considered alongside the revenue budget to ensure that staff have the right mix of resources they need to deliver the best quality care to patients.