NHS may need to reduce range of free health services after 2015, IFS warns

The Institute for Fiscal Studies this week forecast that between 2014-15 and 2021-22 the NHS was likely to need to make further productivity savings at a faster rate than the general economy to meet rising healthcare demand.

Prior to 2015, the health service is already facing its four financially tightest years for the past five decades. A real-terms funding freeze has forced the NHS to attempt unprecedented 4 per cent a year efficiency savings over the period.

But the Nuffield Trust-funded IFS report suggests that a return to funding growth of 4 per cent a year between 2014-15 and 2021-22 – the average growth rate of NHS spending over its history – is an “unrealistically positive scenario”.

This, it says, would require a seven year freeze on all other public service spending, on top of £8.5bn cuts to the welfare budget that were mooted in the chancellor’s autumn statement.   

The paper considers two other scenarios, both assuming the Treasury will go through with the £8.5bn welfare cuts: maintaining the current health spending freeze, or allowing the health budget to increase in line with forecast growth of the economy.

Maintaining the freeze, it says, would push the NHS’s share of national income in 2021-22 back to its level in 1999-2000. That was before the Treasury-commissioned Wanless Review recommended a sharp increase in NHS spending as a proportion of national income.

Given the way both main political parties have favoured health, the IFS reasons, it is “hard to imagine the NHS receiving a lower growth rate than other areas of public service”. “Of our three scenarios,” it suggests, “NHS spending growing in line with national income is arguably the most plausible.”

Assuming official growth forecasts prove accurate, this would mean real-terms growth of 2.4 per cent a year for the NHS over the coming seven-year period – and just 0.6 per cent for all other public services.

Even this would be a “challenging settlement” for the NHS.

“Even assuming NHS productivity keeps pace with the rest of the economy it would not be enough to maintain health output per capita, due to pressure from changing demographics,” the report concludes.

“If value-for-money improvements are not achieved at the rate required to bridge the gap between funding and demand pressures then access to care and the quality of care would deteriorate.

“Serious thought should then be given to the options for the NHS. These include reconsidering the range of services available free of charge to the whole population or the level of taxation needed to finance the service in the future.”