by Daniel Measor, Head of Special Projects
The Office for Budget Responsibility’s (OBR) latest Fiscal Risks and Sustainability Report paints a stark picture of the future of healthcare spending. Yet the projections also raise an important question: how can the NHS absorb rising demand without compromising care or allowing costs to spiral?
The key question raised by the OBR’s analysis is whether the NHS can absorb growing demand without a corresponding increase in cost. Demographic change may be unavoidable, but the future spending trajectory is not. Improving productivity through technology-enabled care pathways, faster clinical decision-making and more efficient use of clinical time will be critical if the NHS is to meet rising patient expectations while keeping healthcare spending on a more sustainable path.
The Stats
The OBR has modelled that healthcare spending in the UK is due to rise from 8% of Gross Domestic Product (GDP) in 2030-31 to 13% by 2075-76 – a real growth of 2.5% each year within this period. By 2075-76, this would mean that the annual healthcare budget would be around three times the current spending levels.
This is a long-term projection, but that does not make it a distant issue. Change in the NHS takes time. From technology improvements which provide long-term savings, to increased training for medical students and multi-year financial planning, the NHS itself recognises that ignoring short-term action only makes long-term difficulties inevitable.
What’s driving the spending growth
The OBR breaks down their modelling of the 2.5% real growth into three primary factors:
- ~0.4% due to demographic shifts (ageing population, life expectancy and morbidity)
- ~1.2% due to income/demand effects. As the economy grows, people want and expect more healthcare (the OBR uses an income elasticity of 0.8, meaning for every 1% rise in the size of the economy, people demand a 0.8% increase in healthcare as measured by spending). This is really a statement about unmet or growing demand meeting a system with limited capacity to absorb it efficiently.
- ~1% due to “other cost pressures”. The primary cost pressure is known as the Baumol effect, explained below.
What we can control versus what we cannot control
The first issue, changing demographics, is largely uncontrollable, but the NHS has recognised that changes in healthcare delivery may lessen the impact. The NHS’s vision for neighbourhood healthcare will see a greater focus on active, not reactive, healthcare and greater resources spent on preventing illness rather than treating it.
Income/demand effects are less easy to prevent, but the impact on spending can be minimised. As the economy grows more generally, people rightly expect that more resources will be available to ensure the good health of the population. This may be due to new innovations, people prioritising their health if the cost of living eases, or other factors. If demand for healthcare is inevitable, then we must find ways to deliver this demand more efficiently.
The Baumol effect demonstrates how rising incomes across the economy will force the NHS to pay competitive wages to retain staff even when its own productivity is not rising to match, so its costs drift upward independent of how much care it actually delivers. Unlike manufacturing, for example, where a new machine may enable a worker to produce twice as many products, frontline NHS staff still spend most of their time doing work which cannot be simply automated, such as speaking to patients, conducting surgery, corridor walks or providing treatment.
The key to preventing a spiral in costs for the NHS is to increase productivity and ensure that demand can be absorbed through lower-cost pathways instead of default face-to-face capacity.
Critically, the OBR recognises that preventing this cost spiral is possible through innovation and technology, with healthcare spending hitting just 9% of GDP by 2075-76, rather than 13%, if this is achieved.
What does productivity improvement look like in practice?
The two levers identified above, improving productivity and absorbing demand through lower-cost pathways, are not theoretical. Across the NHS, organisations are already demonstrating how pathway redesign, supported by digital technology, can help deliver both. Examples involving Feedback Medical’s Bleepa platform illustrate the type of improvements that are possible.
At Queen Victoria Hospital NHS Foundation Trust, a redesigned breathlessness pathway built on Bleepa has demonstrated:
- A 90% diversion away from traditional face-to-face outpatient appointments, with patients managed through a straight-to-diagnostic pathway instead
- A 63% reduction in wait times against the standard 18-week referral-to-treatment target
- Clinician time per case reduced from a 30-minute outpatient appointment to a 5–6 minute clinical review
“The redesigned pathway has really helped to improve communication and collaboration between clinicians. Bleepa has enabled us to review the results rapidly and have multi-disciplinary discussions virtually to expedite decision making.”
— Dr Mark Jackson, Consultant in Sleep and Respiratory Medicine, Queen Victoria Hospital
Separately, an independent evaluation of Bleepa’s implementation at Northern Care Alliance NHS Trust, conducted by Unity Insights, found referral response times reduced by 87% (from 2.1 days to 0.28 days), with 32% of referrals managed remotely without the need for a face-to-face review. Scaled across the Integrated Care Board, this was projected to deliver £7.7 million in system-wide savings over five years.
Each of these outcomes map onto the levers the OBR identifies as the route to a lower spending trajectory. The reduction in clinician time per case is a productivity gain in the sense the OBR uses the term: more activity delivered per unit of staff time, helping organisations deliver more activity with the same clinical resource. The diversion away from outpatient appointments and the shift to asynchronous, remote patient management are examples of demand being absorbed through lower-cost pathways, rather than defaulting to the most resource-intensive form of care available.
Conclusion
The OBR’s analysis is clear that the future trajectory of healthcare spending is not fixed. Demographic pressures will continue to grow, but the difference between healthcare spending reaching 9% of GDP or 13% of GDP will depend in large part on the NHS’s ability to improve productivity and redesign services around patient need.
The challenge for NHS and ICB leaders now is how to meet it more effectively. Examples already emerging across diagnostics, outpatient care and virtual collaboration suggest that meaningful improvements are possible. The priority then is identifying, scaling and sustaining those approaches before today’s long-term projections become tomorrow’s reality.
Read the independent evaluation of Bleepa’s impact at Northern Care Alliance