In the United Kingdom, healthcare funding is primarily pooled through the National Health Service (NHS), which provides comprehensive healthcare services to all UK residents. The NHS is publicly funded, with its financial structure designed to ensure equity and accessibility, while aiming to minimise financial barriers to care.

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Primary Sources of Funding

The majority of NHS funding comes from public sources, primarily general taxation and National Insurance Contributions (NICs). General taxation, including income tax, value-added tax (VAT), and corporate tax, accounts for 26% of NHS revenue. NICs, paid by employees, employers, and the self-employed, contribute 19%. The remaining funding arises from private medical insurance, voluntary health insurance (VHI), and out-of-pocket payments, which include direct payments for services like dental care, social care, and ophthalmic care, as well as co-payments for certain treatments such as pharmaceuticals (Cylus et al., 2015; Anderson et al., 2022).

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Public funds are collected by Her Majesty’s Revenue and Customs (HMRC) and allocated to the NHS by the UK Treasury. In England, funds are distributed through the Department of Health and Social Care (DHSC), while Scotland, Wales, and Northern Ireland receive block grants calculated via the Barnett Formula. This controversial formula adjusts funding based on spending changes in England and population proportions in the devolved nations, but it does not account for regional needs (Anderson et al., 2022). Devolved administrations in Scotland and Wales have recently gained increased autonomy to raise their own taxes, although this power has been sparingly used (Anderson et al., 2022).

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Budget Allocation and Spending Trends

Healthcare budgets are set annually, with NHS England receiving a significant share to commission primary and specialised care services. Devolved administrations allocate funds to their own health systems, which function independently. For instance, Wales uses a capitation-based funding model for its local health boards, while Scotland and Northern Ireland manage their funds through regional boards and partnerships (Cylus et al., 2015).

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Between 2000 and 2010, the UK increased its healthcare expenditure to align with the EU average, with spending rising from 6.9% to 9.4% of GDP. However, the 2008 financial crisis led to spending constraints, with health expenditure growing at a slower pace post-crisis. Nevertheless, health funding was relatively protected compared to other public services, such as social care. Over the last decade, NHS expenditure has remained robust, with approximately £1 of every £5 of government spending directed toward healthcare. Health expenditure per capita and as a share of GDP have also increased during this period (Anderson et al., 2022).​​​​​​​​​​​​​​​

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Pooling Funds and Equity in Financing

The UK's health financing system is considered progressive. Higher-income earners contribute proportionally more through direct taxation, which helps subsidise healthcare for lower-income individuals. This system also supports cross-subsidisation, where the healthy subsidise the care of the less healthy, and the employed subsidise services for the unemployed. These mechanisms reduce health and income inequalities (Anderson et al., 2022).

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Pooling funds via general taxation offers the advantage of lower collection costs, though it limits transparency in linking individual contributions to benefits (Boyle, 2011). Meanwhile, the recently introduced health and social levy - a 1.25% increase in NICs—further supports NHS funding.

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Purchasing and Service Delivery

Most NHS services are free at the point of use, except for certain cost-sharing elements such as dental care and prescription charges in England. Purchasing mechanisms vary across the devolved nations. In England, NHS England commissions services through clinical commissioning groups (CCGs), which manage local budgets and purchase hospital, mental health, and community services. In Wales and Scotland, capitation-based systems ensure equitable distribution, while Northern Ireland’s Health and Social Care Board negotiates contracts with trusts (Cylus et al., 2015).

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Despite some financial constraints, spending priorities have shifted to integrated health and social care. Initiatives like the Better Care Fund demonstrate a move toward pooled budgets, making it harder to distinguish expenditure across different sectors (Anderson et al., 2022).

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Private and Out-of-Pocket Expenditure

Private expenditure accounts for a small portion of total health funding. In 2013, out-of-pocket payments made up 9.3% of total healthcare expenditure, and private medical insurance contributed 2.8%. Private insurance is typically used to access faster services or those not provided by the NHS (Cylus et al., 2015).

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Challenges and Regional Variation

The NHS aims to provide comprehensive healthcare, but regional variation, often termed "postcode lotteries", persist. These disparities arise from differing decisions by local health boards regarding which treatments to fund. Additionally, the National Institute for Health and Care Excellence (NICE) provides guidance on cost-effectiveness, helping boards determine priorities.

The UK's departure from the EU has also introduced new rules for non-UK residents seeking care. EU citizens are now subject to the same regulations as other international visitors, with emergency treatment provided free but follow-up care and GP visits typically charged (Anderson et al., 2022).

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Conclusion

The NHS remains a cornerstone of equitable healthcare delivery in the UK, ensuring access for all legal residents regardless of their ability to pay. While financial pressures and regional disparities pose challenges, the progressive nature of its funding model and the system's integration of health and social care underscore its continued focus on fairness and efficiency.

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Anderson, M., Pitchforth, E., Edwards, N., Alderwick, H., McGuire, A., & Mossialos, E. (2022). United Kingdom: Health System Review. Health Syst Transit, 24(1), 1-194. 

Cashin, C., Nakhimovsky, S., Laird, K., Strizrep, T., Cico, A., Radakrishnan, S., Lauer, A., Connor, C., O’Dougherty, S., & White, J. (2018). Strategic health purchasing progress: a framework for policymakers and practitioners. Bethesda, MD: Health Finance & Governance Project, Abt Associates Inc. 

Cylus, J., Richardson, E., Findley, L., Longley, M., O'Neill, C., Steel, D., & Organization, W. H. (2015). United Kingdom: health system review. ​​​