5. Storing up problems for the future: the price of short-term approaches to government spending

 

Key points

  • Many areas of spending across central and local government influence people’s health – not just spending on the NHS and social care. These wider areas of government spending have had their budgets placed under considerable pressure in recent years.
  • Not only has spending on health-creating areas of government fallen, but there has been a significant shift away from proactive, health-creating areas of spend towards reactive, crisis management services. This can be seen in areas such as children’s services and housing, as well as in the health sector where less is being spent on public health and more on treatment.
  • A real terms increase in the public health grant in 2020/21 will end five years of real term cuts that had reduced the grant by a fifth, but will fall significantly short of the £1bn required to reverse them. By failing to match the rate of increase in budget for NHS front-line services the grant will still represent a shrinking share of overall health spend.
  • Spending on social security has fallen since 2012/13, partly due to falls in unemployment, but also because of a series of cuts to working age support. Changes introduced in the Summer Budget 2015 are set to mean further reductions across the rest of this decade and are likely to lead to rates of child poverty not seen for two decades, with the accompanying risks to health outcomes.
  • In a context of fiscal austerity and rising demand, the capacity for local authorities to focus on the strategies that support better health and wellbeing has been eroded. There have been substantial reductions in central funding to local authorities since 2009/10 and cuts have fallen disproportionately on activities that maintain health and wellbeing.
  • Current spending plans are intended to end the era of austerity with real term increases for all day-to-day spend of all departments announced in the 2019 Spending Round and overall departmental spending set to rise on a per capita basis. Comprehensive spending plans beyond 2020/21 are yet to be set out. Previous commitments for large increases in NHS funding into the next decade are likely to place pressure on funding for other departments, which would continue the broad prioritisation pattern of the last decade and the ensuing risks to the nation’s health.

Since 2010, reducing the extent to which annual government revenues are exceeded by spending, and reducing the existing stock of debt, have been a core focus for government. This has largely been achieved by reducing spending, as opposed to increasing tax revenues, with net debt falling as a share of GDP since 2017/18.

With some areas of spending protected, there have necessarily been larger than average reductions in spending across other areas of government (see Figure 11). Current spending plans suggest that this trend is set to continue, with many of these areas playing a crucial role in creating and maintaining the conditions that lead to good health – such as education or local government services. Under-investment in such policy areas that create the conditions for a healthy life risks significant problems being stored up for the future.

Social security

Social security is an example of government spending that helps protect people’s health. Around 28% of government spending is on social security, and the majority of that support (excluding most State Pension provision) is targeted at the most vulnerable in society – people who are out of work, disabled people, people with long-term illnesses and people with low income. This provision of supplementary income helps to protect the living standards of the most vulnerable and, in doing so, their health.

Targeted support through the Tax Credit system and Pension Credit has had some success at reducing poverty among children and pensioners since their introduction in the late-1990s. However, while pensioner benefits have been protected since 2010, working age support has been subject to a series of cuts that are set to continue until the end of the decade, as shown in Figure 10.

Figure 10: The changing generosity of working age welfare and percentage of children in poverty, index (100=2013/14), constant price terms (GDP deflator)

Figure 10: The changing generosity of working age welfare and percentage of children in poverty, index (100=2013/14), constant price terms (GDP deflator).

Note: Data from 2018/19 onwards are projections.

Source: Health Foundation analysis using Spring Statement 2019 Benefit Summary Table; Households Below Average Income, DWP.

Social security spending is measured on a per person basis across the non-pensioner population; that is, taking into account all those of working age, not just those receiving benefits. This makes the measurement sensitive to the number of people receiving benefits. On that basis, social security spending increased in 2009/10 due to a rise in unemployment and falls in earned income that led to higher overall spending on unemployment benefit and tax credits. The reduction in spending since 2012/13 – to below pre-financial crisis levels – partly reflects further falls in unemployment but also reflects a series of cuts to working age support. The largest of these were introduced in the Summer Budget 2015 and will mean further reductions in generosity across the rest of this decade. Resolution Foundation analysis anticipates that these cuts are likely to lead to nearly 35% of children living in poverty, a level not seen for two decades, with the accompanying risks to health outcomes. In comparison, pensioner poverty is expected to remain broadly flat over the period after experiencing significant reductions since the turn of the century.

5.2 Likely implications of future government spending plans

The spending plans set out in the 2019 Spending Round are intended to end the era of austerity with real term increases for all day-to-day spend of all departments announced in the 2019 Spending Round and overall departmental spending set to rise on a per capita basis. However, spending plans beyond 2020/21 are yet to be set out and large commitments to increase NHS funding are likely to mean that budgets for other departments will come under pressure, continuing the broad pattern of the last decade where NHS spend has represented a growing share of government spend (see Figure 11).

