Targeting Better Health

Compared to other domestic spending departments, the NHS has been protected from fiscal consolidation since 2010. Nevertheless, in historical terms the health budget has risen only slowly. Increases of around 1% in real terms per year (based on economy-wide inflation) compare to an average of around 4% per year since 1950. On a second measure – the proportion of GDP spent on healthcare – the UK’s spending is receding this decade. Social care has fared even worse in funding terms. Despite having world class quality in some areas of care, outcomes on some measures are poor relative to comparator countries and there are signs that the system is under strain.

Much commentary has focused on immediate funding shortages. However, the Autumn Statement was silent on healthcare funding, and the Prime Minister has directed NHS England to focus more intensely on the £22bn efficiencies that were set out in 2015. This decision shifts the focus to the more daunting medium- to long-term funding challenge, with the NHS facing future pressures from many sources including a growing population, older residents, new treatments and technologies that present fresh ways to improve health (and to spend money) and higher disposable incomes. Many of these changes are to be welcomed as they reflect and enable substantial health gains, extended lives, improve well-being and longer working lives, but they also drive up healthcare spending.

Given the UK’s economic and fiscal position, it is not plausible to demand a one-off surge in expenditure. However, we can realistically expect to set healthcare funding on a more sustainable trajectory for the long-term. This report describes how this could be done by introducing a healthcare funding target.

The report identifies potential benefits that could be achieved were the Government to introduce a long-term funding target. These include:

• ensuring that future spending levels better reflect the underlying cost changes in healthcare;
• instilling public confidence; providing greater license to commissioners to make strategic decisions; and,
• delivering greater certainty for investors in the UK’s health economy and life sciences.

The report assesses a number of potential approaches. It identifies particular benefits that would come from introducing a ‘Dual Target’ under which the Government would:

• Establish a long-term ‘NHS Funding Rule’ to increase healthcare spending levels by a minimum of the rate of GDP growth each year. Based on the OBR’s growth forecasts from November 2016, we estimate that this would increase health spending by an additional £7 billion by 2020/21. We envisage that this would be a rolling commitment, would act as an expenditure ‘floor’ rather than a ‘ceiling’ and would apply to spending across both health and social care.

• Set out a small number of ‘Priority Care Commitments’. These would comprise commitments to improve specific care outcomes over a five-year period, for instance in areas where the UK performs comparatively poorly, such as survival rates for cancer. The Government would be obliged to estimate the potential costs associated with meeting these goals at the outset of the period. Outcomes in these areas would then be reviewed annually, and the Government would be obligated to increase funding levels by the predetermined amount if necessary improvements on these objectives were not met after three years.

To provide accountability, the Government should ask the OBR to monitor healthcare spending to ensure that commitments are fulfilled. As the SMF has argued in a separate paper, the Government should also establish an Office for Patient Outcomes to oversee care outcomes and ensure that the necessary data is collected to track performance. We propose that the Dual Target should be enacted through legislation to establish a rolling commitment to ensure that healthcare funding is maintained on a sustainable course.