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Health spending in context
Paul Johnson
October 18 2011


© Institute for Fiscal Studies
Continuing change in the shape of the state

           • Health, social protection and education account for two
             thirds of public spending
           • Up from less than half in 1979
           • Increase results from health and social protection
                       – Education has merely maintained its share
           • Defence, housing and support for business and industry
             have taken the strain




© Institute for Fiscal Studies
Public spending in 2010-11
                                        10%                    Social protection
                                 1%
                         3%
                                                               Personal social services

                  2%                                29%        Health

                                                               Education
          6%
                                                               Transport

                                                               Defence
      5%
                                                               Public order and safety

                                                               Gross debt interest
        6%
                                                          4%   Housing
                3%                                             TIEEE

                                                               AFF
                                  13%         18%
                                                               Other



© Institute for Fiscal Studies
Public spending in 1978-79
                                                                    Social security
                                            9%
                                 1%                                 Personal social services
                                                        23%
                                                                    Health
                 9%
                                                                    Education

                                                                    Transport
      6%
                                                              2%    Defence

                                                                    Law, order & protection

                                                              10%   Gross debt interest
       10%
                                                                    Housing

                                                                    TIEEE
                       4%
                                                      12%           AFFF
                                      10%
                                                 4%                 Other


© Institute for Fiscal Studies
Over the next few years

           • An unprecedented squeeze on public service spending
           • Returning it to 2000 levels as a percentage of GDP
           • With different departments affected differently
                       – And health again relatively protected
                       – And its share of spending continuing to rise




© Institute for Fiscal Studies
Pattern of DEL changes 2010-11 to 2014-15
                                 International Development                                                          37.8%
                                 Energy and Climate Change                                              6.5%
                                            NHS (England)                                             1.0%
                                                  Defence                                     -8.2%
                                                Education                                 -11.9%
                                                      Total                               -11.5%
                                                 Transport                              -14.5%
                                    CLG: Local Government                             -20.7%
                                              Home Office                            -22.0%
                                                    Justice                         -27.2%
                  Environment, Food and Rural Affairs                               -27.6%
                            Business, Innovation and Skills                      -31.2%
                                  Culture, Media and Sport                 -46.1%
                                         CLG: Communities         -71.3%

                                                          -100%               -50%                  0%               50%
                                                                     Percentage real increase, 2010–11 to 2014–15

© Institute for Fiscal Studies
OBR projections going forward

           • Based just on demographic change
           • Otherwise central forecasts assume health spending rises
             just with GDP
                       – 2% a year




© Institute for Fiscal Studies
OBR central projection
                % of non-interest spending        2010−11   2060−61

                Education                          14.3      12.0

                Long term care                      2.9       4.8

                Public service pensions             4.5       3.4

                Other social benefits              14.0      12.0

                Pensions and pensioner benefits    15.6      21.8




© Institute for Fiscal Studies
OBR central projection
                % of non-interest spending        2010−11   2060−61

                Education                          14.3      12.0

                Long term care                      2.9       4.8

                Public service pensions             4.5       3.4

                Other social benefits              14.0      12.0

                Pensions and pensioner benefits    15.6      21.8

                Health                             18.6      23.5




© Institute for Fiscal Studies
OBR central projection
                % of non-interest spending        2010−11   2060−61

                Education                          14.3      12.0

                Long term care                      2.9       4.8

                Public service pensions             4.5       3.4

                Other social benefits              14.0      12.0

                Pensions and pensioner benefits    15.6      21.8

                Health                             18.6      23.5

                Other non interest spending        30.1      22.5


© Institute for Fiscal Studies
And if health spending grows 1% p.a. over GDP

              % of non-interest spending        2010−11   2060−61

              Education                          14.3      10.6

              Long term care                      2.9       4.2

              Public service pensions             4.5       3.0

              Other social benefits              14.0      10.6

              Pensions and pensioner benefits    15.6      19.3

              Health                             18.6      32.1

              Other non interest spending        30.1      20.0

© Institute for Fiscal Studies
Percentage of non-debt interest spending




© Institute for Fiscal Studies
                                                  10%
                                                                   20%
                                                                                    30%
                                                                                            40%
                                                                                                                      50%
                                                                                                                                60%
                                                                                                                                                      70%
                                                                                                                                                                       80%
                                                                                                                                                                             90%
                                                                                                                                                                                          100%




                                             0%
                                 2010-2011
                                 2012-2013
                                 2014-2015
                                 2016-2017
                                 2018-2019
                                 2020-2021
                                 2022-2023
                                 2024-2025
                                 2026-2027
                                 2028-2029
                                 2030-2031
                                 2032-2033
                                 2034-2035
                                 2036-2037
                                 2038-2039
                                 2040-2041
                                 2042-2043
                                 2044-2045
                                 2046-2047
                                 2048-2049
                                 2050-2051
                                 2052-2053
                                                                                                                                                                                                 OBR projections of spending to 2060




                                 2054-2055
                                 2056-2057
                                 2058-2059
                                 2060-2061
                                       Health
                                                                   benefits
                                                                                                                                                                              Education




                                                  Long-term care
                                                                                                                                                            Other spending




                                                                                              Other social benefits
                                                                                                                            Public service pensions




