NHS at 70: Many happy returns or quite sickly?

The 5 July will mark the 70th anniversary of the founding of the NHS. This anniversary marks a good point at which to ask questions about how well the NHS been performing and whether the funding model is sustainable?

   29 May 2018

The 5 July will mark the 70th anniversary of the founding of the National Health Service (NHS). Seventy years of operation marks a good point at which to ask questions about  how well the NHS been performing and whether the funding model (one of relying largely on general taxation) is sustainable?

There are questions about healthcare which are particular to Northern Ireland- it is a devolved matter- but much of what can be said about the NHS at the UK level applies to Northern Ireland as well.

Is there really a problem? Life expectancy- up by 13 years in England since 1948- and other measures of health have improved. At the same time, many indicators imply there is a growing lag between the UK and many other countries [Note 1]. It might be argued that we should continue with the existing model (care mostly free at the point of use but funded out of general taxation) and give the NHS more money. The difficulty is just how much money might be necessary.

Across the UK the NHS now spends about £150bn each year. That’s about ten times more than 70 years ago after allowing for inflation: a real terms increase of 3.7% every year during 1948-2018. That growth rate may not seem high but it exceeded both the average growth of GDP and total public spending. If those trends continued over the next seventy years we could end up with the improbable result that almost all of UK public spending would be devoted to healthcare.

What are the options for addressing the ever increasing demand for cash?

There may be some scope to increase the productivity of the existing resources devoted to healthcare, but without some massive and unforeseeable technological breakthrough, the scope for this remains limited. [Note 2]. If the political decision is made to increase funding how could that be achieved?

(1.) Higher taxes/Health Tax

This proposal is to ring-fence (“hypothecate”) part of either Income Tax or National Insurance Contributions to the NHS [Note 3]. This could work in the short to medium term but would the electorate be prepared to commit to a 3% to 4% real terms annual increase year after year for decades to come?

(2.) Social insurance/Continental European model

We would all take out health insurance (compulsion necessary to avoid “free riders”). Those who could not afford the contributions would have them topped-up by the state. There could also be employer contributions. The insurance companies would not be allowed to select customers according to risk but as purchasers of health services they might act as a constraint against cost increase in the health sector. The jury may still be out on how well such cost constraint might work.

(3.) Private insurance/traditional American model

The US might be thought to exemplify private insurance though for many decades there has been some state intervention in the market- most recently Obamacare (which may, or may not, be replaced by “Trump care”). The conventional wisdom on this side of the Atlantic is that the US system is unacceptable because people are allowed to die if they have no insurance form or credit care in their pocket. That may be an exaggeration but some American middle income earners may suffer from the fear “I cannot afford to be sick”[Note 4]. Ironically, some economists criticise the US system given that it may have led to too many resources being devoted to healthcare- about 17% of GDP compared to about 10% on average across Europe.

The debate we need to have

There are no easy answers but it is reasonable to ask for an open and honest debate about the NHS. That debate should recognise:

(i.) Healthcare is less resourced in the UK compared to many European countries: total spend (including private care) about 9.8% of GDP compared to about 11% in France, Germany and Sweden.

(ii.) Increased longevity and the ability to treat an ever increasing range of conditions are great blessings but they come at a cost which has to be financed.

(iii.) It is a National Health Service and not a National Hospital Service. Even more emphasis on preventative and primary care would make sense at a number of levels. All of us have our own personal responsibility to behave in a way that promotes our health.

(iv.) The NHS mission that no one should be excluded from care because of poverty continues to be a civilized one but it is surely not unreasonable to consider other options for funding, especially the European models of social insurance.

(v.) Don’t forget there are particularly issues relating to funding social care (residential and nursing homes).

(vi.) This is a UK-wide issue but, as is well known, there are concerns particular to Northern Ireland. In recent years spending per head in Northern Ireland has exceeded the average in England but with less favourable outcomes [Note 5]. By implication, we need to improve the allocation of spending.


  1. Whilst international comparisons of health outcomes are not straightforward, the UK lags in terms of survival rates for cancer and was ranked 15th out of 19 countries in terms of infant mortality (Kings Fund, June 2017).
  2. Productivity growth in the NHS, as in other public services, was traditionally treated as minimal. This was because the statisticians used a measure of labour input to represent the growth of output: by definition, productivity growth was zero. More recent research has considered quality adjusted measures of outputs and inputs in the NHS. These indicate that in some recent years the productivity growth of all resources used (called total factor productivity or multi factor productivity) may actually have been higher than the rest of the economy (ONS February 2018, Public Service Productivity Estimates: Healthcare 2015). There are caveats to these results: they relate to NHS UK  and so England will dominate, some of the productivity improvement may have come through an intensification of work pressures on staff which may not be sustainable, the measured growths rates- e.g. an average NHS total factor productivity growth of 0.8% annually during 1995-2015- are not large in absolute terms.
  3. The former Permanent Secretary of MH Treasury, Sir Nicholas Macpherson, has been a recent convert to the notion of tax hypothecation to the NHS. This is ironic because the perception has been that the Treasury has traditionally opposed ring-fencing as it would reduce the discretion of governments and Chancellors to move funds between spending needs.
  4. Even with President Obama’s Affordable Healthcare more than 25m Americans are without insurance cover.
  5. A spend per capita of about 5% more than England during 2011-12 to 2015-16 according to HM Treasury July 2017, Public Expenditure Statistical Analysis. The National Audit Office (2012), Healthcare across the UK: A Comparison of the NHS in England, Scotland, Wales and Northern Ireland, implied that even well before the current waiting list crisis some outcomes in Northern Ireland fell behind those in England.

Dr Esmond Birnie

Senior Economist (Economic Research)

Department of Acc, Finance & Economics

Areas of expertise Economic policy, competitiveness, economic growth and productivity.