Cost of NHS and education grows faster than general economy

BMJ 2009; 339 doi: (Published 05 November 2009) Cite this as: BMJ 2009;339:b4593
  1. Adrian O’Dowd
  1. 1London

    The cost of providing NHS services has risen faster in the past 10 years than costs throughout the whole economy, according to new figures from the Office for National Statistics (ONS).

    The office has also confirmed its findings published in June that the NHS’s productivity has fallen in the past 10 years despite large cash injections.

    The office regularly examines public sector productivity, but the Changing Costs of Public Services report contains a new measure called “relative unit cost of public service output.”

    This wider measure takes into account productivity (how much input is needed to produce a unit output) and the changing cost of each unit of input (that is, labour costs and materials used).

    Figures published on 3 November give estimates of how much the unit costs of public services, such as the NHS and schools, have changed compared with unit costs in general.

    Overall, between 1997 and 2007 the cost of public services rose by 13.7% compared with those in the economy as a whole. One of the reasons for this was rises in pay. Labour prices in the public sector rose by more than 72% between 1997 and 2007, compared with just over 55% in the economy as a whole.

    Another factor that explains the rise is a change in productivity, the efficiency and effectiveness with which resources were used to produce the output. Between 1997 and 2007 public service productivity fell by 3.4%.

    Despite the NHS’s fall in productivity over the decade, it started to improve slightly in the past two years because the figures show that in 2007 the costs of public service health care grew less than the unit costs in the whole economy.

    The labour costs in health care rose at an annual average rate of 5.6% between 1997 and 2007, compared with 4.5% a year for the whole economy.

    Most of the difference occurred after 2003, when the NHS was enjoying larger investment from government and additional staff.

    In output of public service education over the period 1997 to 2007, unit costs grew by 24.4% more than unit costs in the whole economy.

    Mike Phelps, senior economist at the Office for National Statistics said, “Productivity in health care from 1997 to 2007 has fallen a little, but it has improved in the past two years.

    “What is interesting about health care is that labour costs since 2003 are rising, but also the input price index in health care actually has grown less fast than whole economy costs. That will be because of a mixture of things, but partly it will be because of a switch to more generic drugs in the NHS.”


    Cite this as: BMJ 2009;339:b4593


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