Just £4bn for a Decent NHS Pay Rise

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Photo by Étienne Godiard on Unsplash

As the first wave of the COVID-19 pandemic swept through the UK, every Thursday, at 8pm, people came to their windows and doors to clap for those on the frontline of our response.

Such expressions of appreciation are understandable, but do not actually address any problems; most notably low pay or lack of protective equipment.

A recent petition to increase pay for NHS health workers has been debated in Parliament. The essence of the response was ‘we acknowledge the importance and value of their work, there is already an ongoing three year pay reform, many are already benefiting from that.’

This post points readers in the direction of useful information on funding an NHS pay rise.

· How many people work in the NHS and what are they currently paid?

· How much money does government collect each year? How much does it spend and what does it spend it on?

· How much does the Department of Health and Social Care spend and what does it spend it on?

From the start, however, one thing should be clear. In 2018/19 the government borrowed £40 billion. In the four months to July 2020 alone, as part of its response to Covid-19, the government plans to borrow a whopping £225 billion. This year’s annual deficit may run to over £270 billion. This is comparable to the largest budget deficit following the 2008 financial crisis. Our economy (and government finances) will be very different coming out of all this to how it went in. Much uncertainty lies ahead.

1: How many people work for the NHS and what are they currently paid?

The NHS employs over a million people, including over 100,000 doctors and nearly 300,000 nurses and health visitors. It employs nearly 350,000 clinical support staff, over 180,000 infrastructure support workers and nearly 150,000 scientific, therapeutic and technical staff (Table 1).

The average pay overall is £32,600, but there is a large spread between the highest and lowest paid groups. Doctors are the best paid (on average), followed by scientific, therapeutic and technical staff. There is also a large spread within groups. For example, the infrastructure support group includes both senior managers (with an average pay of £81,000) and hotel, property and estates staff (with an average pay of £19,000). I haven’t included these subgroups in Table 1, but they are available here.

Source: author compiled table using NHS Digital data. Data available from https://digital.nhs.uk/data-and-information/publications/statistical/nhs-workforce-statistics/january-2020 and https://digital.nhs.uk/data-and-information/publications/statistical/nhs-staff-earnings-estimates

One group that stands out is support to clinical staff. This is made up of nearly 350,000 full time equivalent staff (a third of the entire NHS workforce) with an average pay of just £20,000 a year. They work with nurses, midwives, doctors and allied health professionals to deliver healthcare in roles such as dietetic assistants, healthcare assistants and maternity support workers.

There are a further 2,000 staff with an unknown classification and a similarly low average annual pay; and 56,000 hotel, property and estates staff with an average annual pay of just £19,000 (a sub-group of the infrastructure support group).

Ideally, we would also be able to look at median pay. Averages are heavily influenced by outliers (extremely high or low pay within a staff group). For example, the median salary for nurses and health visitors is likely to be lower than the average presented here, but because there are a small number of nurses with higher pay it pulls the average up. Unfortunately, I cannot find the data to unpack this.

The ongoing pay reforms aim to raise the pay of staff below the top of their band by at least 9%, and most staff at the top of their band by 6.5%. For those currently on the lowest salaries, this alone does not seem like much. The reforms actually give much larger pay rises to those on higher salaries (see annex A of the framework). In addition, while the agreement does include a minimum basic rate, at £17,460, this is still very low.

As a benchmark, the estimated average annual pay for full time employees in the UK across all sectors and jobs is £37,400 (see table 1.7a of the 2019 provisional data).

2: How much money does the government collect each year and how much does it spend?

In 2018/19 the government raised over £620 billion from tax receipts and national insurance contributions (NIC). Two thirds of this came from three main sources: income tax (£190 billion), NIC (£140 billion) and value added tax (VAT) (£130 billion) (Figure 1).

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Source: author’s graph based on National Statistics data. Data available from https://www.gov.uk/government/statistics/hmrc-tax-and-nics-receipts-for-the-uk

In the same year (2018/19) the government spent £851 billion. Most of this went on welfare, pensions and child maintenance (through the department of Work and Pensions), health care, social care and education (see Figure 2).

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Source: author’s graph based on National Statistics data. Data available from https://www.gov.uk/government/statistics/public-spending-statistics-release-february-2020. Note that negative total managed expenditure values for HM Treasury and Business, Energy and Industrial Strategy departments are not included in this graph.

As mentioned above, the government also borrowed £40 billion. The remaining £190 billion came from non tax revenue such as interest on money it had lent out, dividends on stocks and shares and money it had left over from previous years.

3. What is government health expenditure spent on?

The UK Health Accounts includes information on how health expenditure is changing over time and what it is spent on.

