This time last year, the Institute for Fiscal Studies warned that the NHS would need an extra £20bn a year by 2020. A year later and NHS England is warning that the service will need an extra £30bn a year by 2020. Not to be outdone, the health regulator Monitor predicted a shortfall of somewhere between £28bn and £44bn over a similar period. Just to round things off, NHS England director of strategy Robert Harris told the Health Service Journal that the annual funding gap will be £60bn by 2025.
The stark truth is that ring-fencing the NHS and giving it inflation-linked funding increases was never going to be enough to keep it going. Health inflation has always run ahead of general inflation anyway, simply because drugs, equipment and, in normal years, staffing costs add up. Over the last ten years, health costs have run at around 1.5 percent above inflation.
With an ageing population, this will only get worse. Every year there are a few more old people and therefore a few more people with age-related illnesses and care requirements. This is not unique to the UK, of course. Almost all developed economies face similar demographic challenges. According to the IMF’s forecast, healthcare costs will take up an extra 3.3 percent of Britain’s GDP by 2030. This is about average for the G7 and for the advanced economies. Allowing for economic growth and for the inclusion of local authority heathcare spending, the IMF projections suggest that the predictions from Monitor and NHS England are heading in the right direction.
Adding to the costs are the knock-on effects of the cuts in other public services. Adult social care and elderly services have been cut and the charities that used to help the addicts and alcoholics have seen their funding reduced. Eventually, the sick, drug-addled and distressed simply turn up at A&E because they have nowhere else to go. As the Telegraph’s Mary Riddell put it:
An NHS designed for an age of quick cures and brief lives is now a makeshift refugee camp for elderly and chronically ill victims of the fight against austerity.
On top of this is the bill for the NHS restructure, already running at 15 percent more than was initially planned. The government says it will cost no more than £1.7bn but once the impact of the disruption and the inevitable performance dip is factored in, it will probably be closer to £4bn.
As NHS England’s report shows, the upshot of all this is that, slowly but surely, the NHS will start to run out of cash.
The plight of the NHS reflects that of the state as a whole. Even though its funding increases in line with inflation, if it continues on its current course, rising costs and demographic pressures mean that some of its services will collapse by the end of this decade.
Will the government stop up more cash for the NHS? Given that the next government will have to either tax, borrow or print another £25bn just to stop any more cuts, another £30bn for the NHS will be a big ask.
“This can’t go on” say the NHS chiefs. They are clearly right about that. David Nicholson says he wants to start a big conversation with the public about the future of healthcare provision. Not too big a one, though. If his estimates are right, both parties need to be telling us what they will do about this by the next election. After that, if nothing changes, things will just start to fall apart anyway.
Update: This diagram from Roy Lilley neatly illustrates the problem.