Figure 11: The differing impact of austerity across government departments, 2009/10 to 2020/21, real change in departmental resource budgets (resource Departmental Expenditure Limit per person, GDP deflator)

Figure 11: The differing impact of austerity across government departments, 2009/10 to 2020/21, real change in departmental resource budgets (resource Departmental Expenditure Limit per person, GDP deflator).

Source: Resolution Foundation, Rounding up: putting the 2019 Spending Round into context.

Even with the increased spend for 2020/21 set out at the 2019 Spending Round, compared to 2009/10, there have been substantial reductions to most government department budgets; the exceptions being international development (which accounts for a relatively small share of spending), the home office (following the 2019 Spending Round) and health and social care. By 2020/21 per person spending on health and social care is expected to be 14% higher than in 2009/10, while departments from education to local government will experience reductions of 11–77%.

There are already signs emerging that the drift away from expenditure that maintains wellbeing and health is leading to the emergence of considerable public health challenges – both in the short and long term. Ultimately, this approach creates a false economy. Underfunding preventative services and inadequate action across the wider determinants of health will only further increase pressure on the NHS and other crisis services. Such short-termism cannot continue as the demographic shifts towards an ageing society, which will bring its own pressures on government finances through both increased demand for services and pensions for the older population, and a relatively smaller working age population to provide the revenues to fund that support.

However, governments face a conundrum. The upfront investment required to maintain people’s health over the long term, while providing enough support to the current population with acute need – both older and younger – will require higher levels of spending. The next big debate will need to be about where those revenues come from. Investments in strategies that maintain and improve the nation’s health should not be considered solely as a ‘cost’. An effective strategy that places people’s health as a primary asset could in itself help improve the long-term fiscal picture, with a healthier population reducing future costs of poor health and increasing the productivity and activity rates of the population to fund those necessary services.

In a context of fiscal austerity and rising demand, the capacity for local authorities to focus on the strategies that support better health and wellbeing has been eroded. There have been substantial reductions in central funding to local authorities since 2009/10. The often statutory nature of services that are required to meet immediate needs and the discretionary nature of preventative spending has meant that, to stay within budgets, cuts have disproportionately targeted activities that maintain and protect health.

This is most starkly illustrated through the changing patterns in spending on children’s services and housing. While cases are few relative to the total population, being homeless or in the care system is associated with considerable health challenges. Cases of severe need increased at the same time as spending has shifted from prevention to meeting these needs (Figure 12). This creates the risk of a cycle, whereby prevention spending is cut to meet crisis need, thus fuelling greater future need.

Figure 12: Indexed changes in measures of severe need for housing and children’s services, England, 2010–2018

Figure 12: Indexed changes in measures of severe need for housing and children’s services, England, 2010–2018.

Source: Ministry of Housing, Communities and Local Government (MHCLG), Live Tables on Homelessness; Department for Education, Looked-after Children.

Children’s services

Children’s services encompass a range of activities from proactive early intervention, such as spending on youth centres, family support and children’s centres, to reactive, late intervention, which includes youth justice, and support for ‘looked-after’ children. ‘Looked-after’ children experience poor outcomes across a range of measures, including educational attainment as well as physical and mental health.

Figure 13 shows that spending by local authorities in England on children’s services between 2013/14 and 2018/19 has fallen by 2.9% in real terms. At the same time, the focus of that spending has changed considerably. By 2018/19, the share of spending on reactive services (children in need or ‘looked-after’) had reached 73%, up from 64% in 2013/14. There has been an increase in both the total amount spent and the share of what is an overall smaller budget for children’s services in the period. The share spent on preventative services has fallen from almost a third (32%) to less than a quarter (24%).

This increase in spending on more acute need appears to be a result of the growth in the number of children in the care system. With a statutory obligation to provide care, spending has increased: there were 75,000 children ‘looked-after’ in the year ending March 2018, up by 2,800 on the previous year and an increase of 7,350 (11%) on five years earlier.

Figure 13: The changing pattern of spend on local children’s services, England, 2013/14 to 2018/19, constant 2019/20 price terms (GDP deflator)

Figure 13: The changing pattern of spend on local children’s services, England, 2013/14 to 2018/19, constant 2019/20 price terms (GDP deflator).

Source: Health Foundation analysis using Department for Education, Children, Schools and families financial data collection, 2013/14 to 2018/19.

