Spending Review 2025: priorities for health, the NHS and social care in England

Since 2015/16, councils have had to cut spending on local public health services in line with reductions to the Department of Health and Social Care (DHSC) grant. Sexual health and obesity services have been particularly hard hit, seeing funding reductions of around 35% and 24% respectively over the period. Cuts have been greater in more deprived areas.

The government says it wants to build a ‘fairer Britain’ and that delivering this will require a new approach to the public health grant. This could be achieved by restoring the grant to a real-terms equivalent of 2015/16 per person levels and distributing it more equitably between local authorities based on relative need while ensuring no area experiences real-terms cuts. Based on economic assumptions from spring 2024 and the 2024/25 public health grant allocations, we estimate this would require an additional £3.6bn over the Spending Review period. By 2028/29, the total public health grant would be £5.1bn per year.

While some proposals in the Pathways to Work Green Paper aligned with the commission’s recommendations, including allowing people to try working without losing benefits in the short term, plans to reform eligibility for Personal Independence Payments (PIP) and the level of health-related Universal Credit will leave vulnerable people worse off, worsen health and make it harder for people with health conditions to move into work. 

Policy action to strengthen prevention

The government needs to do more to prevent ill health and stop acute need arising. Deteriorating health impacts a range of social and economic policy areas, including homelessness and employment. This will require concerted action across government departments and a determination to reverse the trend of diminishing proportions of public spending devoted to prevention. In the 5 years before the pandemic (2014–19), UK government spending on prevention (based on the Office for National Statistics (ONS) categorisation) fell by 2% in real terms, and the share of UK government health spending allocated to prevention activities fell from just over 5% to 4.5%. 

The Spending Review is an opportunity to make changes that promote action on prevention in two ways: firstly, tracking preventative public spending while shifting spend towards the most cost-effective interventions; and secondly, embedding a set of mechanisms to support cross-government working on health. 

Preventative spending 

The allocation of public spending is central to boosting prevention. A range of factors have meant past public spending frameworks have led to long-term underinvestment in prevention. These include siloed decision making, persistent short-termism and a lack of definition regarding what counts as prevention spending. These issues have been compounded by other political priorities taking precedence. 

Current fiscal frameworks do not distinguish between spending on acute services and prevention. Given the pressures on public finances, this risks prevention spending continuing to be squeezed. The Spending Review offers a chance to strengthen the fiscal framework by defining prevention spending and developing ways to track it across government departments, with a focus on cost-effective approaches that prevent more costly acute need arising in the first place. As an initial step, we recommend the Treasury establishes a review to make recommendations on how this could be done.

Such an approach could bring several benefits: it would better signal the importance of investment in prevention; enable departments to be held to account for spending on prevention; provide a baseline to track whether the balance of spending is shifting towards prevention; and strengthen the hand of budget holders to take a long-term view. But, ultimately, any technical changes in accounting rules would need to be matched with the political will to make long-term investments to improve the nation’s health.

Strengthening cross-government work on health 

The Labour government has made mission-based working central to its political project, with its health mission aiming to build ‘a fairer Britain, where everyone lives well for longer’.

The health mission needs DHSC to work with other Whitehall departments, local government, other public service organisations, the voluntary and community sector, and others. But we are concerned at the slow progress on the missions, which appear to have been sidelined, with attention focused on the most urgent issues facing the government. This risks repeating the short-termism that a mission-driven approach was designed to address. We believe three actions are needed to embed a long-term focus on improving health across government:

• introduce independent advice and accountability for national action on health, taking inspiration from the Climate Change Committee
• establish ambitious – but carefully calibrated – targets on health and health inequalities to focus decision making in the most impactful areas and to help track progress
• embed the importance of improving health and tackling health inequalities across all missions and government departments, with support, oversight and constructive challenge from the health mission board.

Funding planned workforce reforms

The government has proposed an adult social care negotiating body to improve terms and conditions for social care workers as part of the Employment Rights Bill. Workers in the sector are among the lowest paid and often experience insecure employment conditions.

