Memorandum submitted by Mr John Appleby,
Director, Health Systems Programme, King's Fund
This note concerns issues about the funding
of the National Health Service raised by the Chancellor's 2002
Budget and the final report from Derek Wanless, Securing our
future health: Taking a long-term view.
This month's Budget has, in advance of this
summer's spending review, set out the Government's expenditure
plans for the NHS not just for the usual three years of the spending
review, but, unusually, for the next five years (2003-04 to 2007-08).
The Budget 2002 report sets out net NHS spending
for the UK plus total UK healthcare spending (NHS gross plus private
spend) as a percentage of GDP (see Table 1).
Table 1. Planned UK NHS Spending:
2002-03 to 2007-08
|Previous plans (NHS net £ billion)
|New provision (NHS net £ billion)||
|Gross UK NHS (Per cent GDP)||6.6
|Non-NHS (Per cent GDP)||1.2
|Total UK spend (Per cent GDP)||7.7
Figure 1 places these new spending plans in some historical
context and also shows the past and likely future real amounts
available to the NHS after adjusting for inflation specific to
the NHS (which tends to run at a slightly higher rate than the
GDP deflator used by HMT to present real changes in public spendingemboldened.
Figure 1. Historic Series of Net UK NHS Real and
These plans (2003-04 to 2007-08) represent a cash increase
in net UK NHS spend of 62 per cent, a real (ie GDP deflated) rise
of 43 per cent and a volume (ie NHS-specific inflation adjusted)
rise of 35 per cent. In other words, after taking account of the
inflationary pressures likely to face the NHS over the next five
years, just over half (56 per cent) of the cash it receives will
be available for expanding services.
From an international perspective, in terms of the proportion
of GDP spent on health care, planned spending on the NHS plus
private spending will take the UK to the same level as France
(but in 1998).
Personal Social Services in England
Budget 2002 also set out changes in spending plans for Personal
Social Services (PSS) in England in advance of this summer's spending
review for the years 2003-04 to 2005-06.
The new plans will raise PSS spending from £11.4 billion
this year to £14.6 billion in 2005-06a real average
rise of 6 per cent per year.
Reforming the NHS
The Chancellor also outlined a number of reforms for the
NHS which have been further elaborated by the Secretary of State
for Health. In summary, the reforms include:
Devolution of power to frontline NHS organisations;
New financial incentives to improve performance;
Increased choice for patients;
Improved standards of social services care for
Separation of standard setting role of the Department
of Health from the delivery role of the NHS;
Independent regulators to inspect and audit the
Derek Wanless's final report was very important in at least
two respects. First, it set out a suggested spending path for
the NHS for the next 20 yearsspending figures for the first
five years of which have been adopted by the Chancellor. Secondly,
it usefully brought together issues, data and funding models,
which bear on the fundamental question of how much should be spent
on health care.
However, the analysis carried out by Wanless and his team
raise a number of questions. First, in summary, the final report
from Wanless suggests that in order not only to meet increases
in demand arising from changed in demography, new medical technologies
and so on, but also to increase service quality (eg much reduced
waiting times), UK NHS spending needs to rise considerably.
Figure 2 shows three possible spending paths. Each adopts
slightly different assumptions about the future concerning the
population's health status, the impact of public health measures
and the health-seeking behaviour of the population.
Apart from its future spending suggestions, the Wanless report
also made a number of other recommendations concerning, for example,
possible new financial incentives and penalties to improve performance,
more rigorous independent audit of all health care spending, increasing
patient and public involvement in NHS decisions and so on. Many
of these suggestions have been adopted by the Secretary of State
for Health in his report, Delivering the NHS Plan: next steps
on investment, next steps on reform published subsequent to
As noted above, the Wanless report has proved to be of particular
importance in terms of informing NHS spending policy (and further,
in terms of its other recommendations, such as policy on public/patient
involvement, use of financial incentives and skill mix among the
However, on spending, as the report makes clear a number
of times, "The range of uncertainty is large and grows rapidly
the further ahead one looks." Given this, an obvious question
How much confidence can be placed in the figures suggested
As the report also notes at various points, "a particular
level of health spending does not guarantee a particular level
of health outcomes and outputs" (p 78). And moreover, "The
absence of a clear link between inputs and outputs underlines
the importance of using resources effectively, but also the difficulty
of drawing conclusions about resource implications from some of
these issues" (p 125).
What, therefore, was the conceptual model used to derive estimates
of funding required to meet the consequent needs and expectations
of the population?
A related question concerns the report's admission that we
have a poor understanding of the connections between, for instance,
activity and waiting lists/times.
How, therefore, were estimates made for the costs of reducing
waiting times (ultimately to a maximum of two weeks by 2022)?
The detailed modelling pertained to England; but the spending
projections to the UK as a whole. This was achieved using a simple
population factor adjustment. "This is a simple assumption
which is not based on an assessment of existing levels of provision
or health status, which vary across the UK" (p 71).
To what extent, from known information about health status
and provision, might alternative assumptions have effected the
A common problem in exercise such as that conducted by Wanless
is the existence of feedback in the system. So, for example, the
very act of reducing waiting through increased funding can feedback
to increased waiting as, for example, GPsnoting reductions
in waiting timesstart to increase their rates of referral
to hospital. More generally, supply and demand in health care
is not independentnot only is the need for health care
largely defined by clinical practitioners, but demand (ie what
health care resources are actually used) is even more heavily
determined by clinicians. Supplier induced demand (SID) is a feature
of all health care systems.
To what extent did the modelling carried out take account of
the "dynamic" nature of the health care system and the
existence of feedback?
Wanless recommends a period of "catching up"the
next five yearswhich the report states will require real
increase of around 7.3 per cent in funding a year compared with
later periods up to 2022 of "keeping up", requiring
lower increases of the order of 3 to 4 per cent a year.
On what basis were the higher figures for the first five years
How confident can we be that these are the maximum amounts
that the NHS can spend effectively and efficiently given capacity
constraints (on, for example, employing additional clinical staff)?
The Wanless exercise was carried out in a relatively open
way, with input from many non-governmental researchers, academics
and health policy institutions. However, as some of the questions
above indicate, it is not always easy to see how the final figures
were arrived at. This makes it difficult to critique the work
or form a view of the robustness of the figures. Therefore,
When will the full data set and models used to calculate future
NHS spending figures be made publicly available?
Wanless was set a task of suggesting future spending for
the NHS. However, given the key goal for the NHS is to improve
health and given evidence that health care is one factor in determining
health (education, standards of living etc all affect health),
If there is to be a future up date of the Wanless analysis,
will it tackle resources for the health system (ie all health
determinants) and not just health care?
With regard to Budget 2002 and changes in national insurance,
Will the changes in NI increase or decrease the progressivity
of the funding source for the NHS?
Wanless's recommendations about future social services spending
were for real growth of between 2 and 2.5 per cent over the next
five years. Although the Chancellor has promised real growth of
six per cent over the next three years, givenas Wanless
makes clearthe intimate connection between the NHS and
PSS and his recommendations for real increases in NHS spending
of the order of 7.3 per cent,
19 April 2002