Office of Budget Responsibility 21 September 2016
Abstract
- This paper reviews the latest evidence on the demographic and non-demographic determinants of health spending in the UK and its implications for our long-term health spending projection.
- We find that demographic effects have explained only a small part of the increase in health spending over past decades and that they are likely to remain a relatively small, although growing, driver of spending in the future. Income effects are an important driver of real health spending, though not of spending as a share of GDP.
- Most significantly, other cost pressures (for example increasing relative health care costs and technological advancements) have been bigger contributing factors over the past and are likely to remain important drivers of spending in the future. We find that our long-term projection is particularly sensitive to the inclusion of non-zero estimates of other cost pressures.
- A key implication of this paper for our long-term health spending projection is therefore that we should recognise and quantify an explicit non-zero assumption about other cost pressures. Given the scale of uncertainty around these pressures, sensitivity analysis will remain vital when presenting our long-term fiscal projections.
