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The National Health Service Act establishing the NHS was passed in 1946, coming into effect on 5 July 1948. The founding principles of the service were that it should provide healthcare for everyone free at the point of use, with care provided on the basis of need rather than the ability to pay. These remain among the principles which “guide the NHS”, according to the ‘NHS constitution for England’, last updated by the government on 1 January 2021.

To ensure that these principles can be met, the NHS has, since its foundation, been funded principally out of general taxation and national insurance contributions. Patient charges for dentistry and some prescriptions were introduced by the Labour and Conservative governments in the early 1950s. However, these charges have typically remained a very minor source of funding. For example, in 2019/20, just 1.1% of the Department of Health and Social Care’s budget was sourced through such charges.

1. Provision and spending growth

In the first financial year after the NHS’s foundation, government expenditure on health services was £447mn. By 2019/20, the last financial year before the pandemic, this figure had reached £164bn.

A large portion of this increase reflects the fact that providing the same level of service is significantly more expensive now than when the NHS was founded. Wage growth and price inflation—corollaries of economic expansion in the post-war era—have increased input costs for the NHS. However, NHS spending has increased significantly even taking account of these factors. As illustrated in the chart below (drawing on data collated by the House of Commons Library), public spending on health as a share of the economy has more than doubled, from around 3.5% in 1949/50 to 7.3% in 2019/20, the last year before the full impact of the pandemic began to be felt. Health spending as a share of total public expenditure has likewise increased, from 9% in 1949/50 to 19% in 2019/20.

Figure 1. Government expenditure on health services (% GDP)

Figure 1. Government expenditure on health services (% GDP)

Charlotte Wickens of the King’s Fund suggests that this long-term rise in spending reflects a number of factors, including “a growing and ageing population, rising patient expectations and medical and technological advances”. Furthermore, the decision to allocate the proceeds of economic growth to “investment in our health system” is, Wickens suggests, something the UK has in common with other nations. OECD cross-country analysis supports this conclusion, suggesting that “generally, the richer a country is, the greater the share of their income devoted to health care”.

The NHS has responded to the increasing resources provided to it in recent decades by increasing the quantity and quality of healthcare services, according to Office for National Statistics (ONS) data. Since 1996 the ONS calculates that the growth of healthcare outputs (the number of individual healthcare activities performed) has outpaced the growth of inputs (labour, goods and services, and capital consumption) such that the NHS was 18% more productive by 2018. When adjusted to reflect the increasing quality of said outputs this figure increases to 27%. (As explained by the ONS, the quality adjustment measure is designed to reflect how successful the service is in delivering intended outcomes and responding to user needs.)

2. Recent challenges

Following this sustained rise, NHS productivity began to decline gradually from 2018, before falling sharply during the pandemic. Quality-adjusted public service healthcare productivity was 26% lower in 2020/21 than the previous year, as inputs rose to support the pandemic response (for example, the creation of NHS Test and Trace and additional spending on personal protective equipment) and non-Covid related healthcare activities were delayed or cancelled.

Official data on productivity for more recent years is not available yet but the Financial Times reported on 30 May 2023 that, according to the various metrics, the NHS was struggling to recover to pre-pandemic productivity levels. For example, there were fewer emergency admissions, outpatient appointments and elective and maternity admissions in March 2023 compared to March 2019. Furthermore, despite staffing numbers having grown since the pandemic, the number of patients waiting per NHS worker has increased significantly. This has led to an intense debate on staffing levels. For example, the Royal College of Nursing and the British Medical Association have warned staffing levels are inadequate to meet patient demand and that patient safety is being put at risk. In a report on NHS workforce planning, the House of Commons Health and Social Care Committee has suggested that demand for healthcare is increasing so “relentlessly” that the NHS is facing “the greatest workforce crisis in [its] history”. In response to such pressures, the government committed to publishing a “comprehensive workforce plan” in 2023, which will “include independently-verified forecasts for the number of doctors, nurses and other professionals that will be needed in 5, 10 and 15 years’ time”.

These challenges have coincided with record levels of dissatisfaction with the NHS. The 2022 British social attitudes (BSA) survey suggested that only 29% of the population were satisfied with the NHS, with 51% dissatisfied. Respectively, these figures represent the lowest and highest levels recorded since the survey began in 1983.

3. Funding going forwards

The BSA survey suggests that there is wide public acceptance that the NHS faces funding challenges, but a lack of consensus on how to increase its funding. For example, it reports that 85% of people thought that the NHS had a “major” or “severe” funding problem. However, the proportion of people who said they would accept paying more tax (either through current taxes or a hypothecated NHS tax) if the NHS needed more money has fallen from 61% in 2017 to 43% in 2022. Over the same period the proportion of people saying they thought that the NHS instead needed to “live within its budget” rose from 15% to 28%.

Some have suggested that changing the NHS’s funding model will be necessary to ensure its financial sustainability. In January 2023, former health secretary Sajid Javid (Conservative) published an article arguing that the “75-year-old model of the NHS is unsustainable”. He suggested that with other competing priorities for public spending and the “tax burden already at a 70-year high […] the long-term answer to increasing demand for healthcare cannot always simply be more and more money”. He believed the introduction of a “contributary principle” to the NHS (charges to see a GP, for example) would be “crucial” to help the NHS “ration its finite supply more effectively” and secure its long-term future.

In contrast, Tim Gardner, senior policy fellow at the Health Foundation, said that debate about changing the NHS’s funding model was a “costly distraction” and that “there is no evidence voters want a radical change to the NHS model”. Gardner was responding to polling data, published by Ipsos alongside the Health Foundation, which suggested that:

  • 90% believe the NHS should be free at the point of delivery
  • 89% think the NHS should provide a comprehensive service available to everyone
  • 84% think the NHS should be funded primarily through taxation.

The focus, Gardner argued, should be on getting the current NHS model to “work better”. He suggested that the government needed to “produce a comprehensive plan, backed by sufficient investment” to get the NHS back on to a more sustainable footing.

During the summer 2022 Conservative leadership contest, the now prime minister, Rishi Sunak, proposed fining people for missing GP appointments, but decided in October 2022 not to take the policy forward. In January 2023 the prime minister made falling NHS waiting lists and quicker access to care one of his “five immediate priorities” for government. In the aftermath of this announcement, a spokesperson for the prime minister said he was “confident” that the NHS had “the funding it needs”, with additional resources for the NHS having been announced in the autumn statement in November 2022.

In a speech given to the King’s Fund in April 2023, shadow health secretary Wes Streeting criticised the government’s handling of the NHS and suggested that wide-ranging reforms were necessary if the NHS is to be “salvaged”. However, he also cautioned against the “obsession with simply pouring more money into hospitals”.

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Cover image by ar130405 on Pixabay.