Much is generally made about how the NHS has a different inflation rate from the rest of the economy. Polly has been telling us for years that it needs a 4% rise in the budget each year just to stand still. And it's not obvious that this has to be the case:
Although health has been exempt from the deep cuts that have affected most other Whitehall departments since 2010, the settlements have been nugatory by historical standards. Real spending has risen on average by 4% a year since the mid-1950s. In the 18 years of Conservative rule between 1979 and 1997, it increased by 3% a year. On current plans it will increase by 1.4% a year between 2010 and 2022.
Baumol's Cost Disease comes into play here. As real wages rise then services become more expensive relative to manufactures. And real wages have risen considerably since the 1950s and thus the NHS has become considerably more expensive relative to things that are manufactured. Note that the NHS does pay a little under 50% of its budget in wages.
We might not be all that happy about this but that's just the way this flavour of the universe works. But as Larry Elliott also tells us:
The recovery from the deep slump of 2008-09 has been the weakest in living memory. There has been no productivity growth and wages are lower than 10 years ago.
We've not had real wage growth for a decade. Thus the NHS should not be having a higher inflation rate as driven by the Cost Disease, correct?
That is, when real wages are growing strongly perhaps the NHS does have that higher budget growth rate, but when they're not it shouldn't.