Three questions the Government needs to answer about NHS funding

1. How much more money is needed?

The NHS needs more money. While attention is rightly paid to how the system can be made more efficient, investment in public health and the transformative potential of new technology, none of this will be enough to close the growing funding gap. Funding has continued to grow over the last 10 years but it has been at the slowest rate in the NHS’s 70-year history – and has been significantly outstripped by rising demand on services.

So how much is needed? There is no single right answer but various experts have come to similar conclusions. The Institute for Fiscal Studies and the Health Foundation calculate that an average annual funding increase of 3.3% over the next 15 years, but frontloaded so that the next five years see 3.9% increases, will be enough to maintain existing standards. This is broadly in line with the figures suggested by the Lord Darzi Review of Health and Care, as well as the average annual growth of 3.7% that the NHS has received since 1948.

The Telegraph suggests that the Prime Minister will announce annual increases of 3–4%, but if she wants to get a warm reception then the average annual increase will need to be close to 4%.

2. How should additional funds be raised?

There is far less agreement on where the additional funds should come from. Opinion polls suggest that a majority of the public support the principle of paying higher taxes to fund the NHS, but in practice the decision to raise taxes will probably not be so popular. 

To put this in perspective, a 4% increase in funding for the NHS is equivalent to around £4 billion extra each year (on top of growth in line with Gross Domestic Product) – roughly what would be raised from a 1p increase in the basic rate of income tax. But raising this much tax would only cover the 4% increase in NHS funding for one year. 

The Government’s inclination may be to muddle through. But unless there is a clear plan for how the additional money will be raised, it will have to come from cuts to other parts of public expenditure, where there is little low-hanging fruit left to pick, and it is likely that the funding settlement will prove unsustainable.

3. How can funding be provided consistently over time?

In recent years, governments have found themselves trapped in a cycle of short-term emergency cash injections. Yet, to plan effectively and unlock long-term efficiencies, the health services need funding consistency and certainty. How can the Prime Minister offer that to the NHS when there is so much uncertainty about her own future?

The Government mustn’t forget about social care

In all the celebrations around the NHS’s 70th birthday, we risk forgetting about social care. While significantly smaller than the NHS, it is arguably in a far worse financial position. It has seen real-term cuts to funding since 2010, which are now having a knock-on effect on the NHS (e.g. delayed transfers from health to social care). The interdependence of the two systems means that the adequacy of the Government’s answers to the above three questions for health can only be judged in the context of its answers for social care.

The Institute for Government will publish a report on 26 June which explains how the Government should answer these questions.