How UK healthcare works
The National Health Service is paid for almost entirely out of the public purse. General taxation covers about 80 per cent, National Insurance covers most of the rest, and a small fraction comes from charges. This is how the money is raised, how it flows, and how the numbers have changed over time.
Dr Seth Rankin
MBChB MRCGP. Founder of LoveMyLife. Former NHS Commissioner and Managing Partner of Wandsworth Medical Centre.
23 April 2026
11 min read
The National Health Service (NHS) is a taxpayer-funded public service. It has no insurance premiums, no co-pays at the point of care for most services, and no direct link between what an individual earns or contributes and what they can access. If you are ordinarily resident in the UK, you can walk into a general practice or an Accident and Emergency department tomorrow, be treated, and pay nothing at the till.
Behind that simplicity at the patient end sits a specific and well-documented funding machinery: general taxation, National Insurance Contributions (NICs), a small amount of income from charges, and a multi-year settlement process that runs through the Department of Health and Social Care (DHSC), NHS England, and the Integrated Care Boards (ICBs). This article sets out how the money is raised, how it flows, and what the headline numbers look like. Sources are at the end.
Most public NHS funding is general taxation topped up by a defined share of National Insurance. Parliament sets a multi-year DHSC budget through the spending review process. The Treasury releases the money annually through the estimates and budget cycle. The DHSC passes the majority of that money to NHS England, which in turn allocates it to Integrated Care Boards and directly-commissioned services. ICBs commission most local healthcare from NHS trusts and from contracted providers, including general practices. A small fraction of income comes from patient charges (prescription charges, NHS dentistry bands, some eye services) and from private work carried out within NHS facilities. The principles of the system have been unchanged since 1948.
About 80 per cent of NHS funding comes from general taxation. That means income tax, Value Added Tax (VAT), corporation tax, fuel duty, alcohol and tobacco duties, stamp duty, and all the other central taxes the Treasury collects.
There is no hypothecated "NHS tax". The Treasury collects the full range of revenue, Parliament sets the total public-spending envelope, and the DHSC settlement is one large line within that envelope. Every Budget and every Spending Review therefore includes an implicit choice about how much of total public spending goes to healthcare relative to other priorities.
The practical effect for a patient is that almost all NHS care, at the point at which it is delivered, is not billed back to the patient in any way. The money has already been collected through the tax system.
The second major source is National Insurance. NICs are paid by employees, employers, and the self-employed, with specific rates and thresholds published by HM Revenue and Customs (HMRC). A defined portion of each category of NIC is allocated to the NHS by statutory formula rather than going to the general NI Fund.
For example, a fixed percentage of secondary Class 1 NICs (the NICs paid by employers on employee earnings) is transferred to the NHS each year. HMRC transferred around £33.5 billion in NIC-sourced funding to the NHS in 2023/24, which was approximately 20 per cent of the total NHS budget for that year.
NICs are not a health-specific insurance scheme in any meaningful sense. The rest of National Insurance income flows into the National Insurance Fund, which pays the state pension and a range of contributory benefits. The NHS allocation is a political and statutory carve-out rather than a risk-pooled insurance mechanism.
If the NIC allocation falls short of the agreed NHS budget in a given year, the shortfall is made up from general taxation. This top-up mechanism keeps the NHS budget stable regardless of short-term movements in NIC revenue.
The smaller sources of NHS revenue include:
Prescription charges in England, currently £9.90 per item, frozen through 2025-26 and 2026-27. Prescriptions are free in Scotland, Wales, and Northern Ireland.
NHS dental charges, paid in three bands by patients who are not exempt.
NHS eye tests and optical vouchers, where applicable.
Overseas visitor charges for non-residents using NHS secondary care.
Private work inside NHS facilities, including Private Patient Units (PPUs) in NHS trusts, where private-sector patients pay for treatment in NHS hospitals. This income flows back to the trust.
Hospital car-park charges, in some areas.
Licensing, estate, and other commercial income at trust level.
Taken together, these sources make up a few per cent of total NHS income. They do not materially change the fact that the NHS is funded almost entirely from the public purse.
Once Parliament has approved a budget, the money moves through a defined chain of bodies.
The Treasury holds the central public-finance envelope and agrees the DHSC settlement.
The Department of Health and Social Care (DHSC) is the parent department. It sets strategic priorities, allocates the settlement internally, and is answerable to Parliament through the Secretary of State for Health and Social Care.
NHS England receives the majority of the DHSC settlement as its mandate funding. It is the arm's-length national NHS body in England responsible for overall NHS commissioning, performance, and system direction.
Integrated Care Boards (ICBs) are the local NHS commissioners. Forty-two ICBs in England cover defined geographic populations and hold the local commissioning budget for general practice, community services, mental health, and most hospital services.
NHS providers (hospital trusts, foundation trusts, mental health trusts, community trusts, ambulance trusts) deliver the care and are paid through contracts and, for most procedures, through the NHS Payment Scheme (formerly the national tariff).
General practices are paid through the General Medical Services (GMS) or Personal Medical Services (PMS) contract, largely by capitation with additional Quality and Outcomes Framework (QOF) and Enhanced Services payments.
The flow is essentially top-down in accountability terms (NHS England is answerable to DHSC, which is answerable to Parliament) and more diffuse in operational terms (ICBs have substantial local autonomy within the national framework).
NHS funding is now set in multi-year cycles through the HM Treasury Spending Review process. A Spending Review agrees departmental budgets for a defined period (typically three to four years) and provides the planning certainty that healthcare commissioning requires.
The 2025 Spending Review settlement set DHSC total spending at £202 billion in 2025-26, rising to £211 billion in 2026-27, £221.3 billion in 2027-28, and £232 billion in 2028-29. This represents an average real-terms growth of 2.8 per cent per year, above the long-run average and significantly above the real-terms average for other departments.
