© Nuffield Trust13 April 2023

Trends in health spending & productivity

Anita Charlesworth, Chief Economist, Nuffield Trust

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The scope of the research

• It provides an overview of the annual accounts data for all primary care trusts (PCTs), NHS

trusts and NHS foundation trusts in England for each year from 2003/04 to 2011/12.

• It includes information from acute hospitals, specialist hospitals, ambulance services,

community services and mental health providers.

• The figures are shown in real terms (i.e. allowing for inflation) in 2011/12 prices, adjusted

using the November 2012 GDP deflator.

• Labour productivity is measured using an estimate of cost-weighted activity and spending on

workforce.

• Labour productivity is calculated for the 110 acute hospitals which have operated

continuously since 2006/07 and have not merged with a community health service.

• This measure of productivity has several drawbacks – in particular it doesn’t take account of

quality of care or the appropriateness of treatment.

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Government spending on health in the UK

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Spending on health in England 2011/12

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Percentage changes in spending by type of care: 2010/11 to 2011/12

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Distribution of surpluses/deficits: 2011/12

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Spending changes by staff numbers and cost per head: 2003/04 to 2011/12

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Spending on private finance initiative (PFI) interest in England: 2009/10 to 2011/12

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Changes in UK health care productivity (NHS and non-NHS providers) – ONS measure: 1995 to 2010

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Variation in labour productivity at selected providers in England: 2006/07 to 2011/12

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Variation in labour productivity by region: 2011/12

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Summary – spending patterns

• Health spending in England in 2011/12 was £105.4 billion – a 0.3 per cent increase in real terms.

• There was a £1.4 billion underspend on the health budget in 2011/12.

• The number of hospitals in deficit has been rising steadily since 2007/08 – 32 out of 250 trusts ended the year in deficit in 2011/12.

• The financing costs of PFI scheme are a small proportion of the total health budget (less than 1 per cent) but they have increased rapidly. Seven hospitals are now spending more than 5 per cent of their income on PFI financing costs.

• Spending on community health services has grown most rapidly in recent years in line with the policy of shifting more care into community settings.

• Spending on hospital care has also grown very rapidly, with spending on GP services falling.

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Summary – labour productivity

• There appears to have been relatively little improvement in labour productivity in NHS acute hospitals since 2006/07.

• Measures of NHS productivity are likely to systematically underestimate the overall performance of the services, as the NHS has no measure of the output of community services.

• Labour productivity varies across the country and seems to be higher in the South and lower in the North. London appears to have below average labour productivity but this may be explained by the lack of quality adjustment in our measure and the importance of teaching and research in London hospitals.

• Hospitals with a higher proportion of medical and dental staff are more likely to have higher productivity despite the higher labour costs of a richer staff mix.

© Nuffield Trust13 April 2023

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anita.charlesworth@nuffieldtrust.org.uk