Select Committee on Treasury Minutes of Evidence

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)
Non-NHS (Per cent GDP)
Total UK spend (Per cent GDP)

  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 spending—emboldened.

Figure 1.  Historic Series of Net UK NHS Real and Volume Spending

  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 2005-06—a 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 the elderly;

    —  Separation of standard setting role of the Department of Health from the delivery role of the NHS;

    —  Independent regulators to inspect and audit the NHS.


  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 years—spending 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 Budget 2002.


  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 NHS workforce).

  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 is:

How much confidence can be placed in the figures suggested by Wanless?

  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 results?

  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, GPs—noting reductions in waiting times—start to increase their rates of referral to hospital. More generally, supply and demand in health care is not independent—not 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 years—which 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 calculated?

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, given—as Wanless makes clear—the 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

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