                                                                   Pensions and pensioner
Going forward state is set to change further

           • OBR projections suggest that health and pensions alone
             could account for more than a half of non-interest
             spending by 2060
           • On these assumptions education spending falls from 14%
             to 11% of the total
           • Unless
                       – Total spending increases
                       – Other spending falls even more sharply
                       – Health spending is reformed and reined in


© Institute for Fiscal Studies
Conclusions

           • The shape of public spending changes over time
           • Last 30 years have seen health and social protection
             spending increase a lot
           • Defence, “economic” spending and housing have taken a
             big hit
           • Going forward there are continued pressures on health
             and other age related spending
           • If accommodated the shape of the state will alter beyond
             recognition
                       – And if it is not also to increase in size we’ll need to find
                         some new losers
© Institute for Fiscal Studies

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Paul Johnson: Health spending in context

  • 1. Health spending in context Paul Johnson October 18 2011 © Institute for Fiscal Studies
  • 2. Continuing change in the shape of the state • Health, social protection and education account for two thirds of public spending • Up from less than half in 1979 • Increase results from health and social protection – Education has merely maintained its share • Defence, housing and support for business and industry have taken the strain © Institute for Fiscal Studies
  • 3. Public spending in 2010-11 10% Social protection 1% 3% Personal social services 2% 29% Health Education 6% Transport Defence 5% Public order and safety Gross debt interest 6% 4% Housing 3% TIEEE AFF 13% 18% Other © Institute for Fiscal Studies
  • 4. Public spending in 1978-79 Social security 9% 1% Personal social services 23% Health 9% Education Transport 6% 2% Defence Law, order & protection 10% Gross debt interest 10% Housing TIEEE 4% 12% AFFF 10% 4% Other © Institute for Fiscal Studies
  • 5. Over the next few years • An unprecedented squeeze on public service spending • Returning it to 2000 levels as a percentage of GDP • With different departments affected differently – And health again relatively protected – And its share of spending continuing to rise © Institute for Fiscal Studies
  • 6. Pattern of DEL changes 2010-11 to 2014-15 International Development 37.8% Energy and Climate Change 6.5% NHS (England) 1.0% Defence -8.2% Education -11.9% Total -11.5% Transport -14.5% CLG: Local Government -20.7% Home Office -22.0% Justice -27.2% Environment, Food and Rural Affairs -27.6% Business, Innovation and Skills -31.2% Culture, Media and Sport -46.1% CLG: Communities -71.3% -100% -50% 0% 50% Percentage real increase, 2010–11 to 2014–15 © Institute for Fiscal Studies
  • 7. OBR projections going forward • Based just on demographic change • Otherwise central forecasts assume health spending rises just with GDP – 2% a year © Institute for Fiscal Studies
  • 8. OBR central projection % of non-interest spending 2010−11 2060−61 Education 14.3 12.0 Long term care 2.9 4.8 Public service pensions 4.5 3.4 Other social benefits 14.0 12.0 Pensions and pensioner benefits 15.6 21.8 © Institute for Fiscal Studies
  • 9. OBR central projection % of non-interest spending 2010−11 2060−61 Education 14.3 12.0 Long term care 2.9 4.8 Public service pensions 4.5 3.4 Other social benefits 14.0 12.0 Pensions and pensioner benefits 15.6 21.8 Health 18.6 23.5 © Institute for Fiscal Studies
  • 10. OBR central projection % of non-interest spending 2010−11 2060−61 Education 14.3 12.0 Long term care 2.9 4.8 Public service pensions 4.5 3.4 Other social benefits 14.0 12.0 Pensions and pensioner benefits 15.6 21.8 Health 18.6 23.5 Other non interest spending 30.1 22.5 © Institute for Fiscal Studies
  • 11. And if health spending grows 1% p.a. over GDP % of non-interest spending 2010−11 2060−61 Education 14.3 10.6 Long term care 2.9 4.2 Public service pensions 4.5 3.0 Other social benefits 14.0 10.6 Pensions and pensioner benefits 15.6 19.3 Health 18.6 32.1 Other non interest spending 30.1 20.0 © Institute for Fiscal Studies
  • 12. Percentage of non-debt interest spending © Institute for Fiscal Studies 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 2010-2011 2012-2013 2014-2015 2016-2017 2018-2019 2020-2021 2022-2023 2024-2025 2026-2027 2028-2029 2030-2031 2032-2033 2034-2035 2036-2037 2038-2039 2040-2041 2042-2043 2044-2045 2046-2047 2048-2049 2050-2051 2052-2053 OBR projections of spending to 2060 2054-2055 2056-2057 2058-2059 2060-2061 Health benefits Education Long-term care Other spending Other social benefits Public service pensions Pensions and pensioner
  • 13. Going forward state is set to change further • OBR projections suggest that health and pensions alone could account for more than a half of non-interest spending by 2060 • On these assumptions education spending falls from 14% to 11% of the total • Unless – Total spending increases – Other spending falls even more sharply – Health spending is reformed and reined in © Institute for Fiscal Studies
  • 14. Conclusions • The shape of public spending changes over time • Last 30 years have seen health and social protection spending increase a lot • Defence, “economic” spending and housing have taken a big hit • Going forward there are continued pressures on health and other age related spending • If accommodated the shape of the state will alter beyond recognition – And if it is not also to increase in size we’ll need to find some new losers © Institute for Fiscal Studies