Health and social care funding: have any political parties got a grip on the challenge ahead?

All the main political parties in England are proposing to increase spending on health and older adult social care, but their plans and the associated implications are very different. Although the manifestos are primarily concerned with England, we assess here the implications of the Conservative, Labour and Liberal Democrat plans for devolved spending in Wales, taking account of the new Fiscal Framework which will become effective from 2018-19.  Wales does not have to mirror the spending decisions of the UK Government, but those decisions will substantially influence the spending envelope available to Wales.

From the outset, none of the plans look likely to fully meet the pressures of an ageing population, new medicines and procedures, and other costs. However, the size of the ‘funding gap’ for health and older adult social care looks very different across the parties’ proposals.

Health

All three major parties have pledged to increase day-to-day (resource) funding available to NHS England, and organisations such as the Health Foundation, the Nuffield Trust, and the IFS have already analysed the major implications.

We draw on the Health Foundation’s analysis of what the three major parties’ spending commitments could mean for NHS England, and the spending pressures facing NHS England (reproduced here in Table 1). The spending pressures reflect the required level of resource funding to meet pressures from demographic change and the historic relationship between health spending and rising wealth. Using this as a starting point, and drawing on the Health Foundation’s earlier analysis of future health care demand and cost pressures in Wales, we calculate the resultant Barnett consequentials for Wales (Table 2). In calculating each consequential, we take account of the new Fiscal Framework agreement which will become effective from 2018-19.

Table 1: What will be spent on the English NHS after the election?

 

	Current spending plans	Labour	Liberal Democrats	Conservatives	Spending pressures
2017/18 England	£124bn	£130bn	£124bn	£124bn	£124bn
2020/21 England	£126bn	£134bn	£132bn	£128bn	£141bn
2022/23 England	N/A	£136bn	£134bn	£132bn	£153bn

Source: Health Foundation analysis of the UK party manifestos.

Note: Spending pressures pertaining to England represent the required increase in spend relative to 2017-18 assuming funding pressures rise by 4% a year above inflation following recent OBR estimates. All spending figures are given in 2017-18 prices.

Table 2: Estimated Barnett consequentials and party funding gaps for Wales

 

	Current spending plans	Labour	Liberal Democrats	Conservatives	Spending pressures
Increase in Wales consequential, 2017-18 to 2020-21	£119m	£580m	£478m	£239m	£791m
Resource funding gap by  2020-21	£672m	£211m	£313m	£552m
Resource funding gap by  2020-21 inc. 1% efficiencies	£463m	£2m	£104m	£343m	£582m
Increase in Wales consequential, 2017-18 to 2022-23	N/A	£700m	£597m	£478m	£1,370m
Resource funding gap by  2022-23	N/A	£670m	£773m	£892m
Resource funding gap by  2022-23 inc. 1% efficiencies	N/A	£299m	£402m	£551m	£999m

Source: Health Foundation analysis of the UK party manifestos and author’s calculations based on the NHS service delivery resource allocation provided in the Welsh Government Final Budget, 2017-18.

Note: Spending pressures pertaining to Wales represent the required increase in spend relative to 2017-18, which assumes delivery costs rise by 3.2% a year above inflation, with an additional 0.7% added to reflect cost pressures emanating from new technologies as calculated by the Health Foundation. Note that estimated Barnett consequentials from 2018-19 have been uprated by 5% so as to reflect the needs-based factor in Wales’ new Fiscal Framework. All spending figures are given in 2017/18 prices.

 

In the fifth row of Table 2 we show each party’s resource funding gap by 2022-23 under their current spending plans, assuming that year-on-year spending pressures grow by 3.9% over the period. In all cases, there is a significant gap between the additional funds that Wales would be set to receive and the forecast additional spending pressures. If 1% NHS efficiency savings were achieved in line with the long-run historic trend, deficits of £299 million under Labour’s spending plans, £402 million under the Liberal Democrat plans and £551 million under the Conservatives’ plans (roughly the same amount that is spent by all local authorities in Wales on older adult social care) would remain.

Whether the parties would actually advocate such efficiency targets is a question for another day. The consequentials for Wales from all the relevant England spending plans would go into one pot and it would be for the Welsh Government and National Assembly to determine allocations and priorities.  However, it is clear that the funding plans being put forward would not, of themselves, resolve all the health spending challenges ahead.     

Also of note here are the parties’ commitments to NHS pay. The 1% public sector pay cap has been an important factor in holding costs down and sustaining services, but pay pressures are likely to rise if pay continues to fall in real terms and recruitment becomes more difficult. The Conservatives are committed to the cap until at least 2019-20, while Labour and the Liberal Democrats want to lift it now. However, both Labour and the Liberal Democrats have included separate figures in their plans for meeting the associated costs, whereas a Conservative government would need to find additional resources in order to lift the cap after their commitment expires. In terms of how much this might cost the Welsh Government, indexing public sector pay in Wales to CPI inflation could add around £650m to the NHS Wales paybill in real terms over the period 2017-18 to 2021-22.

