The one fact that should inform Sunak’s Spending Review more than any other

The relationship between health and wealth is not what you might think

November 24, 2020
Photo:  David Cliff/NurPhoto/PA Images
Photo: David Cliff/NurPhoto/PA Images

“The first wealth is health,” essayist Ralph Waldo Emerson wrote in 1860.

There’s no doubting the impact Covid-19 has wrought on the nation’s health and economy. By early November, the 2020 death toll in England and Wales was almost 60,000 higher than the average number of deaths annually over the last five years. The Office for Budget Responsibility has said the country is facing the “largest decline in annual GDP for 300 years.”

On Wednesday, against that background, Chancellor Rishi Sunak will set out a one-year settlement for public services in his Spending Review. So what approach makes most sense?

The top priority must be to fight and contain the virus. Viewing Covid-19 as a simple trade-off between health and wealth presents a false dichotomy. This year the government is on track to spend more than £40bn on managing Covid-19: with test and trace and PPE costing more than £27bn, and the remainder spent on increasing capacity in the NHS through extra staff, ventilators, the network of Nightingale field hospitals and provisioning private sector hospitals to help meet demand.

At the start of the pandemic, the Treasury insisted that the NHS would get whatever it needed to combat coronavirus. Sunak is clearly worried about writing blank cheques and would prefer to re-establish budgetary controls. But while Covid-19 costs are high—£40bn is around two per cent of the UK’s pre-pandemic GDP—the cost of not resourcing the fight against the disease would almost certainly be higher.

New estimates from the Health Foundation suggest that even with a vaccine, the health system will likely need a further £40bn next year to deal with Covid-19 and ensure that the NHS remains open for business for all emergency and planned care. Social care, which has been hard hit by the pandemic, will also need ongoing funding.

With the UK’s debt-to-GDP ratio expected to exceed 100 per cent this year, the temptation will be to repeat the policy response to the 2008 financial crisis and clamp down on spending. But the context is different. As the OECD notes, despite high levels of global debt, countries like the UK do have fiscal firepower and can borrow readily and cheaply. The OECD is urging continued use of that firepower to keep economies going, support companies and workers and protect the most vulnerable. Critically, it has counselled against withdrawing fiscal support too soon.

The chancellor also needs to think beyond the rescue phase of the pandemic, to recovery. The government must invest now to deliver on its pledge to “build back better.”

For the NHS and social care, the Health Foundation’s analysis suggests that this would require around £20bn a year of additional investment by the end of this parliament, an increase of around one per cent of GDP. This would allow the NHS to meet the anticipated increase in mental health needs following the pandemic, invest in training more doctors and nurses, fund local public health services and begin to address the fundamental fault lines in the social care system.

But building back better will also require more structural changes in our public services. We still don’t fully understand the reason why death rates in some countries are higher than others, but it’s clear that the virus has been devastating in poorer communities because of poorer underlying health. A healthier, more resilient population is a prize worth reaching for. We need to focus on tackling inequality and extend opportunities for quality work in the health service to those who have lost their jobs as a result of the pandemic.

The groundhog day Treasury response to these extra pressures would be to cut other areas of public spending. But if health does mean wealth, that would be truly short-sighted. If we want to create a more equal society, build a resilient NHS and social care system, and put the nation’s health at the heart of our wealth-making strategy, we will need to invest in a wide range of public services, not rob Peter to pay Paul. This will almost certainly mean that in the medium term, taxes need to rise. The end of Covid-19 is just the beginning.