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How Is The NHS in England Funded?

A summary of how the NHS is funded, how this money is allocated and specific areas where additional funding is needed.

March 2023
William Coni
University of Liverpool - 2nd Year

How is the NHS in England funded?

The National Healthcare Service (NHS) in England is a government-funded system facilitating the provision of healthcare which is ‘free at the point of service’. Because of this, it requires a solid financial framework, however, it is clear that the high costs of running such a service, and, arguably, the insufficient contribution from the government, have made this extremely challenging.

The primary source of government funding is taxation (VAT, income etc.) and national insurance contributions. This is allocated throughout the various departments within the government (defence, transport etc.). Each department will have its set allocated budget which may or may not change each year. The funding for health care is controlled through the department of health and social care (DHHS). In 2022-2023, we expect the income to the government ‘public sector current receipts’ to reach £1005 billion. Public service spending is expected to reach past this at about £1182 billion, with £180.2 billion going towards health and social care, which is about 9.57% of the budget.

How is the funding for the NHS allocated?

As mentioned, the planned DHHS expenditure in England for 2022/2023 is £180.2 billion with most of this (£152.6 billion) going towards NHS England and NHS improvement for spending on health services. This spending can be divided into ‘capital’ spending for infrastructure and equipment as well as ‘day-to-day spending’ for medications and staff salaries. There is also an allocation for spending on vaccinations, public health, training NHS staff and producing/enforcing regulatory policies. These contribute to one of the most important aspects of healthcare, preventative medicine. Prevention of disease is the optimal stance in healthcare, as it helps reduce long-term costs, but is also hard to enforce. Money is also directed to nationally planned services such as rare cancer treatments and reserve funds for providers and commissioners.

The ‘day-to-day’ spending has to reach specific bodies that manage and distribute the funds in local areas. These groups were previously known as ‘clinical commissioning groups’ (CCGs) but as of July 2022 have been recognised as ‘integrated care boards’ (ICBs). They receive a variable sum of money each year: the amount they receive is determined by the number of people in their local area, their ages and their level of deprivation. These variables are used as they provide an indication of the number of medical interventions that will be required for that local population. The more deprived an area, the greater the health needs of those within, and the larger the amount of money needed to provide adequate healthcare to meet their needs. The CCGs assess their local area accordingly and buy the services required from the healthcare providers such as General Practices and hospitals.

Providers of healthcare also receive money from local authorities and people who pay for private healthcare. The annual budget can also be adapted when necessary. For example, if we anticipate an increased number of influenza-related illnesses in a particular year, the budget can be altered by expanding the funding or through reallocation (e.g. taking away from the ‘capital’ funding budget and adding to ‘day-to-day spending’). The money mentioned earlier as ‘reserves’ for providers and commissioners is an unknown amount to the CCGs. All of these factors make it hard for CCGs to determine how much they need to spend on delivering care in that area. It’s also trickier to think ahead about potentially improving services through investment.

Novel medications, therapies and treatments have to be sourced at a government level, initially through contract negotiations with the pharmaceutical company and subsequently with manufacturing and production of the drug. Upcoming Cancer therapies in particular are funded through the ‘cancer drugs fund’ which involves both the contract negotiations and the criteria required by a patient for the provision of the drugs to a patient- all of which prevent overspending by the NHS (which would lead to debt in the department of health and social care).

How is adult social care funded in the UK?

In contrast to NHS healthcare in England, there is no national government funding for adult social care in England. The financial structure relies on local government revenue through local councils, by law. This is a specific duty dedicated to 333 local authorities across England.

How are General Practices funded?

General practice (GP) is a chief primary healthcare service that is often the first service for an individual to present to, before subsequent referrals to secondary, tertiary or quaternary healthcare services. In England these are run as businesses, being contracted by CCG groups. They provide medical services in their geographical area or ‘catchment area’. The management of General Practices can vary. Some are led by a single GP partner, whilst others are led by several. The partnership sometimes includes nurse practitioners, practice managers and business managers as well as the GP partner(s). If you are a partner in this business, by definition, you have a stake in the practice. The partners are responsible for collating resources (e.g. buildings and staff) and meeting the contract requirements set by CCGs. They distribute a portion of the income received from CCGs among themselves as well as the remaining staff in the form of salaries. The amount dedicated to GP practices is assessed by CCGs who look at how much they have to spend, the catchment area of that practice, the history of their healthcare provision and the current healthcare needs of the population of that catchment area at that particular time. The CCGs are buying the service of GPs to provide healthcare to the population on behalf of the NHS. For example, if the demographic of a particular catchment area is in a relatively higher age bracket, more influenza vaccinations will need to be provided to those who are at risk of severe disease if this infection is acquired. Therefore, for that particular general practice, the CCG or other NHS commissioners will provide a larger budget, which the partners of the practice can allocate to account for purchasing vaccinations and providing a salary for the staff members administering these vaccinations.

Which areas of the NHS are in need of funding?

It is well known, especially in the current recessive climate, that NHS England is chronically underfunded across all areas. There is simply not enough money being distributed among GPs, hospitals and the community. The recent strikes by nurses within the NHS further support this. This is a systemic problem not associated with the allocation of funding and resources within the NHS, but due to not enough money going to the department of health and social care. All areas are in need of funding, but in particular mental health is a very poorly financed area of healthcare. Local NHS commissioners (CCGs) fund mental services such as child and adolescent mental health service (CAHMS) and adult mental health services (AMHS) which consist of emergency phone line services, out-patient services and in-patient wards in NHS hospitals as well as individual facilities. Unfortunately, due to the extreme underfunding of these services, it is common that an individual’s situation would have become very serious to receive the critical care needed. Services have been supplemented by charity organisations such as ‘Mind’ which reach into the community and attend to the mental health needs of people in the local area of that particular branch of the charity. This reliance on the charity sector has a risk of becoming unsustainable due to the uncontrollable factors influencing the provision of the service, which are dependent on the charities’ ability to source funding. In the NHS England long-term plan (2022), mental health is said to become a priority with investment into the services and expansion of the provision of care across the population to meet the deficit of mental health problems currently present. It is a waiting game to see if these plans translate.

Extra reading:

Author: Will Coni

Editor: Allegra Wisking

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