The recent Holyrood Finance Committee warning around affordability was a timely one as the Budget season approaches. The future of the NHS budget and staffing numbers loom particularly large in this respect, given the numbers involved.

In Scotland, the health and social care budget accounts for a third of the total budget for day-to-day spending, while the NHS staffing bill accounts for two-thirds of Scottish Government workforce costs. So the sums in this area are big and getting bigger and wage settlements are of the utmost importance, with knock-on implications for all other budgets. So where do we stand?

In June, NHS England published a detailed workforce plan up to 2036, by which time staff numbers are expected to have increased by 50 to 60 per cent over 2021 levels. The Institute for Fiscal Studies analysed the financial implications of this plan, calculating that it implies budget increases of around 3.6 per cent a year in inflation-adjusted terms, extending over 15 years. Even that figure is only achievable on the highly ambitious assumption that annual productivity gains of 1.5 to 2 per cent are achieved over the same period. By contrast, in June 2022, the Scottish Government issued a health-and-social-care workforce strategy which was supposed to lead to detailed figures being published “before the end of the year”, but still we wait.

The good news is that a lot more money will arrive in Scotland via Barnett consequentials stemming from the English NHS settlement. The bad news comes in two parts.

First, at a UK level, the implications for other budgets, if the English NHS staffing plans are met, look pretty dire. Given a low-growth economy and a historically high tax burden and national debt level, there may be little room for real-terms budget increases outside of health – at a time when strong funding bids will be made in relation to defence, net zero and crumbling infrastructure, like school buildings. So non-priority areas, like local government, could be in for further tough times. These UK constraints will also pass through to Scotland via the Barnett formula, meaning that if the positive, NHS-related consequentials are fully passed on to the Scottish NHS, there would be little left over for other budgets.

Second, Scottish NHS budget needs may be relatively greater than those in England. For example, the cost of the junior doctors settlement in Scotland is starting to take shape, as illustrated recently by the Auditor General. The settlement was for a single-year salary increase of 12.4 per cent for all junior doctors and dentists in training, backdated to April 1. Also included was a guaranteed minimum uplift of inflation over the subsequent three years, where the definition of ‘inflation’ is negotiable.

The British Medical Association uses retail-price inflation as its preferred measure, as it is typically one per cent higher than the consumer price index, due to measurement weaknesses, hence the Office for National Statistics no longer designating RPI as an official statistic. The BMA defends its use by claiming that RPI includes a housing element, whereas CPI does not, which is true, but then the correct measure is CPI including housing costs (CPIH), not the discredited RPI. To illustrate the impact of using such different measures, the growth in ‘inflation' from 2008 (the BMA’s starting point) to 2022 for CPIH, CPI and RPI are 49, 53 and 73 per cent respectively. So the cumulative differences can be large.

Looking forward, the National Institute of Economic and Social Research forecasts CPI to grow by 5.2 per cent and 3.9 per cent in 2023 and 2024 respectively (fourth-quarter estimates), compared to RPI growth of 9.9 and 5.9 per cent. That’s a big difference and in only two years, with obvious funding implications.

The above discussion might all seem quite abstruse but it is important. Given the size of the NHS budget, any differential in the English and Scottish settlements could, especially cumulatively, become a significant further restraint on other budgets. The extra money will need to be found from somewhere and raising taxes or borrowing more are beginning to look like less attractive sources than before, which means that other budgets may feel an extra pinch.

Further complicating the issue is the impact on staffing of declining, in real terms, wages. Last week's OECD report on health systems showed that the UK was one of very few countries to see the remuneration of both GPs and nurses fall between 2011 and 2021. This will affect both domestic and international recruitment, the latter being highly competitive – for example, over 40 per cent of Irish doctors and nurses are foreign-trained. So there are complex, and costly, judgments to be made here.

Overall, there are a number of issues that need to be urgently addressed if the current, unsatisfactory, situation is to be improved upon. First, publish long-term staffing plans for the Scottish NHS, as Audit Scotland and the profession itself have urged. Second, work out the funding implications of such a plan, both in absolute terms and relative to the expected Barnett consequentials coming from the UK. Third, set out a long-term tax framework, including addressing the current antiquated and unfair council tax arrangements. Fourth, estimate what scale of funding gap remains, while being mindful of the changing funding circumstances that may arise – ie, through alternative scenario planning – and start the process of adjusting budgets accordingly. This means serious prioritisation, whether it be with respect to child benefit, infrastructure, net zero, education or whatever, rather than the current ‘a bit here and a bit there’ approach.

We are miles away from any of this happening at present but, hopefully, warnings from the Finance Committee, Audit Scotland, the Scottish Fiscal Commission and others will start to force the Scottish Government’s hand.

John McLaren is a political economist who has worked in the Treasury, the Scottish Office and for a variety of economic think tanks

NHS funding: Scottish Government must face up to its tough choices – John McLaren

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