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Why the health of the NHS depends on growth and reform

The topic of extra funding for the NHS is one of the most important in British politics. Yet new research from the Centre for Policy Studies highlights the neglected importance of how that funding is spent - and how it is paid for.

This week, the IPPR and IFS have both called for higher taxes to fund the NHS, while the Spectator reports that the Government is planning to announce a multi-year funding settlement to mark its 70th anniversary – with the government divided both on the length of the settlement and whether the extra funding totals 3% a year or 4%.

It is undoubtedly true that as our population ages, the NHS will need extra funding. Yet CPS research shows that such extra spending has an alarming tendency to go hand in hand with greater waste. Analysis of ONS data shows that there is a strong correlation between increases in NHS funding and decreases in its productivity growth – meaning that the NHS tends to do less with more. 

This has alarming implications. If past performance is a guide, then all else being equal, the 4% settlement would leave spending more than 10% higher than the 3% by the end of the decade – but the corresponding increase in NHS output would be only 5%.

So while the Government’s plans to put the NHS’s funding on a secure footing are welcome, this needs to be accompanied by a full re-examination of its structures and systems – via the Royal Commission proposed by Lord Saatchi, the CPS’s Chairman. Such an independent, cross-party Commission would not only secure a greater consensus for reform, but would position the NHS to take full advantage of the technological revolution as called for by Alan Mak MP in his recent CPS paper on the NHS and technology.

The CPS analysis of ONS data – which is available in full here – highlights the vital importance of increasing NHS efficiency. If annual NHS productivity growth over the next 10 years were to run at the same level achieved in the best five years since 1995 (when records began), it would mean an increase in health service output of 73 per cent. The improvement in efficiency delivered would be the equivalent of:

  • 219,000 more nurses on our wards
  • 5.5 million more cancer treatments
  • 74,000 hip replacement procedures
These are only illustrations - similar increases would apply across every sector of the NHS’s activities, assuming the productivity gains were equally distributed.

However, if extra funding saw declining NHS productivity, matching the five worst years in recent decades, we would see an increase in NHS output of less than 20%.

Compared with the high productivity scenario, this would mean the equivalent of:

  • 159,000 fewer nurses
  • Four million fewer cancer treatments
  • 58,000 fewer hip operations
 
Again, such poorer outcomes would - on average - be replicated in every part of the NHS.

We also need to ensure, however, that any new funding for the NHS comes from a higher growth rate, not just taxpayers. With taxes at their highest share of our economy since 1981, we cannot ask hard pressed taxpayers to pay for this increase.

CPS analysis shows that if NHS spending rises at 3%, and growth continues on its current trajectory, the NHS will - by 2028/29 - cost every individual taxpayer an extra £883.77 a year – or £1767.54 for a dual income household.  

This is yet another reason why there is such an urgent need to raise the UK’s growth rate from current projections of 1.7% per year, and to avoid trapping ourselves into a future in which ever higher taxes, to pay for the health care of an ever olderpopulation, resulting in falling living standards at a time when cost of living is already a major issue.

Centre for Policy Studies - Friday 25th May 2018