It is generally considered cheaper to prevent a disease than treat it. Yet, while 65% of the NHS budget goes on curative and rehabilitative care, only 5% goes on prevention (see figure 3). Some suggest this is not a financially viable strategy.

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Source: Author’s graph based on Office for National Statistics data. Data available from https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthcaresystem/bulletins/ukhealthaccounts/2018#government-healthcare-expenditure

The Health Accounts also show that nearly 50% of health expenditure is spent on care delivered in hospitals, and that more than 50% of the spending in hospitals goes on inpatient care. The drive to keep people out of hospitals and to provide care during outpatient visits is partly about keeping costs down.

4: Two speculative suggestions about how the salaries of the lowest paid NHS workers could be increased.

This final section is just intended to show the sort of things that may be possible. Details of an actual proposal would of course be different.

Based on the numbers above, £2 billion would cover the cost of raising the average pay of all ‘support to clinical staff’, ‘hotel, property and estates staff’ and ‘other staff or those with an unknown classification’ to £25,600 per year. This is the general minimum salary threshold in the UK’s new points based immigration system —alternatively interpreted as the government’s threshold for a decent salary. Add an extra £1 billion to uplift low salaries throughout the rest of the system (for example a £3,000 pay rise for each of the 300,000 nurses and health visitors), plus 30% to cover increased NIC and pension contributions. In total you get £4 billion a year. This is just an illustrative back of the envelope calculation of what may be needed (see Table 2).

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Source: author’s calculations using data from https://digital.nhs.uk/data-and-information/publications/statistical/nhs-workforce-statistics/january-2020 and https://digital.nhs.uk/data-and-information/publications/statistical/nhs-staff-earnings-estimates

For context, this is roughly 10% of the total NHS wage bill (£40 billion), and forty times higher per year than the already large sum of money that has been raised to support NHS staff, volunteers and patients by the NHS Charities Together Campaign Covid-19 Appeal (just over £100 million at the time of writing).

In the context of overall government revenue and expenditure, £4 billion is not huge, but it is not insignificant either and it would need to come from somewhere.

Suggestion one: Redirect some of what government is already spending. Many believe that government expenditure is already too big, or at least that it should not get any bigger. While the future is very uncertain, UK government expenditure is currently around 42% of the overall economy. This is larger than in Ireland (29%) Australia (36%) and the United States (38%), but lower than in Germany (44%), Italy (50%) and France (57%).

Without increasing the size of government expenditure, increasing the NHS payroll budget would need to be funded by a decrease in expenditure elsewhere. Given the £4 billion price tag, this would likely mean a decrease in expenditure through the Department for Work and Pensions, the Department for Education and/or a decrease elsewhere within the Department of Health and Social Care itself.

Health and Social Care is already the second highest funded department within government. We need to be aware of this when we say that our health system is underfunded or that it needs more money to pay its staff properly. Is it really underfunded? Or is it currently spending its money in the wrong way? For instance, could an increase in preventative care free up some of the money currently spent on curative care?

Suggestion two: Increase government spending. Others believe that as a society we should be contributing more to larger government expenditure and that this can be a mechanism for reducing inequality. In this case, pay rises would need to be funded by increases in revenue collection (it is generally considered bad practice to pay salaries using borrowed money).

One option would be to increase some combination income tax, NIC and VAT. For example, raising 1% more than we currently do of each would collect an additional £4.5 billion per year (notwithstanding the future uncertainty). However, determining exactly what tax changes would do this is a dark art. It is never clear exactly how people will respond. Will higher income taxes reduce how many hours we work? Will higher VAT reduce how much money we spend? Labour recently proposed reducing the annual income threshold at which people start paying 45% income tax. Owing to the above mentioned issues, the Institute for Fiscal Studies concluded that this could do anything from increase revenue by £6 billion to decrease revenue by £1 billion.

In addition, with respect to reducing inequality, the mechanism by which the revenue is collected influences the extent to which it redistributes income. High earners pay most of the income tax, but this is less true for NIC, and much less true for VAT.

An alternative option would be to crack down on tax avoidance and evasion. HM Revenue and Customs estimate that the difference between the tax that should be paid and the tax that is actually paid is around £35 billion a year. A small portion of this would be enough.

These are just two broad options. Neither is simple, especially given the government debt and economic challenges that lie ahead, but both are possible. Canada is an example of a country that has made such a decision. They have agreed to spend Can$3 billion raising the salaries of essential workers who earn less than Can$1,800 a month. Could we do something similar?

We should always remember that the government’s money is our money, and, within the realm of what we can afford, we should decide how we spend it. If we want to pay health workers more, we can. We just have to choose to do so, and, one way or another, accept the cost.

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History, economics and health

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