NHS spending plans over the past decade

*This explainer is an updated version of analysis we published in November 2023.

There is no right or wrong answer to the question: how much funding does the NHS need? The answer is rather a political choice, as higher levels of funding will almost certainly permit both improvements in the quality of care for patients, but also creeping inefficiencies in places. If there is a sweet spot to be found between those polar outcomes, health economists, let alone politicians, are yet to find it with any precision.

In place of a reliable formula for calculating the level of funding the NHS needs from one year to the next, we have the politically charged process of spending reviews and settlements. Although from the perspective of other areas of public spending, the NHS has often been viewed as being at the front of the queue for funding increases, in practice over the last decade the health service has often emerged from these difficult negotiations with budgets that quickly transpire to be unsustainable as demand for care proves higher than hoped, efficiency assumptions within plans prove unrealistic, and even baseline spending estimates turn out to be flawed.

To explore this further, we have constructed a time series of spending in the NHS in England going back to 2013/14 – the date at which the organisation NHS England took on responsibility for managing the budget for the service as a whole. The date is also significant as it is the earliest point from which we can assess spending on what the Treasury defined, in the 2015 Spending Review, as the “front-line NHS”, distinct from the health department’s much smaller “Whitehall” budget, and which has variously been claimed to have been “protected”.

To present the data as a continuous time series, we have had to apply a set of adjustments to cater for changes in the shape and running of the NHS and its finances over that time. For more details on this, please see the 'methodology' section.

To track actual spending against frequently changing annual budgets, we have focused on the two dominant, overarching public spending plans since 2013: the 2015 Spending Review and the 2019 NHS Long Term Plan, for which the financial settlement emerged from the 2018 Spending Review. For the period after this financial year – for which there are currently no stated spending plans – we have used the Office for Budget Responsibility’s assumption that NHS spending will need to increase by a real-terms 3.6% each year in order to cover the cost of the workforce expansion entailed by the current government’s NHS Workforce Plan. Our analysis focuses on NHS planned and actual spending on day-to-day resources in England, covering the NHS’s consumable costs – predominantly staff salaries, medicines, clinical supplies and fuel.

Our chart here presents the figures in real terms, stated in 2023/24 prices, using the April 2 GDP deflator, which is the government’s preferred measure, and indicates the scale of inflation in the domestic economy. This measure will not always capture the full cost of inflation in the NHS, which can be sensitive to both price changes in imported goods and also, for staff pay, to more consumer-focused measures of inflation such as the Consumer Price Index. However, the GDP deflator is the measure against which government spending commitments tend to be set and so is the most useful for current purposes. 

2013/14 to 2015/16

During this period, NHS provider organisations began to run up significant deficits between their income and outgoings – largely reflecting a policy to cut their funding per procedure year on year as a means to hold down expenditure. Despite this policy, the health service as a whole saw real-terms increases in its rate of spending each year, averaging 3.5% a year. As our chart shows, this rate of spending growth clashed with the slower rate at which the NHS budget was growing in real terms – at 2.2% a year, resulting in 2015/16’s £2.5 billion overspend in 2023/24 prices.

2015 Spending Review plan

Time then for the first major budget revision of our time series. In the 2015 Spending Review, the government increased its planned budget for “the front-line NHS” from 2016/17 onwards. This resulted in a modest boost to the average annual real-terms increase in the NHS budget in the years to 2017/18, increasing it to 2.5% in real terms. This increase was intended to fund the NHS’s “Five Year Forward View”, although it came at the cost of “Whitehall” budgets in the Department of Health, earmarked to fund public health, clinical training and the NHS budget for buildings, technology and equipment.

During these two years, actual NHS spending grew on average by 1.6% in real terms as the health service slowed spending to try and claw back the overspending in the prior period, although this still resulted in a small deficit at the end of 2017/18.

2019 Long Term Plan funding trajectory

That overspend was followed by a further budget revision in 2018, this time as part of the government’s promised £20.5 billion real-terms extra spending by the end of 2023/24 – intended to fund the then-new Long Term Plan from April 2019. As part of that revision, a new pay deal was agreed, covering the majority of NHS staff, increasing both the budget and baseline spending in 2018/19 by the equivalent of almost £1 billion in 2023/24 prices, as the government lifted the 1% cap on cost-of-living pay increases that had been in place since 2013.

