The NHS crisis that none of the parties will discuss: how to pay for it

With a £30bn funding gap, all parties need to decide whether they would raise taxes, cut spending elsewhere, or impose patient charges. But don't expect them to tell us.

If there's one NHS issue that none of the parties are prepared to confront, it's that of funding. The common view is that the health service has been shielded from austerity by having its budget ring-fenced, but in reality the reverse is the case. Owing to the above-average rate of inflation in the service, the NHS requires real-terms rises just to stand still. As a recent Social Market Foundation paper noted, "A ‘flat real’ settlement for the NHS is mot what it sounds like since it is defined with reference to an irrelevant price index. To keep up with rising input costs, growing demand, and the public’s expectations for an adequate healthcare system, growth in spending on health has historically outstripped GDP growth." 

By historic standards, the NHS is undergoing austerity. Since 1950, health spending has grown at an average annual rate of 4%, but over the current Spending Review it will rise by an average of just 0.5%. As a result, in the words of the SMF, there has been "an effective cut of £16bn from the health budget in terms of what patients expect the NHS to deliver". Should the NHS receive flat real settlements for the three years from 2015-16 (as seems probable), this cut will increase to £34bn or 23%.

If they wish to avoid a significant fall in the quality and quantity of services, this government and future ones are left with three choices: to raise taxes, to cut spending elsewhere, or to impose patient charges. The third of these is proposed by the think-tank Reform today, which calls for a £10 charge for GP consultations, £10 fines for missed appointments, the introduction of a means-tested system for end of life care and an increase in prescription charges from £7.85 to £10 (with exemptions for those on low-incomes). It estimates that these measures would raise around £3bn a year, with research director Thomas Cawston commenting: "Few will want to debate higher NHS charges but the funding outlook for the service makes it unavoidable. Prescription charges are the easiest route to new revenue, with exemptions for people on low incomes built in." If this seems heretical, it's worth remembering that our "free" health service hasn't been truly free since Labour chancellor Hugh Gaitskell introduced prescription charges for glasses and dentures in his 1951 Budget (although they have now been abolished in Scotland, Wales and Northern Ireland).

But perhaps unsurprisingly, the Department of Health has responded by dismissing the idea out of hand. A spokesman said: "We have been absolutely clear that the NHS should be free at the point of use, with access based on need. That is why we have increased health spending in real terms alongside £20bn of efficiency savings to make sure the NHS continues to provide excellent care."

Labour, meanwhile, spying an opportunity to cause political mischief, has commented: "Patients will be alarmed that friends of Number 10 want to see charges for GP appointments and hospital care.

"Labour froze prescription charges before the election, but they have increased year on year under David Cameron. They are now creeping towards £10, as these plans want, and are adding to the cost of living crisis.

"The Government must come clean on any plans to charge for NHS care. They have already lost people’s trust over the crisis in A&E and thousands of axed nursing jobs – this will only add to it."

But this merely defers the question of how we will ultimately pay for a health service of the standard the public both expect and deserve. Will any party grasp this nettle before 2015? Don't count on it. 

Jeremy Hunt delivers a speech during his visit with David Cameron to the Evelina London Children's Hospital on July 5, 2013 in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty Images
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Autumn Statement 2015: George Osborne abandons his target

How will George Osborne close the deficit after his U-Turns? Answer: he won't, of course. 

“Good governments U-Turn, and U-Turn frequently.” That’s Andrew Adonis’ maxim, and George Osborne borrowed heavily from him today, delivering two big U-Turns, on tax credits and on police funding. There will be no cuts to tax credits or to the police.

The Office for Budget Responsibility estimates that, in total, the government gave away £6.2 billion next year, more than half of which is the reverse to tax credits.

Osborne claims that he will still deliver his planned £12bn reduction in welfare. But, as I’ve written before, without cutting tax credits, it’s difficult to see how you can get £12bn out of the welfare bill. Here’s the OBR’s chart of welfare spending:

The government has already promised to protect child benefit and pension spending – in fact, it actually increased pensioner spending today. So all that’s left is tax credits. If the government is not going to cut them, where’s the £12bn come from?

A bit of clever accounting today got Osborne out of his hole. The Universal Credit, once it comes in in full, will replace tax credits anyway, allowing him to describe his U-Turn as a delay, not a full retreat. But the reality – as the Treasury has admitted privately for some time – is that the Universal Credit will never be wholly implemented. The pilot schemes – one of which, in Hammersmith, I have visited myself – are little more than Potemkin set-ups. Iain Duncan Smith’s Universal Credit will never be rolled out in full. The savings from switching from tax credits to Universal Credit will never materialise.

The £12bn is smaller, too, than it was this time last week. Instead of cutting £12bn from the welfare budget by 2017-8, the government will instead cut £12bn by the end of the parliament – a much smaller task.

That’s not to say that the cuts to departmental spending and welfare will be painless – far from it. Employment Support Allowance – what used to be called incapacity benefit and severe disablement benefit – will be cut down to the level of Jobseekers’ Allowance, while the government will erect further hurdles to claimants. Cuts to departmental spending will mean a further reduction in the numbers of public sector workers.  But it will be some way short of the reductions in welfare spending required to hit Osborne’s deficit reduction timetable.

So, where’s the money coming from? The answer is nowhere. What we'll instead get is five more years of the same: increasing household debt, austerity largely concentrated on the poorest, and yet more borrowing. As the last five years proved, the Conservatives don’t need to close the deficit to be re-elected. In fact, it may be that having the need to “finish the job” as a stick to beat Labour with actually helped the Tories in May. They have neither an economic imperative nor a political one to close the deficit. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.