Expenditure on the NHS during and after the Thatcher years: its growth and utilisation

Has government expenditure on the National Health and Personal Social Services increased significantly in real terms over the past decade? If so, where has this growth in expenditure been utilised? This paper investigates claims of real increases in expenditure by examining trends in total expenditure on the NHS between 1979 and 1992, and disaggregating these trends to concentrate on different sectors, the influence of changes in NHS personnel, the revenue/capital split and the geographical distribution of expenditure increases. The total cost of the UK NHS has increased from approximately £9.2 billion in 1978/79 to £37.4 billion in 1991/92. Adjusting this figure to account for general inflation shows a real increase of 50.4% over this period. This gives a reflection of the increased cost of the NHS to the economy. However, adjusting the increases to account for changes in NHS pay and prices shows a smaller increase, of about 22% over the period, an average annual increase of around 1.5%. As NHS costs are taken into account, this measures what the NHS is able to buy with the increased resources. Increases in expenditure have not been evenly distributed between different sectors. The smallest relative increases have been in the hospital sector, which have absorbed a decreasing proportion of overall NHS and PSS expenditure over the period. The relative restriction on hospital budgets during the 1980s contributes greatly to the public perception of a parsimoniously funded health service. Expenditure on community health services has increased by the greatest proportion over the period, but this is still a small, though increasing, proportion of overall expenditure. The family health services budget (which funds primary care) has remained relatively stable as a proportion of overall expenditure over the 1980s. This means that significant real increases have taken place. This is due largely to increases in general practitioner and other staffing. Between 1980 and 1991, the number of GPs increased by around 19%, with average list sizes decreasing from 2,247 to 1,918. In addition, GPs have increasingly employed nursing and other support staff. There has also been increasing expenditure on pharmaceutical services (the government’s net expenditure on pharmaceuticals has increased by around 47% over the period 1778-79 to 1991-92). Finally, expenditure on personal social services has increased at around the same rate as overall health and PSS expenditure. The NHS is a labour intensive service, and this means that changes in personnel have major expenditure implications. Over the period studied, numbers of whole-time equivalent medical (particularly senior medical) and nursing staff increased steadily, and these staff received significant real increases in salary levels. There were also increases in the number of professional and technical staff and administrative and managerial staff. Numbers of whole-time equivalent administrative and clerical staff increased from 105,430 in 1980 to 129,716 in 1990, i.e. by around 23%. There were, however, significant reductions in numbers of directly employed works professional, maintenance and ancillary staff, due to government policies of contracting out these services. The resource consequences of the apparent shift towards relatively high paid staff are substantial, and if these trends continue the overall wage bill for the NHS will continue to increase considerably even if staff numbers do not. The majority of NHS expenditure is current expenditure, primarily on salaries and wages, with capital expenditure representing around 5-6% of total NHS expenditure in England over this period. Geographical distribution of hospital and community health services expenditure has also changed relatively little, despite the implementation of the RAWP formula for HCHS in England and similar formulae subsequently and elsewhere in the UK. No attempt has yet been made to equalise primary care spending using a RAWP-type allocation formula. This is surprising given the government’s emphasis on the integration of primary and secondary care and the primacy given to the services managed by general practitioners. The ‘Waiting List Initiative’ and more recent government pledges in the ‘Patients’ Charter’ were aimed at reducing waiting times, particularly the number of long waits, with guarantees that no one should wait more than two years for a procedure. This goal has been achieved but, as ever, supply creates demand in the absence of agreed clinical practice guidelines and the number waiting have, as a consequence, grown to over one million. This policy concentrates on activity, which is an unsuitable goal and an unusable measure of success. In allocating resources to the NHS, as in all other policy areas, the appropriate target should be efficiency. Increasing activity, where this activity is often of unproven effectiveness is inefficient and inappropriate. The level of public expenditure devoted to the National Health Service is largely a political decision – the overall budget, as in all other departments, is determined by the political bargaining of the annual public expenditure round. The settlement for 1994-95 includes a real funding increase and meets the 1992 Conservative election pledge, provided the Treasury estimates of inflation are correct (which is rare!) However, to achieve efficiency in the NHS, expenditure increases must be directed to areas of proven cost-effectiveness. This goal would be assisted by publication of more detailed breakdowns of NHS expenditure increases and more economic evaluation of new and existing health care programmes. In future there will be increasing pressure on limited NHS resources due to demographic change and technological advance. The vague ways in which NHS expenditure is monitored and “value for money” determined will have to be replaced by more sophisticated monitoring of spending and the provision of cost effectiveness data to ensure society’s scarce health care resources are used effectively. There is evidence of considerable scope to improve the efficiency of resource allocation in the NHS and this may be best achieved by the ‘leverage’ of parsimonious funding.