The Long Term Plan funding settlement set out annual average real-terms increases to the NHS budget for day-to-day spending of 3.4% a year between 2019/20 and 2023/24, with a profile that saw slightly faster funding growth in the first and last years.

In the first year of the plan, the NHS did keep within that spending growth limit – recording a 3.3% increase in real terms spending to the end of 2019/20.

The pandemic

However, by the end of the financial year 2019/20, the Covid-19 pandemic was underway, with government policy during 2020 being to give the NHS “whatever it needs” to deal with that, hailing a sharp departure away from the Long Term Plan funding trajectory.

In 2020/21, NHS spending increased by over 10% in real terms above spending in 2019/20, on both our inflation measures, leaving it around £10 billion higher than the Long Term Plan figure for the year – the equivalent to double running the NHS for 23 days that year. That excess spend above the plan is significantly lower than the estimate in the Department for Health and Social Care’s 2020/21 accounts for total “NHS Covid” spending that year (around £18 billion), implying that almost half of reported NHS “Covid” spending was funded through reductions in spending on “business as usual” activities.

However, in practice, distinguishing the point at which an NHS resource – such as a member of staff, fuel, hospital bed or medicine – was consumed in dealing with Covid and when it was consumed in the course of “normal” activities is impractical, if not bordering on the futile. The more pressing point for the NHS is that the higher spending triggered by the pandemic has proven somewhat sticky, or recurrent, and has not fallen as fast as Treasury tolerance for it has declined.

In 2021/22, spending rose again in real terms, leaving it around £13 billion or 9% above the Long Term Plan level for the year. At this point, with government policy now entering a “Living with Covid-19” phase, the NHS was asked to embark on a course of “convergence” back towards the Long Term Plan funding trajectory – the trajectory marked on our charts by the green line. The original LTP funding trajectory ended in 2023/24.

Convergence

This convergence course “back” to the LTP funding level has been rocky, with the NHS budget needing frequent and substantial top-ups against the opening budgets set for both 2022/23 and 2023/24 – most significantly to fund staff pay settlements in both years, but also because in 2023/24 in particular, original assumptions about the level of inflation that would be seen in the economy were very substantially wrong, with inflation GDP inflation some 2.6 times higher in 2023/24 than originally estimated. An additional limitation on the NHS’s ability to return to the Long Term Plan funding level has been that, while tolerance for “Covid costs” such as additional infection prevention measures and staff sickness absence may have worn thin with ministers and other politicians, substantial direct Covid costs have become unavoidable – for instance, adding over £1 billion worth of additional vaccination expense in 2022/23. They were clearly not foreseen at the time the Long Term Plan funding level was set.

Despite this, over the course of 2022/23, the NHS spent a real-terms £1.5 billion less than in 2021/22, shrinking spending by 0.9% that year, and almost halving the gap between actual spending levels and the pre-pandemic LTP funding trajectory to £7 billion in 2023/24 prices.

The following year, 2023/24, that gap reduced even more significantly to just £1.6 billion as the NHS increased its real terms spending by just 0.5% real terms (or less than £800 million) – a figure substantially lower than growth in demographic pressures that year, and which was achieved despite the impact of industrial action by medical staff throughout much of the year. This means that between 2021/22 and 2023/24 NHS spending fell by an average of 0.2% real terms a year, leaving spending levels less than 1% higher than the pre-pandemic funding plan.

Future prospects

That pre-pandemic plan and government spending commitment ended in 2023/24 and the budget currently stated for the NHS this year is £1.8 billion lower than had the plan been rolled forward one extra year, after adjusting for higher pension costs hitting this year. The budget represents a real-terms increase of 1.4% above the previous year and is less than half the long-term average rate of growth in the NHS, for the third consecutive year. We do not consider that the budget is realistic and expect it highly like that further revisions will need to be made within the financial year.

To give an indication of a more realistic funding trajectory, our chart includes the estimated level of funding growth the OBR expects the NHS to require, if it is to be able to absorb the growth in its staff set out in the NHS Workforce Plan. The OBR's figures are based on analysis carried out by the Institute for Fiscal Studies, which estimate that annual real-terms increases of 3.6% a year will be needed – in line with the historic long-term average. Projecting that level forward on our chart from actually spending in 2023/24 results in a £3.8 billion funding gap this financial year, and a trajectory which diverges significantly from that of last three years.