How is the NHS funded?

Each of the four nations manage NHS services independently. This article focuses on England, however broad trends apply across the board.

Government finances are increasingly strained. Just last week, Labour rolled back on its bold £28bn green energy spending pledge, citing fiscal pressures.  At the same time, the current Conservative government has been forced to admit that its pledge to build 40 new hospitals by 2030 will now not be met  - even though 34 of these ‘new hospitals’ were just improvements to existing hospitals in the first place.  This follows months of strikes, with morale in the NHS already at an all-time low, having already suffered through a bruising pandemic and years of funding squeezes. Yet, the core mission of providing free (at the point of use) healthcare to all remains. So, with this in mind, how is the NHS funded and who pays what?

In England, the majority of NHS spending is funded by the Westminster government, with the Chancellor deciding the NHS’s allocation of the government budget.  As with almost all government spending, this means that the NHS is funded through a combination of taxes and borrowing. In 2021, the average UK adult paid £9,351 in income taxes, of which £1,732 was bound for the NHS.  Overseas students must pay an ‘immigration health charge’ of £470 to access free-at-the-point-of-use care,  and visitors to the UK are liable to pay for any care received at rates 50% above the NHS’s ‘normal’ rate.

Not wanting to raise taxes, but needing to satisfy increasing demand, successive governments have resorted to various fundraising schemes. For example, since 1968 patients have had to pay for prescriptions,  albeit at a subsidised rate, and there is now even talk of charging for visits to the GP  (in Ireland GP visits cost north of 45 euros).

Strikingly, a small proportion of NHS-adjacent services are even left to rely on a generous public: air ambulances are funded through charitable donations  and specialist hospitals such as Great Ormond Street Hospital rely on donations to fund vital equipment.

In total, NHS England’s 2022/23 budget was £153bn, of which two-thirds went towards commissioning local health services.  Local funding decisions are made by commissioning bodies, called Integrated Care Boards (ICBs), who are charged with ensuring that funding best matches local health needs.

With this aim, ICBs distribute their budgets to healthcare providers, such as NHS trusts and the independent sector, through various agreements. While overseen by NHS England, local NHS trusts are standalone, independent organisations who work in close collaboration with ICBs and other trusts.  For some services, NHS trusts may receive a set yearly fee in exchange for providing A&E services for a certain area (called ‘block’ contracts). However, there has been an increasing push to move to ‘payment by results’, where a provider is paid a set amount per activity, according to national tariffs.  For example, a provider will receive around £4,500 for each knee replacement it does, as per NHS England’s national tariffs.

NHS capacity is failing to keep up with demand, with NHS waiting lists at all-time highs, and showing no signs of improving.  In the context of ageing hospital infrastructure and more than 10 years of austerity, central NHS England funding is rarely sufficient. To offset shortfalls elsewhere, many NHS trusts operate private hospital wings. For example, Imperial Healthcare Trust made £28m in revenue from providing private healthcare services in 2022.

Compounding this issue, the UK government is facing rising borrowing costs while the economy flirts with recession. Our population is ageing to the point that by 2043, 1 in 4 people will be over 65 years old.  Like the population, NHS infrastructure is increasingly old, with some hospitals even having to prop up ceilings using makeshift supports.

In this context, there is an inescapable need to face the issue of how to fund an already strained national health service. Understanding how the current system works is a good place to start.