Is the UK’s healthcare spending drop sustainable?

Market Access
UK healthcare

The UK’s health system has been under pressure to manage costs whilst still delivering a reliable service. Despite this, Ben Hargreaves finds that overall healthcare expenditure in the UK has fallen for the last two years due to a drop in government spending.

The UK is struggling with its healthcare expenditure. The challenge facing the country is how to make healthcare more efficient, but also ensure enough is being invested to ensure the quality does not suffer. As of 2023, the country spends 10.9% of its GDP on healthcare, more than double the percentage seen in 2000. However, greater spending on healthcare is not specific to the UK – government healthcare expenditure across many high-income countries has accelerated over the last few decades. The factors in common are similar across these nations: ageing populations, higher rates of chronic disease, and greater prevalence of public health issues, such as obesity.

Unlike a number of other nations, the UK’s NHS is a single-payer healthcare system. This offers unique advantages for the public, but also raises difficult questions about funding and sustainability. In a recent publication by the UK’s Office for National Statistics (ONS), it was revealed that total healthcare expenditure, which is comprised of the spending of the government, private individuals, and non-government entities, had decreased in 2023 by 1.4%, after adjusting for inflation. Given that 84% of respondents to a recent survey consider the NHS, a major component of healthcare expenditure, to have a major or severe funding problem, the figures warrant a deeper examination.

Cutting costs or cutting corners

The ONS report revealed top-line findings from its data showing that UK healthcare expenditure was approximately £292 billion in 2023, with government-financed healthcare expenditure representing around £239 billion of this figure. On the latter, this represented a real terms decrease of 2.1% in spending on the part of the government. Specific to the pharmaceutical industry, the data showed that total pharmaceutical spending was reduced by 16.6% in real terms, though this mainly reflects lower spending on COVID-19 vaccinations.

The UK’s healthcare expenditure in 2023 was noted to be the second consecutive year that had seen a fall, after a 4% decrease in 2022. A caveat was added that this real terms drop, adjusted for inflation, is estimated through a GDP deflator that uses general inflation as its marker, which may differ from the inflation seen with health-specific goods and services. In terms of healthcare expenditure as a share of GDP, the figure of 10.9% represents a reduction from 11.1% in 2022, though this is higher than the period (2009-2019) preceding the pandemic, where expenditure lay between 9.6% and 10%.

Overall, the ONS attributed the fall in healthcare expenditure in 2023 to have been caused by lower government spending, with non-government financing growing overall in real terms. In a statement on the publication of the figures, Avinash Hari Narayanan, clinical lead at London Medical Laboratory, said: “With real-term cuts in government funding, private health spending – particularly on preventative health products – looks increasingly sensible. The fact that consumers are spending money on preventative healthcare items such as vitamins, supplements, and off-the-shelf blood tests looks to be a prudent decision in the face of a reduction in government health spending as a share of GDP.”

The ONS noted that the figures released in its report are to be considered preliminary, due to being based on initial data taken from its sources and stated that the findings are subject “to a greater degree of uncertainty” than expenditure published between 1997 and 2022.

Counting pennies

The Institute for Fiscal Studies (IFS) released its report, just prior to the ONS’ figures, in which the research institute looked into how healthcare spending has changed over the last seven decades. The institute found that in real terms, over the course of the current parliament (2019-2024), UK government health spending has grown below the long-term average, with a figure of 2.4% against the average of 3.6%. In terms of budget, the Department of Health and Social (DHSC)’s grew by less than planned over this parliament, with ‘cash top-ups’ insufficient to offset the effects of higher inflation.

The Conservative Party’s initial plans at the 2019 general election were for a rise in the day-to-day budget of 3.3% per year in real terms. The IFS noted that the party’s current plans would imply an average growth of 2.7% per year between 2019 and 2025.

Further, the institute outlined that capital spending in 2023-2024 had been ‘raided’ to fund day-to-day healthcare services. Capital spending represents approximately 5% of total government healthcare expenditure and is the budget responsible for investment in fixed assets, such as hospital buildings and medical equipment. By the government’s spending control framework, this budget should not be available to finance day-to-day budgets. However, the IFS found that almost £1 billion had been transferred from the capital to the resource budget to meet in-year spending pressures.

In a broader analysis, the institute found that capital expenditure in the UK is below the average for advanced economies. As a result, it noted that the country’s capital spending has been “insufficient to maintain the quality of the physical NHS estate,” increasing the estimated maintenance backlog. To carry out repairs and replacements, the cost of the backlog of work required has more than doubled between 2013-2014 (£5.4 billion) and 2022-2023 (£12.5 billion).

Playing politics

In reaction to the financial pressures placed on healthcare spending, particularly in relation to the NHS, the IFS concluded: “In the face of demographic and other cost pressures, spending will need to rise just for the service to stand still. And even standing still would leave the NHS performing considerably worse than it was pre-pandemic, despite some recent progress in cutting the overall waiting list.

“The NHS workforce plan – which both the Conservative and Labour parties have committed to – is, in effect, a recognition of this, and implies substantial real terms funding increases over time. Such increases though will inevitably force hard fiscal decisions to be made elsewhere – decisions that all political parties are keen to postpone until after the general election.”

As the date of the UK general election nears, the parties will face increased pressure from all angles to deliver increased spending on healthcare. According to Ipsos, 61% of UK citizens would support higher taxes if it meant more funding was provided to the NHS. While the pharma industry is calling for greater public spending on R&D in the country and more funding for new therapies. Until the election is held, there will remain uncertainty over the direction of spending on healthcare, though it is likely to be a major talking point in the debate leading up to election day.