Funding the NHS in Scotland: powers and privatisation

Published: 17th Sep 2014

  • Much of Scotland's budget for public services is funded by a "block grant" which is based on how much is spent on the equivalent services in England. Cuts to health spending in England would cut this overall grant, but it's up to the Scottish government whether it translates into a cut to health spending or to other areas instead.
  • Scotland spends more per person on health services than England does. But the IFS has said that between 2009/10 and 2015/16 there will be a real terms cut in spending on health in Scotland, compared to a rise in England. We don't know what spending will look like after 2016, no matter the outcome of the independence referendum.
  • Claims that "privatisation" in the NHS in England would impact on Scotland's future funding in the event of a No vote hinge on the introduction of a form of privatisation that isn't currently present in the English system. There's no evidence that allowing private companies to provide health services, as has been happening in England in recent decades, affects spending or the block grant.

Scotland decides how much to spend on health, but cuts in England affect its overall budget

Since 1998 the Scottish government has had full control over how much of its overall budget for public services it spends on the NHS in Scotland. What it can't currently control, however, is the size of this overall budget, which depends on the level of spending on the equivalent services in England.

Cuts to public spending in England are translated via a complex set of calculations called the Barnett Formula into cuts to the block grants of funding that go to Scotland, Wales and Northern Ireland. Cuts in spending in England will lead to a cut to Scotland's block grant, but these don't need to be of the same magnitude (and the same applies to spending increases).

While cuts to health spending in England would reduce the amount of money available for Scottish public services overall, the Scottish government doesn't need to pass those cuts on to the Scottish NHS. It might choose to cut school funding instead, for example.

The block grant isn't the only source of funding available to the Scottish government, which can also raise some money through taxes, as we covered in our guide to its powers:

"while the UK government retains most tax-raising powers, devolved powers include council tax, local business rates, landfill tax and stamp duty land tax. In addition, the Scottish Parliament can vary income tax rates by up to 10% below the UK rates and an unlimited amount above."

Scotland spends more per person on health, but has seen real terms cuts to health budgets 

Healthcare spending per head is higher in Scotland than it is in England, according to Treasury figures. In Scotland spending was £2,115 per person in 2012/13, while in England spending was £1,912 per person. So that's 10.6% higher in Scotland.

The Scottish government has said this is because lower population density in Scotland makes it more expensive to provide services at the same level, and that people in Scotland have a greater need for healthcare. It's not a new trend - analysis by the Nuffield Trust and Health Foundation has shown that spending per head has been consistently lower in England than in each of the devolved nations since 2000/01.

Analysis by the Institute for Fiscal Studies (IFS) suggests that in the current period of austerity health spending has been less of a priority for the Scottish Government than in England. The IFS found Scotland's planned public spending is to fall by 8.4% in real terms between 2009/10 and 2015/16, less than the 13% cut to the budget for English public services. In the same period the planned spend on health will fall by 1.2% in Scotland, and rise by 4.4% in England.

NHS funding after a Yes vote: to be determined

A Yes vote would give Scotland full control over its tax policies and its spending on the NHS, subject to budget constraints.

The amount of money Scotland would have available for overall spending would depend on a number of factors around which there is quite a lot of uncertainty, including; future revenues from oil and gas, the amount of debt it 'inherits' from the rest of the UK, and its borrowing costs.

Whilst as far as we're aware the Scottish government hasn't set out specific pledges on future spending on the NHS under an independent Scotland, the IFS has said that the spending commitments it has made in other areas represent a "net giveaway" which would "require deeper cuts to other public spending, or tax rises". So any changes in funding for the NHS may have to be considered in this context.

We've set out more detail on the overall budgetary position in our guide to tax and spending in an independent Scotland.

Funding after a No vote: private providers wouldn't affect it

The Yes Campaign has argued that privatisation in the English NHS might lead to cuts in health spending that reduce Scotland's block grant and consequently puts funding for the NHS in Scotland at risk if it remains a part of the UK.

The extent to which this plays out in practice depends on what's meant by 'privatisation' — health services being provided by private companies, patients being charged for them, or publicly owned services being allowed to provide services to those who are willing to pay.

Privatisation in the English NHS has taken the form of greater freedoms for private companies to compete to provide services. This was one of the aims of the Health and Social Care Act of 2012, and of earlier policies from the previous government. Because these services are commissioned using the NHS England budget, they don't in themselves mean a cut to spending and so don't affect the block grant that goes to Scotland.

The Yes campaign has also argued that "there are signs that the Westminster Coalition is driving the NHS in England down a road towards a US-style healthcare system." In the US, most people have to purchase insurance plans in order to receive healthcare. If a similar system was introduced in England, it would reduce public spending on healthcare and thus the block grant received by Scotland. While there'd be no legal requirement for the Scottish government to charge patients, pressures on its budget might force it to.

None of the major parties in Westminster have announced an intention to move towards charging patients for treatments. The Health and Social Care Act has, however, allowed NHS hospitals to get up 49% of their incomes from private patients, something the Labour party has said represents "the first steps towards an American healthcare system." The act has only been in force since April 2013, so we don't yet know what the effects of the new cap on overall spending and on the services provided by hospital trusts has been. Data obtained under the Freedom of Information Act has reportedly shown income from private patients has "barely changed" in the year after the introduction of the new cap. There's also no evidence that services provided to private patients by NHS trusts are replacing publicly funded ones - the patients in question may have gone elsewhere for private treatment anyway.

Funding after a No vote wouldn't be entirely dependent on the block grant. The tax raising powers that Scotland is due to gain when the Scotland Act comes into force from April 2016 could enable it to add to the funding it has available. For example, the IFS calculates that, with the use of these powers, an increase in the rate of income tax by 1% would raise £400-450 million a year, "enough to boost health spending by around 4%."

The Scottish Labour Party, Conservatives, and Liberal Democrats have also proposed to extend tax raising powers following a No vote, although the extent of the changes they propose varies.

Scotland's NHS after a No vote: concerns about EU-US trade deal

There are some concerns that an international trade agreement currently under negotiation might force Scotland to open up its health service to private providers. The Transatlantic Trade and Investment Partnership (TTIP) aims to open up competition between the EU and USA. The Lancet has reported on concerns that the agreement could mean that because parts of the UK's health services use private providers (in England), US corporations would be allowed to bid for contracts throughout the UK, including Scotland if it votes No.  There are also concerns that the corporations could begin legal action against either the UK or Scottish government if the role of private providers is scaled back, for example by a repeal of the Health and Social Care Act.

The European Commission has suggested this won't be the case, saying "we are confident that the rights of EU Member States to manage their health systems according to their various needs can be fully safeguarded" under TTIP. But the deal is far from finalised, making it difficult to predict with any certainty its effects on the Scottish NHS either after a Yes or No vote.

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