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January 2007

NHS: Where's the money gone?

We've cut up the NHS cake to show where all the money has gone.

We asked for your help to try to find out how the extra NHS money has been spent. Billions of pounds have been invested since 1997 but where has the money gone? We received hundreds of emails from people who work in the health service and we followed up the leads which they gave us. You can listen again to our five special reports here. We were also helped by the King's Fund, which is an independent foundation specialising in research in health care. Chief Economist John Appleby agreed to help us cut up the NHS cake.

The 55 billion pound question by professor John Appleby, Chief Economist, The King's Fund

The traditional complaint - not least from the NHS itself - used to be that the health service was underfunded. For decades, compared with our European neighbours we spent less per head and less as a proportion of our wealth on health care. Successive governments countered this in part by replying that the NHS was a particularly efficient system and so did not need to spend as much as the French or the Germans

But all this changed in 2000 when Tony Blair committed his government to spend significantly more on the NHS; the goal was to match the average spend across the (old) European Union. And now, seven years later public plus private health spend across the UK is nudging close to 9.3% of GDP - a rise of over 2 percentage points. Indeed, since 2000, cash spend on the UK NHS alone has more than doubled - by around £55 billion.

The question now however is: what’s happened to all this money? Is the NHS a better health service? Is it carrying out more operations? And, crucially, is our health improving as a result?

Tracking the extra investment in the NHS through the system is not an easy task. But the first thing to note is that while a lot of money did flow in the front door, huge amounts flowed straight out the back door in the form of high pay and prices - in other words, inflation.

Typical of what’s happened to NHS spending across the UK is the detailed breakdown of the £19 billion cash increase in spending for the hospital and community health services part of the English NHS from 2004/5 to 2007/8.

Although risking some poor Marie-Antoinette and NHS ‘cuts’ puns, Today reporter Jon Manel produced this cake to illustrate what has happened to the £19 billion NHS cash increase.

NHS pie chart 1

Around 34% of this was swallowed up by increases in NHS staff pay. New pay deals - not only for GPs and Consultants, but all NHS employees - have been expensive (and the returns, in terms of better care, higher productivity somewhat elusive so far).

NHS Pie Chart II
And higher prices for the things the NHS buys has absorbed a further 5% of the cake.

On top of inflation, the NHS has also had to meet a number of cost pressures - paying for the consequences of implementing the EU working time directive for junior doctors, paying out on clinical negligence claims and so on. These add up to a further 30% of the £19 billion cake. So the actual amounts of cash left to invest in reducing waiting times and improving the quality of services is significantly less then the headline cash figures - figures which no doubt have in part driven our expectations of what the NHS would produce with its extra money.

Overall, just 31% of the £19 billion - £5.9 billion - is left to spend on developing services, improving the quality of care, meeting targets and so on.

NHS Pie Chart III

If we look at the resources used by the NHS - its staff, beds, equipment - this extra money has in fact bought quite a lot. The total NHS workforce in England, for example, has grown by a fifth between 2000 and 2005; consultant numbers by a quarter, nurses by 17%, GPs by 11%...and, oh yes, managers by a third.

But in a way, who cares about the numbers of extra staff, or beds, or equipment or hospitals? The real question is whether this investment - reduced as it is by inflation - is having a tangible impact on our health and the things we value about the process of receiving care - like waiting times.

Well, we know waiting times have reduced substantially. There may be some legitimate quibbles about the government’s waiting times statistics and the possible costs of achieving these reductions, but there is no doubt that patients generally wait much less time to get an outpatient appointment, or to see a clinician in casualty or get a bed in hospital.

And we also know that NHS activity has increased. Total hospital admissions have increased by 1.9 million between 2000 and 2005 - although nearly three-quarters of this has been emergency cases and not elective work.

But again, what has happened to the health of the nation? Have we, crudely, bought more health?

There is no simple answer to this question. Life expectancy has increased: a baby girl born today can expect to live nearly 10 months longer than one born in 2000. Cancer survival rates have also improved. But it is difficult to know what the NHS contribution to these improvements has been. More money for the NHS? Probably. But better standards of living, improvements in diets and other lifestyle changes all contribute too.
And some of the investment in the NHS - especially in preventative medicine - will take years before we see significant improvements in the population’s health.

Professor John Appleby
Chief Economist, King’s Fund

Graphic from the King's Fund
Read up on the details of the NHS files. 

Read some of your responses to Jon Manel's NHS reports.

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