Paul Johnson, Director of the Institute for Fiscal Studies, gives an overview of how public spending is distributed and where health fits within the total spending picture.

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