Funding health and social care to the 2030s

May 24, 2018

The Institute for Fiscal Studies and the Health Foundation have undertaken research to look at funding health and social care to the 2030s and how much health spending would need to rise in order to provide the level of service it does today and how much it would need to modernise and improve for the future.

With the older population growing rapidly, along with the numbers suffering chronic health problems, and a growing pay and drugs bill, demands on the health service will only continue to grow.

Just to keep the NHS providing the level of service it does today will require spending to increase by an average 3.3% a year for the next 15 years – with slightly bigger increases in the short-run to address immediate funding problems. This would mean health spending rising faster than national income and would take health spending from 7.3% of national income today to 8.9% of national income by 2033-34.

The report's authors say that it looks like a formidable increase, but would imply annual spending increases below their long-run average. This would come after eight years of the tightest spending settlements in the NHS’s history.

To secure some modest improvements in NHS services, the report says that funding increases of nearer 4% a year would be required over the medium term, with 5% annual increases in the short-run. This would allow some immediate catch-up, enable waiting time targets to be met, and tackle some of the under-funding in mental health services. This would take spending in 2033-34 to 9.9% of national income, an increase of 2.6% of national income relative to 2018-19.

At the same time, pressures on social care spending are increasing and, if we continue with something like the current funding arrangements, adult social care spending is likely to have to rise by 3.9% a year over the next 15 years taking an extra 0.4% of national income, relative to today.

Put these figures together and health and social care spending is likely to have to rise by 2-3% of national income over the next 15 years.

These findings in Securing the future: funding health and social care to the 2030s are the result of careful ‘bottom-up’ modelling of supply and demand factors in the health and social care sectors including demographic change, population health and cost data. The research was carried out by researchers from the Health Foundation and the Institute for Fiscal Studies, in association with the NHS Confederation.

This work uses a different approach from the more usual ‘top-down’ methods for forecasting spending. It builds up spending needs from detailed models of demographic change, population health and cost data.

To meet these pressures would almost certainly require an increase in taxes. In that sense, the future may look different from the past. Government spending on health rose from 3% of national income in the 1950s to 5% by the year 2000 and over 7% today without the need to increase overall public spending, or the overall tax burden, as a share of national income. That was possible because of sharp cuts in spending on other services, particularly defence. The report's authors say that it is very hard to see how higher health spending in the future could be financed by big cuts to other areas of public spending, especially after eight years of austerity.

Funding these projected increases in health spending through the tax system would require taxes to rise by between 1.6% and 2.6% of GDP – that’s between £34bn and £56bn in present-day terms, equivalent to between £1,200 and £2,000 per household (out of projected net income growth of about £8,500 per household)Any such increases would, of course, need to be phased in gradually over the next 15 years.

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