The proposed negotiating body would be a significant intervention in the care market and the government should provide funding for any pay rises that are agreed. We modelled the cost of one possible option: paying social care workers at least the equivalent of NHS Agenda for Change Band 3 (shown in the top line in Figure 2). We estimate an extra £8.7bn could be needed by 2028/29 to do this, which includes our other assumptions for meeting demand, costs and improving access. 

There were 131,000 care vacancies in 2024 and increasing pay is associated with reduced leaver rates and a positive impact on the quality of care services. Conversely, unfunded pay increases bring risks, given that 66% of care providers have fewer than 20 employees and are unlikely to be able to absorb increased costs that arise from any future pay deal. Evidence from the introduction of the National Living Wage suggests some care providers offset rising costs by employing a greater proportion of staff on lower wages, impacting the quality of care.

Options for funding reform

The government has announced a commission to look into adult social care. The first phase will focus on developing recommendations to improve quality and productivity in social care and supporting the government’s targets for NHS access. The government has made clear that these initial recommendations must align with funding allocated in the Spending Review. This is therefore an important opportunity to provide a down payment for reform as well as stabilise the system as we describe above.

The commission’s second phase will include a focus on ‘how to deliver a fair and affordable adult social care system’. In 2023, the previous government estimated that 1 in 7 people aged 65 or older will face lifetime care costs of over £100,000 (2021/22 prices). Currently, people have no way of predicting whether they will need high levels of social care nor protecting themselves against the costs. Only people with the lowest levels of wealth (under £14,250) have their social care paid for in full by the state, and those with over £23,250 must pay for their own care. The government has a fundamental role to play in providing people with protection against social care costs by pooling risk across the population.

In 2024, we estimated the costs of three options to reform social care funding, assuming implementation from 2025. These estimates, in 2024/25 prices, found the following: 

• Providing basic protection for all against some care costs with a Scottish-style model of ‘free personal care’ in England would cost around £6bn extra in 2026/27, rising to £7bn by 2035/36.
• Protecting people with the greatest lifetime care needs against catastrophic costs by introducing a Dilnot-style ‘cap’ set at £86,000 for individual care costs and raising the floor for means-tested support to £100,000 would cost an additional £500m in 2026/27, rising to around £3.5bn more by 2035/36.
• Introducing an NHS-style model of universal and comprehensive care would cost around £17bn in additional funding by 2035/36. 

Any expansion of access to public funding will require increased investment. The Spending Review presents an opportunity to earmark spending for future reform of social care sector funding.

Figure 3 shows the impact of the COVID-19 pandemic on productivity and possible implications for funding until 2028/29:

• The ‘sustained improvement’ line shows the day-to-day funding that we originally estimated would be needed for sustained improvement in the NHS (NHS England Resource Departmental Expenditure Limits (RDEL)) to 2028/29.
• ‘Observed productivity’ shows the funding needed taking into account the productivity shock resulting from the pandemic. This uses ONS productivity data to 2022/23 (the most recent year available). The productivity shock markedly increases the amount of funding needed to provide the same level of service in 2020/21 compared with our original estimate. This is because a less productive health system requires more resources to deliver the same amount of activity.
• ‘1%/2% productivity assumption’ represent estimates for two alternative funding trajectories for the following years of the Spending Review. These are based on the NHS achieving either annual productivity increases of 1% or 2% from 2023/24 onwards, respectively.
• ‘Spring Statement funding’ is the actual funding allocated to the NHS at the 2025 Spring Statement (which updated the Autumn Budget allocation).

Figure 3 shows that the funding the NHS received in 2024/25 and 2025/26 is in line with what would be needed for sustained improvement of the health care system after accounting for the recent productivity shock. But it also shows that this rate of funding growth would have to be maintained until the end of the Spending Review period. NHS funding between 2023/24 and 2025/26 grew by 2.6% per year in real terms. To achieve the level of funding required for sustained improvement of the health care system would require a similar increase (2.5%) from 2025/26 up to the end of the Spending Review period, assuming 1% productivity growth, or a 1.0% increase assuming 2% productivity growth. 

