Select Committee on Health Minutes of Evidence



  Question 1: For 1998-99 health specific inflation rose by 3.9 per cent. This means that real terms spending adjusted by this measure increased by 1.6 per cent rather than the 2.3 per cent increase given by the alternative measure using the GDP deflator. If health specific inflation were to continue at about this rate, would this not mean a lower rate of real terms increase than the 5.8-6.2 per cent which you are usually projecting? (Using the NHS inflation index the likely rate of increase would be around 4 per cent so there would be a significant discrepancy between the two measures.)

  The two indicators are measuring different things and are therefore not directly comparable. NHS inflation is essentially an index of input prices. The RPI and GDP are a measure of output, ie factory gate prices. Our measure of NHS inflation makes no account of improvements in efficiency or improvements in process which would mean that the effective level of inflation in the NHS is lower. Real terms health spending has been calculated by use of the GDP deflator for many years.

  Question 2:  If you are expecting health specific inflation to rise at its previous rate of 2 to 3 per cent, does this not imply either a rather low rate of increase in the pay of nurses and other key health staff or a very optimistic forecast for efficiency gains in the NHS?

  No, in costing the proposals in the NHS Plan we have made reasonable assessments of pay and price pressures in the NHS. In any case, nurses pay awards and those of other key staff are set by independent pay review bodies.

  A new approach to efficiency was set out in the NHS Plan. In future efficiency targets for the NHS will not permit cost reductions at the expense of quality. The cost of providing care in trusts providing a quality service will become a benchmark for the whole NHS with all trusts expected to reach the level of the best over the next five years.

7.  Average EU Health Expenditure as a Percentage of GDP

  The Secretary of State was also asked about the average health expenditure in the EU as a proportion of GDP. He stated in reply that the Government's preferred measure was the simple mean of the percentage of all the individual countries. Using this measure, the EU average health expenditure is, as he stated, 8 per cent of GDP. This is the most appropriate measure because it gives equal weight to the decisions made by all the individual countries in the EU. If the average is weighted by GDP, more weight is given to the decisions made by the larger countries.

  My Secretary of State also stated that on one measure, EU average health spending was 7.6 per cent. Unfortunately the briefing given to the Secretary of State should have said that a figure of 7.8 per cent (rather than 7.6 per cent) for EU average health spending is produced if more consistent definitions of health spending were used across countries. For example, there is good reason to believe that health expenditures in some major EU countries are overstated relative to the UK because they include nursing home care which is excluded from the UK figure. ONS and OED statisticians are working on improving the comparability of the figures but a rough estimate is that using UK definitions an average of 0.5 per cent should be taken off the health share of at least five members of the EU: France, Germany, Finland, Denmark and The Netherlands. If this adjustment is made the average (arithmetic mean) EU health spending falls to 7.8 per cent. Details of this (and of the unadjusted 8.0 per cent calculation) are annexed.

  My Secretary of State's general point is that there are many ways in which the EU average can be calculated and some produce a figure above 8 per cent and some a lower figure. While we see it as important to work with the OECD to improve the comparisons, the Government's aim continues to be to raise total health expenditure to 8 per cent of GDP on current definitions

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Prepared 12 March 2001