ANNEX
B
SUPPLEMENTARY QUESTIONS—INFLATION
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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