Health is quite possibly the most important area that the Scottish Government has responsibility for. It regularly tops polling in terms of areas of concern for Scottish residents, and health or the NHS were mentioned no fewer than 18 times by the Finance Secretary in the last budget speech. And the NHS was the major frontline during the pandemic, underlining its critical importance.

It’s no surprise then that we’d be interested in looking at how spending in health care has evolved over the last few years. On top of the major pandemic interventions of 2020-21 and 2021-22, and which included the creation of a large and unexpected programme in the form of Test and Protect programme, the health service is also dealing with large waiting lists and the consequences of an ageing population putting greater pressures on health care demand.

To conduct this analysis, we have used data from the OSCAR and OSCAR II systems published by the Treasury. All central government departments are required to report their financial information in that system, which is then both published in its own right and then used as an input to compile a number of publications including Public Expenditure Statistical Analyses (PESA), Country and Regional Analysis (CRA), Government Expenditure and Revenue Scotland (GERS) and Public Sector Finances (PSF).

There are two main ways of looking at the expenditure data that we combine for this purpose. The first is the classification of functions of government (COFOG), which is an internationally standardised way of classifying government spending developed by the OECD. This has the advantage of looking through changes in the machinery of government such as portfolio composition, and therefore makes spending meaningfully comparable over time.

The second breakdown we use is an economic categorisation, which aligns with the Office for National Statistics’ approach to calculating public sector expenditure. Current expenditure includes consumption spending (pay, procurement and depreciation), net social benefits (welfare spending plus public sector pensions), grants to third parties (other parts of government and private entities), subsidies to corporations and interest payments. Capital spending (or gross investment) is broken down into two main components: direct capital formation by the government and grants to third parties (other government bodies and private entities, including corporations).

Health spending is a very large proportion of Scottish Government spending

Of course health is an important part of government spending, but it still bears stating the figures. In 2023-24, the Scottish Government (SG) spent £18.7 billion on health, which accounted for 36% of its spending.

Most of this was current spending – £17.7 billion, or 38% of all SG current spending – but it is also a significant proportion of capital spending (£940 million, or 18% of all SG capital spending). While the current spending share has remained relatively stable, the capital share has increased significantly in the last couple of years.

Chart 1: Health spending as a share of total Scottish Government spending

Source: HM Treasury, FAI analysis

The size of health spending is even larger with respect to direct provision of goods and services and direct capital investment. The proportion of total spending on pay that goes on health is just under two-thirds, even if that has declined somewhat recently. Half of direct capital formation is in health as well.

But the most noteworthy number is in terms of procurement. This is a category that includes a number of things, including contracted out services (GPs, but also agency staff) as well as supplies and medicines. Health accounts for a huge and growing share of SG procurement: £4 of every £5 spent in procurement goes on the health service.

Chart 2: Health spending as a share of total Scottish Government in selected economic categories

Source: HM Treasury, FAI analysis

Procurement and capital investment are the major sources of real-terms growth in health spending – pay has grown much more slowly

When we delve into real-terms growth in the different types of spending, a surprising picture emerges. Since 2018-19, the total health paybill has only grown by an average of 1.1% a year in real terms – well below the 2.1% rate of growth in current health spending in real terms.

Instead, growth in procurement – which includes supplies as well as agency staff – has far outstripped that of pay. It has grown at an annual average of 3.9% in real terms from 2018-19 to 2023-24, and it is now close to parity with spending on pay. If these growth rates were to be maintained, procurement spending in the health service would overtake pay by 2027-28.

Capital spending has grown strongly, by an average of 10% a year – significantly higher than the growth in overall capital spending for the SG as whole, which has averaged 6.3% a year in real terms.

Table 1: Health spending by economic category in real terms (2023-24 prices) since 2018-19

Economic category (£bn, 2023-24 prices)	2018-19	2019-20	2020-21	2021-22	2022-23	2023-24	Annualised real growth rate
Pay	8.5	8.3	8.2	8.5	8.9	8.9	1.1%
Procurement	6.8	7.4	10.3	10.6	7.9	8.2	3.9%
Gross capital formation	0.6	0.6	0.5	0.7	1.0	0.9	10.3%
Other current spending	0.7	0.6	0.6	0.6	0.6	0.6	-4.5%
Total health spending	16.5	16.9	19.7	20.4	18.3	18.6	2.5%
Of which current	15.9	16.3	19.2	19.7	17.4	17.7	2.1%
Of which capital[1]	0.6	0.6	0.5	0.7	1.0	0.9	9.8%

Source: HM Treasury, FAI analysis

[1] Includes some minimal other forms of spending through grants to the private sector, hence the difference relative to gross capital formation.