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Is the NHS really running out of money?

Let’s start at the start. Who decides what the NHS budget is and how it’s spent?

The NHS is state-owned, which mean it’s ultimately controlled and financed by whichever government is currently running the UK. They’ll almost certainly have put their rough financial plans for the NHS in their manifesto, to make sure they're endorsed by voters.

However, most of the specific day-to-day financial decisions, such as which medicines are available and how each illness is treated, are made by politically-independent government bodies. In England and Wales this takes the form of an organisation called the National Institute of Health Care and Excellence, or NICE. Scotland and Northern Ireland have multiple NHS authority (basically a committee which made medical decisions for that area).

We’ve actually done a whole separate article on NICE and how it makes decisions, which you can read all about here.

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Alright, hit me with some numbers. How much does the NHS actually spend each year?

A quick note before we start: the NHS budget year runs from the 6th April to 5th April (i.e. it follows the tax year). So from April 2017 to April 2018, NHS England spent £125 billion, NHS Scotland spend £13.2 billion, NHS Wales £7.3 billion and Northern Ireland £5 billion. Remember there’s a lot more people living in England than in the other countries, so the disparity between the regions isn’t as big as it seems. A more comparative way of looking at it is that if the NHS budget for each country was divvied up amongst its residents, each Englishperson would get £2,200 a year, each Scottish person £2,500, each Welshperson £2,300 and each Northern Irish person £2,700.

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What does that actually mean in terms of how much healthcare we all get?

Well, £150bn isn’t exactly pocket change, but whether it’s a lot for an all-inclusive healthcare service depends on how you look at it. As a proportion of all the money the government spends it’s a big chunk of money - it takes up 18 percent of the government budget, more than anything else apart from pensions (which take up 20 percent, FYI). That’s quite a lot more than the government spends on other important things like education (11 percent of the budget), defence (6 percent), and transport (4 percent).

But when you look at how expensive medical care is, the NHS budget looks less impressive. Treating a heart attack, for example, costs £2,390, which is already more than the English and Welsh per-person allocation noted above. Of course, not everybody in the UK has a heart attack each year. But most Brits do use the NHS at least once or twice a year in some way, even if just for a checkup with their GP or dentist. And of course the minority of people who are really quite unwell usually require multiple NHS treatments.

The end result is that the NHS gives out over 243 million treatments each year, which is the equivalent of 3.7 visits per UK resident. And if you divided the 2017/18 NHS budget equally amongst those 243 million visits, you’d end up with about £600 per treatment. At that figure, the NHS is making a loss every time they help someone who has fainted (cost: £620) or has asthma (£690), nevermind anyone who, say, needs surgery on a broken leg (£5,120) or their baby delivered (£2,790).

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Hmm, that doesn’t sound particularly financially sound...

Yeah, the NHS is currently overspending its budget. In fact, if nothing changes (i.e. it gets no more funding and/or doesn’t make any savings) it’s expected to be £30 billion over budget by 2020/21.

That shortfall is exacerbated by the fact that many experts think healthcare costs are going to keep going up. There’s several reasons for that. The first is that we’re all living much longer, which means there’s an increasing number of old people around. And the older you are, the more likely you are to fall ill and need the NHS. In fact, the average 85 year-old man incurs healthcare costs that are seven times larger than an average man in his late 30s.

On top of that, Britain is not a particularly healthy nation. More than three-fifths of Brits are overweight. Just under a third are ‘physically inactive’, which means they do less than 2 and a half hours of moderate exercise (e.g. brisk walking) a week. And lots of us consume things that aren’t good for us in high quantities - from fat to sugar to salt to alcohol and tobacco.

Then there’s the fact that acquiring new drugs and treatments is becoming increasingly expensive. (The NHS reckons its medicine bills are going up by 7 percent a year). Lots of people think that’s because the pharmaceutical companies, who create and sell these drugs, are greedily trying to inflate their profits. But there’s also a concern that it’s just becoming harder (and therefore more expensive) to discover new medicines, since over the last few centuries we’ve already found most of the easily-discoverable ones.

There's also the problem of NHS staffing and wages. Basically, the NHS is massively understaffed (NHS England alone needs over 100,000 extra workers) and has been heavily criticised for not compensating its staff fairly. Giving out pay rises and cutting back excessive hours would help the NHS attract the workforce it needs. But it would also make its wage bill much bigger.

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So why don’t we just spend more on the NHS?

Well, we can, in the sense that we can lobby our government (or vote in a new one) to spend more money on the NHS. And UK governments often do pledge to put more money into healthcare. But unless they say the NHS will receive unlimited funding, healthcare staff have to try to keep within the budget they have. And because there isn’t enough money to fund everything people want from it, trade offs have to be made.

Nobody really likes making trade-offs, because they imply you can only make something (or someone) better by making something (or someone) else worse. But they’re a pretty inevitable part of economics. If we as a society choose to spend more government money on the NHS, for example, we’ll have to pay for it in other areas.

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Like how?

For example, there’s a lot of talk at the moment about upping British taxes to get more money into the NHS. There are obvious benefits to this. The extra money could be spent getting more people treated faster, or perhaps we could give better pay and conditions to NHS staff so they’re less likely to quit or burn out. And there are some less obvious benefits too. If that extra NHS money made society as a whole healthier, then it might up the productivity of many would-be or had-been patients. That could translate to things like more people working and less people needing welfare. 

But increasing taxes has costs, too. If income tax is raised then British workers end up with less money to spend on happy hour cocktails or rent. Assuming the tax hike is applied to all incomes, less well-off people in particular might find that detrimental to their quality of life. Of course, the extra taxes could instead be put only on higher earners, but that risks breeding resentment (especially as members of this group are more likely to not use the NHS in favour of private healthcare) and/or encouraging people to use various legal and illegal methods of hiding the full extent of their wealth from the tax authorities. 

Other trade-offs would be thrown up if the government instead upped NHS funding by rejigging its budget (therefore choosing to spend less money on something like pensions or the military) or taking out more debt. Of course, none of this means NHS funding can’t - or shouldn’t be - increased. It just means we need to collectively decide what is most important to us and our economies and be aware that any decision made is likely to be debated, contested and disliked by at least some people, some of the time.

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