How much should be spent on the NHS?

The spending review takes place on 26th June and calls to rethink the “ring fence” and the funding of the National Health Service are being heard frequently. If newspaper reports are to be believed, these calls are coming from government ministers.

Given the NHS’s special status, and the political risks associated with cuts, it is a risky debate, but one that is grounded in straightforward financial arithmetic.

That arithmetic is striking. If the Chancellor goes ahead with cuts for 2015-16 (the year this spending review covers), which broadly keep to the same trajectory we have seen over this parliament, then a set of departments—local government, justice, environment and business —will have seen cuts of around 30 per cent since 2010. It is worth dwelling on that fact. It means that for every £10 that the government was spending in these areas in 2010 it will be spending only £7 in 2015. These are dramatic cuts by any standard.

At the same time the health budget will not have fallen at all. Spending on international development will have risen by around 30 per cent. The bill for the NHS in England alone is £100bn. It is the protection afforded to health, not the big increase for international development, that affects what is available for other departments.

Another way to see this is to say that, in 2009-10, English NHS spending represented just over a quarter of total public service spending. On current plans it will account for nearly a third of public service spending by 2015-16. That is a remarkable statement of priorities.

Given that further spending cuts are planned for at least the two years after 2015-16, continued protection of the NHS will see its share of the total rise further still.

So why not cut the NHS? This is not an option that has been eschewed in all parts of the UK. The Welsh assembly government cut spending on health in Wales and has been able to reduce cuts elsewhere.

On the other hand a real freeze on health spending is tougher than it may sound. We are in the middle of the tightest four-year period of spending control in the NHS in the last 50 years—there has been no four-year period since the 1950s in which health spending has not grown in real terms. Even with protection for the NHS, there will be a seven-year period of no spending growth. At the same time the population is ageing and cost pressures are increasing.

The NHS has been used to spending growth of around 4 per cent a year for the last 60 years or so; between 1997 and 2010 growth was over 6 per cent a year. Voters and politicians always seem to favour health spending, increasing it faster than other kinds of spending in the upswing and providing relative protection in the downswing.

Even so there are already signs that some creative accounting may end up being used to create some flexibility in the ring fence. The Chancellor has announced an effective increase in national insurance contributions for public sector employers from 2016. That will cost the NHS almost £1bn if there is no compensation. There are suggestions that social care could be brought within the health service budget. The government has committed to (partially) implementing the “Dilnot reforms” to social care but has not identified where the money will come from. There is certainly merit in dismantling the barriers that exist between the health and social care systems. These barriers create problems at the moment. It would be a shame though if a rational reform were to become mired in claim and counterclaim about whether or not it implied the breaking of a specific spending promise.

What we need is a much clearer sense of what we want from our healthcare system, how much we want to spend on it, and whether and to what extent we are willing to sacrifice other public services to maintain it.

That debate will be important not just for the next few years but over the next several decades. For an ageing population ensures that the pressures on health spending, and on that other sacrosanct element of public provision, pensioner benefits, will continue to increase. It is no exaggeration to suggest that the state is increasingly becoming an engine for transferring resources from those of working age to those of pension age.

That is, by the way, no bad role for government—it can effect redistribution between generations in a way that individuals and the private sector would struggle to achieve. But it is striking that in this difficult period it is these two areas of spending —the two focused on older people—which have been protected. It is perhaps even more striking that, on current policies, by the middle of this century half of all public spending is likely to go on just health and pensions.