It is important to remember that between 2009-10 and 2015-16, local government services (excluding housing, social care services and schools, all of which have been relatively protected in Wales) saw real terms spending – defined as net current expenditure – fall by almost half (March 2017 OBR Deflator, calculated using local government revenue outturn figures available from StatsWales). Even for the more generous party spending commitments listed above, and assuming a 1% year-on-year growth in efficiency savings, forecast pressures are such that the Welsh Government may have to consider taking money out of unprotected public service areas, such as local government, in order to plug the health gap.

 

Older adult social care (65+)

Older adult social care for persons aged 65 and over is a devolved matter and it will be for Wales to determine its future arrangements post General Election. But what the UK parties say now could have a significant financial bearing. All the parties recognise the importance of social care services, but their approach is very different:

• Labour is intending to move to a National Care Service in England and its figures include an extra £2.1 billion a year for social care, which would translate into a Barnett consequential of approximately £125m after the introduction of the new Fiscal Framework in 2018-19. The manifesto includes an unspecified cap on personal contributions to care costs and increasing the asset threshold below which people are entitled to state support. Plans also include an increase in the Carer’s Allowance.
• The Conservatives want to change the way people pay for elderly care by aligning the  means-testing for home care with residential care, so that both take the value of the family home into account, introducing ‘a capital floor’ of £100,000 and providing for deferred payments. It has now added a possible, but unspecified, cap on care costs.  
• The Liberal Democrat manifesto looks at health and social care together, with a commitment to move toward single place-based budgets that allow local areas to decide how best to provide care for their community. This makes it difficult to separate out the financial implications for social care only, although some analyses have assumed that around one third of the Lib Dem’s total spending increase would go towards social care. Plans also include a cap on social care costs, moving towards free end-of-life social care and increasing the Carer’s Allowance, although only the latter of these is separately costed.    

To what extent do these commitments meet the resource needs of older adult social care services in Wales? The Health Foundation have estimated that spending on adult social care services will need to rise by an average of 4.1% up to 2030-31 due to demography, chronic conditions and rising costs. This would mean that by 2022-23, Wales would need to be spending an extra £184 million per year in current prices above and beyond what was spent by local authorities according to the latest revenue outturn data (2015-16). By 2022-23, people aged 65 and over are expected to account for more than 22% of Wales’ population (up from around 18% in 2009-10). Maintaining pre-austerity (2009-10) levels of per-capita spending on older adult social care would require a similar level of additional resource to the Health Foundation estimates above (around £168 million extra relative to 2015-16).

Labour’s resource pledge would, in isolation, come somewhat close to meeting these demand pressures. Adopting a ‘Dilnot-esque’ cap in England and a greater capital disregard could, once operationalised, bring spending even closer to meeting the Health Foundation’s extra funding requirement.  All parties have now confirmed their intent to move toward such a cap, although no party has specified the precise level at which this would be set.  The cost to government of the £35,000 cap first proposed in the 2011 Dilnot commission report was then estimated to be around £1.9bn in today’s prices (March 2017 OBR Deflator), generating a potential a consequential of around £106 million for the Welsh government. If the cap were set at a higher level, the cost to government would be expected to be less, and hence a lower consequential for Wales.

How quickly the UK parties are able to implement these changes to the charging system in England may be of considerable short term importance to the Welsh Government. The Welsh Government’s five year plan, “Taking Wales Forward”, committed to more than doubling the capital limit used in charging for residential social care, from £24,000 to £50,000. Presently, the limit stands at £30,000, with the remaining disregard set to be phased in over the remainder of the parliament. Funding of £4.5 million was made available to local government through the revenue settlement to support the implementation of this initial increase in 2017-18. Although we do not know what the full costs will be to local authorities once the upper capital threshold comes into effect, the UK parties’ manifesto commitments do imply that Wales will receive additional resource stemming from parallel changes to charging in England which may help to cover the cost.

 

Summary

While the three major parties propose to increase spending on health and social care, they have different implications for Wales. Of the three, Labour comes closest to closing the health funding gap, followed by the Liberal Democrat and then the Conservative proposals. However, none of the parties fully meet the funding required. Social care proposals have not been as detailed: only Labour announced extra spending for social care specifically. The resulting extra funding to Wales would go some way towards meeting Wales’ social care costs, but would still leave a gap. Questions still remain about the details of the three parties’ funding arrangements, as do questions about the Welsh Government’s spending priorities.