Health Care Spending in UK

Or The Insatiable Appetite for Health Care Spending

When the NHS was formed in 1945, the UK was on the verge of bankruptcy. National debt was over 200% of GDP. Yet, the new Labour government went ahead in creating a universal health care which was free at the point of use. In those early days, prescriptions were free and waiting lists low.

In 1945, government spending on health care was £238 million (or £0.238 billion). This was out of a total government spending of £5.9 bn or 3% of total spending. Since 1945, real spending on the NHS has increased much faster than inflation. Health care spending as a % of GDP has also increased.

Health Care Spending In UK (Nominal Terms)

Health Care Spending Real Terms (adjusted for Inflation)

Health Care Spending as a % of GDP

A few years ago, the government announced large increases in real health care spending. In retrospect this was a spending commitment we can't really afford. Yet, despite this record level of spending. There is still forecasts of a severe spending shortfall of £8-£10 in 2011.
"Having had seven years of plenty it now looks like seven years of famine from 2011 onwards," the NHS Confederation's head of policy, Nigel Edwards, told the BBC. "We are really going to have to think very deeply and carefully about everything we do and subject it to very rigorous scrutiny — and enlist all of our doctors, our front line clinical staff in rethinking the way we do things."
Given the perilous state of UK public finances, there is hardly room for spending increases. From the perspective of public finances, the real spending increases could do with being reversed.

Why is health care spending increasing so much?
  • More diseases can be treated.
  • New drugs are often expensive
  • Increased life expectancy has increased number of old age pensioners who are much more likely to require expensive health care.
  • Greater expectations of health care.
Solutions to Health Care Shortages
  • Reduce number of Treatments from non-essential treatments.
  • Ration Expensive Treatments on a
  • Allow waiting lists for non-essential treatments to grow again.
  • Increase taxes to maintain spending.
From an economic perspective the solution of higher taxes is not desirable. Taxes will have to rise to deal with current structural deficit, without increasing spending further.

The problem is that all solutions are politically difficult. It's one thing to say - ration expensive treatments, but when Aunt Dolly could have her life extended by a few years through expensive treatment it is controversial to deny it.

Yet, just because solutions may be unpalatable doesn't make the problem go away. We come back to the fundamental economic problem (discussed in Econ 1 1st Lesson) - which is scarcity of resources and any choice has an opportunity cost.

Perma Link | By: T Pettinger | Wednesday, June 24, 2009
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Blogger dickie said...

Comment on Health Care Spending in UK article
Surely one other solution to health care shortages is to reduce government expenditure in other areas i.e. Trident, ID cards etc., which the main political parties seem committed to (‘ring fencing’).

June 25, 2009 9:21 AM  

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