The NHS and fiscal health

Good morning from New Economy Brief. 

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Even a quick internet search of “NHS record high waiting lists” brings up a long list of near-identical stories from nearly every month of the past year. They each detail how unprecedented numbers of patients - millions of them - are waiting for NHS treatment. This month was no exception. Last week, the estimated number of people in England waiting to start routine hospital treatment hit 7.68 million - an estimated all-time high. 

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In a bid to meet this rising demand, the government released its long-awaited NHS Long Term Workforce Plan in June. It sets out how the government intends to increase the number of NHS staff in England from 1.5 million to between 2.3 and 2.4 million by 2036-2037.

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Unsurprisingly, this will be expensive - at a time when the health service is already entering a “financial crisis”. Critics warn that these costs are unsustainable and say it’s time to consider an alternative to free at the point of use healthcare. Still others argue that it is NHS privatisation that is driving many of these costs and that it should be reversed. But could more health investment save not just the NHS, but the whole economy? 

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This week’s New Economy Brief explores the ‘cost’ of meeting the growing NHS demand and why, when it comes to the public finances, health is wealth. 

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The NHS Long Term Workforce Plan. The NHS Long Term Workforce Plan aims to “train, retain and reform the workforce, and put the NHS on a sustainable footing into the future”. The Institute for Fiscal Studies (IFS) thinks it means average yearly staffing growth of between 3.1% and 3.4%. For comparison, the workforce only grew by around 1.1% a year from 2009-10 to 2019-20. The IFS also reckons that if this growth is achieved, almost half (49%) of public sector workers will work for the NHS by 2036-7. 

• Other costs. The workforce plan includes £2.4 billion of extra funding to train new staff. However, the IFS says it leaves out “the (much larger) medium-term implications of this large increase in staffing for the NHS paybill, nor the required increase in other inputs if the NHS is to treat substantially more patients”. It also estimates that such a rapid expansion of the workforce will require higher wages for NHS workers, perhaps matching or even exceeding real terms pay growth in the rest of the economy. 

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Healthy public, healthy public finances. Expanding the NHS is going to cost. But what about the cost of not meeting rising demand for healthcare? Let’s look at two key trends. Firstly, the UK is getting sicker, with the last century’s progress in morbidity and mortality both stalling or even reversing for some groups. Secondly, it is getting poorer. The combination is no coincidence, argues the Institute for Public Policy Research (IPPR). Rather, “growing sickness is making us poorer, as individuals and as a nation” according to the think tank’s new report. More people are economically inactive due to sickness than ever recorded before. This has a profound effect on individuals: becoming seriously ill cuts the average person’s annual earnings by around £2,200. But the costs of sickness don’t stop there. A combination of foregone tax revenue and higher spending on welfare and healthcare makes sickness “one of the gravest fiscal threats facing the country”. Some key stats from IPPR’s report: 

• Foregone tax revenue. The OBR estimates that since just before the pandemic, rising economic inactivity due to sickness and increasing in-work sickness have combined to reduce yearly tax receipts by some £8.9 billion.‍
• Higher welfare spending. The OBR says the above trends have also increased  annual welfare spending by £6.8 billion.‍
• Higher healthcare spending. Finally, the OBR says that whenever someone becomes economically inactive, this costs the NHS an extra £1,800 per person per year (OBR 2023a).

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Prevention is better than cure. Policies like the NHS Long Term Workforce Plan focus solely on the ‘supply side’ of healthcare policy. In other words, they try to meet  growing need by allocating more resources. There has been less attention to reforms on the ‘demand side’, argues the IPPR. Healthcare services are generally reactive, “inclined towards ‘one size fits all’ solutions” and focus on treating acute sickness. The IPPR argues that as well as treating sickness, the NHS could respond to “the changing nature of health needs and demography” with “the construction of a complementary ‘prevention service’”. It proposes three structural reforms:

• Putting primary and community care at the centre of prevention. Healthcare spending tends to flow to hospitals, rather than to smaller-scale, local services. The IPPR says that this shows a bigger problem - the UK struggles to invest in the right places. Early years, mental health and community healthcare are identified as key priority areas for “smart investment” in prevention.
• Delivering a social care guarantee. The IPPR argues that decent adult social care is a “central pillar in the shift to prevention”. Getting people the support they need at home and helping them live independently and stay healthy may avoid the need for more acute (and expensive) interventions later. 
• Unlocking ‘prevention-first’ services with Integrated Care Systems. Integrated Care Systems (ICSs) are a “promising” route to better prevention. In theory, they encourage providers to focus on cross-cutting outcomes rather than just considering their own specialisms. However, the IPPR warns ICSs “may yet fail to achieve any meaningful change” if they do not embed a mission-oriented approach, focusing on long-term outcomes for public health, rather than short term targets.

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Public spending beyond health. Expanding the health service is expensive, but so is having an unhealthy population. As the IPPR argues, sickness is making us poor. But what about when poverty makes us sick? In many ways, the relationship between Britain’s health and public spending is a vicious circle. According to the Health Foundation, low income, insecure work, debt and poor housing conditions all make illness more likely. All of these issues can be, to some extent, ameliorated with higher public spending. Governments that are afraid to spend money will do less to raise incomes, make housing more affordable or introduce bolder solutions to the cost of living crisis. When fiscal restraint is the political order of the day - as it currently is for the two main parties - policies that could improve people’s health (and therefore reduce NHS demand) are deprioritised.

• Sickness is an economic risk. For many years, healthcare spending has lagged behind demand, leading to falling outcomes and ever-longer waiting lists. Under pressure to curb public debt, politicians of many stripes are reluctant to invest the large sums required to meet healthcare needs and to prevent the conditions that lead to ill health. There is a long-term argument for addressing these conditions: reducing loneliness, poor housing and stagnant incomes. But for the moment, any government that is wary of the cost of saving the NHS - both by meeting existing demand and through better prevention - should know that allowing it to fail could have an even higher price tag. Sickness is an economic risk not just for individuals, but for the country as a whole.