The rate of productivity improvement will make a significant difference to the funding needed over the Spending Review period. With 1% a year productivity growth, we project the NHS needs funding of £198bn by 2028/29. The NHS has been set a target of 2% productivity growth per year. If the NHS manages to achieve 2% growth from 2023/24, it would need £190bn by 2028/29.

Table 1 shows the implied annual funding growth and funding needed by 2028/29, based on 1% and 2% productivity growth assumptions.

These figures should be treated with caution for four reasons:

1. Our assumptions simplify reality by assuming productivity gains are consistent and linear; the ONS analysis of past NHS productivity shows that this is not the case.
2. The analysis is based on observed productivity, which only runs to 2022/23: we do not know what the ‘missing’ productivity trends look like between 2022/23 and 2024/25.
3. Consistent productivity growth over time has been below 1%. Between 1995/96 and 2018/19 (the last year completely unaffected by the pandemic), productivity grew by 0.6% per year and by only 0.28% between 2014/15 and the pandemic.
4. The pandemic is likely to have negatively affected population health and use of services in ways not captured by our original modelling, potentially increasing the gap between resources and need. 

Capital investment

The analysis above applies only to NHS day-to-day funding. For services to improve, sustained investment in capital will also be needed. The DHSC capital budget is planned to grow by £2.3bn, from £10.9bn in 2023/24 to £13.2bn in 2025/26. This is an average real-terms growth rate of 10% a year since 2023/24.

In our funding projections published last year, we estimated that capital would need to grow by 10.2% a year between 2024/25 and 2029/30 for sustained improvement in the NHS. Capital investment is needed to address the £14bn maintenance backlog; invest in technology, buildings and equipment to improve services; and, as part of the NHS’s legal obligations to meet net-zero targets, improve the environmental sustainability of the NHS estate. In the decade preceding the pandemic, the UK invested less in capital as a percentage of GDP than comparable countries. We estimated that this led to a cumulative spending shortfall of £33bn between 2010 and 2019 compared with the average capital spend in EU14 countries.

Digital technology is a key focus of this investment. Research commissioned by the Health Foundation (Box 3) estimates that £5bn of capital spending will be needed to enable the shift from analogue to digital in both the NHS and social care in England over the next 5 years. This is alongside £2.25bn of non-recurring revenue and £1.5bn of annual recurring revenue spending – both of which will be critical to implement technology and optimise its performance over time to maximise the benefits.

Workforce

NHS staff will be crucial to delivering productivity and service improvements by ensuring the resources available are used well. This will be easier if the workforce is more stable, experienced and skilled, which requires improved retention and lower sickness and burnout rates. Our experience funding improvement projects shows that provided with the right skills, tools and organisational support, NHS staff are a source of innovation and have a key role to play in boosting productivity, for example by improving patient flow through hospitals.

Adequate pay is an important contributor to a stable workforce. But the future trajectory of the wage bill, which will be driven by pay settlements and the size of the workforce, could increase funding pressures. The government rightly recognised that the low pay growth of the 2010s needed to be corrected and agreed pay settlements shortly after taking office.

In our funding projections we assumed that staff pay will need to increase to recover the ground lost relative to earnings in the wider economy since 2010. We estimate that returning the NHS pay deal to the 2010 equivalent for all-economy real-terms wage growth (actual and following Office for Budget Responsibility projections) would require a 1.8% real-terms annual average growth rate. Pay may need to increase faster than this in some cases if the NHS is to attract staff from other sectors.

A further increase in the number of some types of staff may be needed to meet demand and fulfil the government’s ambitions for more care outside hospitals. The NHS Long Term Workforce Plan estimated that staff numbers would need to increase from 1.5 million to 2.3–2.4 million by 2036/37. The workforce plan is due to be updated after the 10-Year Health Plan publishes this summer but any increase in staff numbers will need to be budgeted for in the next phase of the Spending Review. This funding will need to include not only the education and training costs for clinical staff but also the overall wage bill (which was excluded from the workforce plan’s cost estimates).