We should stick to the principle of the NHS being paid for by taxation, but this is likely to mean it is going to have to become much more cost effective.
Most people agree that the upcoming 10-year plan should continue to work within the basic NHS funding principle that we provide “equal access for all, free at the point of need, paid for out of general taxation”. I strongly agree and it’s the implications of the last part of that principle – paid for out of general taxation – that I want to work through this week.
Over recent weeks, when talking about a 10-year plan, people have been asking what its fiscal guidelines for implementation will be, especially given that we are only getting money from taxation. Of course, we don’t know how the economy will perform over the next decade but it’s important to work that through.
There are many health economists who argue that over an historical period it’s sort of inevitable that, as nations prosper, the public will demand that a higher and higher proportion of GDP be spent on health services. The human logic behind this argument is that as they become slightly better off, most people want to use some of that wealth on health services that will improve and prolong their lives.
The argument goes that in different national systems of health care – each having very different funding models – increased wealth leads to more expenditure on health services. And there is certainly a lot of historical evidence making that point.
And it’s not simply that, as wealth grows, the public want to spend more on health services. They want to spend a greater proportion of it. I remember – as a part of the New Labour Government of the early noughties – we expressed it not as just expecting a slice of a larger cake (the economy) being for health but expecting a larger slice of a larger cake.
To make the point even clearer, at the end of Thatcher’s reign there was a larger slice of that larger cake being spent on the NHS than when she was first elected.
The ‘inevitable’ logic of this argument begins to hit the buffers when, over time, the economy is not growing. In recent times (and in the immediate future) our flat-lining economy has not diminished NHS expectations that money spent on it should increase – even though GDP hasn’t increased to pay for it.
This is arguing for a larger slice of the existing cake.
But to return to our anticipated 10-year NHS plan, when looking at the economy for the next ten years what do the figures tell us?
Let’s take a more optimistic view than that expressed in Jeremy Hunt’s autumn statement and the Office for Budget Responsibility’s supporting papers (in fact why not be completely euphoric in our hopes?).
Let’s suggest that over the next 10 years of the NHS plan, the British economy grows by 1.5% a year. Over the decade that will add up to an overall growth of 16.05% (through the magic of compound interest!).
If we continue with the assumption that an expectation of greater prosperity would lead to the public wanting to spend a slightly higher percentage of their increased wealth on health services – say 20%. (I find that optimistic but let’s go with it for now).
Under these assumptions NHS expenditure would increase by about 2.0% per year for the decade. (But be aware that my optimistic figures mean that this is less than the post-war growth average).
That’s the theoretical growth for the next 10 years based on the idea of prosperity, human growth and wishes to spend more on health services.
But let’s return to the founding NHS principle that this money will come from taxation. Here, over the next few years, there is a serious problem that emerges for the historical idea that greater prosperity leads to the public wanting to spend more money on health services.
Yes, perhaps the population of a Britain that is 16% more prosperous in 10 years from now will want to spend more money on health. But given that the NHS operationalises this through taxation, will they want to pay more tax to make that happen?
As things stand with current tax plans, halfway through that 10 years the population will be paying a higher proportion of their income in taxes than at any time since the Second World War. Are they really likely to say, “We want our taxes raised so we can spend more on the NHS.”?
Some may want to spend a proportion of that 16%increased prosperity on private health care but will they want to pay even more tax?
People know that taxation pays for the NHS. But do they trust the relationship between more money being taken from them in taxation and some of that money going into the health service?
I think probably not.
The reality of the current public experience about taxation comes from, a) the fact that within a couple of years the UK tax burden on the public will be higher than at any time since World War 2 (this is a serious record) and, b) the services that people are getting from that tax burden are threadbare. This leads to a lack of trust and a disjuncture between the two events – paying more tax and getting better services.
If tax rates stay the same and GDP increases then it’s true that there will be more money going into the NHS (the same sized slice of a bigger cake). But if there continues to be hesitancy about paying more tax, there will not be a bigger slice of that bigger cake.
Realistically then I don’t think the ten-year NHS plan would be wise to depend upon much more than that 2% increase a year.
To take the example of the long-term workforce plan (the one that in the mid-2030s plans for 1 in 11 members of the national workforce will be working for the NHS) – will there be enough money in this increase to pay for all of those staff?
I don’t think that if we hold everything else the same and just pay for more staff, the extra 2% will be enough. Does that mean that we are embarked on a large national training programme that will not be able to employ everyone that comes out of it?
(Remember last week’s blog pointed out that there has been a 20% increase in the numbers of nurses and doctors employed in just 4 years – from 2019 to 2023 – and output has not gone up).
We will be able to employ them all but only if the NHS can also somehow organise spending the money on much better productivity. If we simply add these extra staff to the current payroll, the numbers I have worked through above show that we won’t be able to pay for them.
We have to change the way things are done so that we get larger amounts of value for only a bit more money.