The drift of spending away from prevention has important health implications. For example, a recently published evaluation of the Sure Start children’s centres programme found that it significantly reduced hospitalisations among children by the time they finish primary school. Importantly, the benefits of the programme were found to be greatest for children living in the most disadvantaged areas. The two-thirds reduction in funding for the programme (from £1.8bn in 2009/10 to £600m in 2017/18) is likely to have had a detrimental impact on children’s health and health inequalities.

Local housing provision

Rough sleeping is associated with tri-morbidity (physical and mental ill-health combined with substance misuse) and an average age of death 30 years shorter than the general population. The health care costs associated with homelessness are much higher per person, for example.

As well as being harmful to the health of those experiencing severe need, the risk is that cuts to preventative services will lead to further growth in reactive need and, ultimately, higher spending. For example, a study looking at the rise of homelessness in local authority areas found that reductions in local authority housing spending (including prevention spending) led to higher rates of homelessness. It also found a similar effect across a broader range of programmes not specifically designed to prevent homelessness, such as adult social care and other areas of social security.

Figure 14 shows that spending on homelessness activities has increased by a quarter since 2009/10, rising from £1.1bn to £1.4bn by 2017/18 (in 2019/20 real terms). Within that, however, the greatest increase has been in provision of temporary accommodation – a rise of £0.4bn since 2011/12 – rather than prevention to avoid homelessness in the first place.

Figure 14: The changing pattern of local authority spend on housing, 2009/10 to 2017/18, constant 2019/20 price terms (GDP deflator)

Figure 14: The changing pattern of local authority spend on housing, 2009/10 to 2017/18, constant 2019/20 price terms (GDP deflator).

Source: Health Foundation analysis using MHCLG, Local authority expenditure data: 2009/10 to 2017/18.

5.3 Health spending increasingly skewed away from prevention

Within the Department of Health and Social Care’s expenditure there has been greater protection of spending on more severe needs via the NHS, while support to local authority public health services that help prevent ill health in the first place has been reduced (see Figure 15). Between 2015/16 and 2019/20, spending on NHS England is expected to have grown by 8% on a real term per head basis, relative to a 23% cut in the public health grant since allocations were first set out for 2015/16. This is despite recent analysis that found 75% of public health interventions reviewed by NICE were either cost-effective or cost-saving over time.

The public health grant supports prevention services and enables directors of public health to influence the determinants of health at a local level by working across other departments in local authorities.

The public health grant, currently £3.1bn a year, was first introduced in 2013/14. At this point, responsibility for preventative services – such as sexual health clinics, stop-smoking support, and drug and alcohol abuse services – moved from the NHS to local government. Responsibility for services for children aged 0–5 years was also moved to local government in the middle of 2015/16, with the annual equivalent of an additional £0.9bn a year of funding. But the total value of the public health grant has declined (in real terms) since 2015/16.

Figure 15: Growth in elements of health spend per person, 2015/16 to 2019/20, index (100=2015/16), constant price terms (GDP deflator), England population (all ages)

Figure 15: Growth in elements of health spend per person, 2015/16 to 2019/20, index (100=2015/16), constant price terms (GDP deflator), England population (all ages).

Source: Health Foundation analysis using Department of Health and Social Care, departmental spend; and MHCLG, Local government finance and expenditure, various.

The public health grant allocation for 2019/20 was £850m lower (23% lower in real terms per person) than when the grant was implemented in 2015/16. The 2019 Spending Round announced a real term increase in the grant for 2020/21, but this is likely to fall significantly short of the additional £1bn required to reverse real term per capita cuts since 2015/16. Nor is the increase in the public health grant likely to keep pace with growth in frontline NHS services. The result is that, since 2015/16 the public health grant represents a decreasing share of total health spend.

Making the case for public health interventions against health care treatments (in the context of the share of health spending dedicated to acute or preventative measures) can be difficult, given that the former tend to be assessed on an overall return on investment (ROI) basis and the latter in relation to the cost per quality-adjusted life-year (QALY). Research into the ROI from local-level public health measures suggests a typical return of 14:1 – that is, society benefits by an average of 14 times the initial investment into each intervention. There can be a wide range of returns, depending on intervention type and the geographical level (national or more local) at which it takes effect. For example, regulatory measures such as smoking bans (typical ROI of 46.5), health protection such as immunisation schemes (typical ROI of 34.2) and social interventions such as working with young offenders (typical ROI of 5.6). However, this research indicates that there is a clear case for greater ‘upstream’ public health investment.

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