Within that DHSC settlement, NHS England's budget rises from £195.6 billion in 2025-26 to £226.1 billion in 2028-29, with an average real-terms increase of 3 per cent per year. Capital funding (for buildings, estates, and equipment) was set at £13.6 billion in 2025-26, an increase of £1.8 billion on the previous year and, excluding the Covid-19 period, the highest real-terms capital budget for DHSC since 2010.
The NHS is a devolved matter. Scotland, Wales, and Northern Ireland run their own health services (NHS Scotland, NHS Wales, Health and Social Care Northern Ireland), with their own ministers and priorities. This article concentrates on NHS England, which is the system the other articles in this cluster also describe.
Funding for the devolved health services is determined largely through the Barnett formula, which allocates a per-capita share of UK government spending on equivalent services in England to each of the devolved administrations. The formula has been criticised from several directions over the years, but it remains the mechanism by which health spending in the devolved nations is financed.
The devolved governments then decide how much of their block grant to allocate to health, and make their own policy decisions about charges, workforce, and service design. Prescription charges, for example, have been abolished in Scotland, Wales, and Northern Ireland but retained in England.
The long-term trajectory of NHS funding is one of real-terms growth, but at a rate that varies substantially by political era. The King's Fund NHS budget dataset shows three broad periods.
1948 to the late 1990s: steady real-terms growth averaging around 3 to 4 per cent per year, with fluctuations.
2000 to 2010: sustained rapid increases under the Blair government, with NHS spending roughly doubling in real terms over the decade.
2010 to 2019: low real-terms growth averaging around 1 per cent per year, below historical trend and well below the growth in demand.
2020 onwards: above-trend growth driven initially by the Covid-19 pandemic and subsequently by recovery, workforce, and elective-backlog commitments.
The 2025 Spending Review settlement restored NHS real-terms growth to around 3 per cent per year, close to the long-run average.
These figures are from the DHSC resource budget, not from total UK healthcare expenditure. The wider figure, which includes private spending and covers healthcare as a percentage of Gross Domestic Product (GDP), is analysed in the separate article How much the NHS costs, and what it buys.
Most NHS funding is revenue funding, paying for staff, medicines, consumables, and day-to-day operations. A smaller capital budget pays for buildings, equipment, and IT infrastructure.
UK NHS capital funding has been constrained for most of the last two decades. A significant share of the NHS estate was built or rebuilt under the Private Finance Initiative (PFI), which moved up-front capital cost off the Treasury's balance sheet in exchange for long-term repayment commitments. PFI liabilities continue to absorb a share of trust budgets.
The 2025 Spending Review committed additional capital funding and a programme for the New Hospital Programme and wider estates renewal, but the backlog of deferred maintenance across the NHS remains substantial.
NHS care is supported by a parallel research infrastructure funded partly through the DHSC settlement and partly through independent funding streams. The National Institute for Health and Care Research (NIHR) is the largest single funder of health research in the UK, with an annual budget over £1 billion. Research is also funded by the Medical Research Council, the charity sector (notably Cancer Research UK, Wellcome, the British Heart Foundation, and others), and the pharmaceutical industry.
The overlap between NHS care and NHS-linked research is significant. A large share of UK clinical trials recruit through NHS patients, and a large share of UK research output comes from NHS-based researchers working in NHS hospitals and universities.
The structural tension in NHS funding is widely discussed and sits at the centre of UK health policy. The basic shape of the problem is that demand for NHS care is rising faster than the UK economy, mainly because of an ageing population, the rising prevalence of long-term conditions, and the expanding set of treatments that modern medicine can offer. Funding growth over the long run has to keep pace with that demand if service quality is to be maintained.
Several recent analyses (the King's Fund, the Nuffield Trust, the Health Foundation, and the House of Lords Select Committee on the Long-term Sustainability of the NHS) have set out long-term funding scenarios. The common finding is that sustaining NHS quality on current service models probably requires real-terms growth of around 3 to 4 per cent per year, funded through some combination of tax, NICs, or alternative mechanisms, against a background of slower economic growth than the post-war decades.
What form that funding takes is a political question that has been debated for decades without a settled answer. The options (higher taxes, a hypothecated NHS tax, additional NICs, patient charges, a shift toward social insurance, a larger private role) each have proponents and critics, and each involves trade-offs between equity, incentives, administrative efficiency, and political feasibility.
The NHS is funded by general taxation (around 80 per cent), National Insurance Contributions (around 20 per cent), and a small fraction from patient charges and NHS-facility private work. The total DHSC settlement for 2025-26 is £202 billion, rising to £232 billion by 2028-29, with NHS England's share set at £195.6 billion rising to £226.1 billion. Capital funding has been reinforced in the 2025 Spending Review after more than a decade of relative restraint.
The system's architecture has been broadly stable since 1948. Money is raised centrally, allocated through the DHSC to NHS England, and deployed by Integrated Care Boards and providers under a national framework. The long-term funding question, how to sustain real-terms growth in NHS spending against rising demand and slower economic growth, is the central policy debate, and there is no settled answer to it yet.
Full Fact, How is the NHS funded?. Clear summary of the taxation / NICs / charges split.
King's Fund, The NHS budget and how it has changed. Long-run NHS funding dataset.
gov.uk, HM Treasury Spending Review 2025. The multi-year settlement process.
NHS Providers, On the day briefing: Spending Review 2025. Analysis of the 2025 DHSC and NHS England settlement.
The Health Foundation, Spending Review 2025: priorities for health, the NHS and social care in England. Independent analysis of the 2025 settlement.
King's Fund, Autumn Budget 2025: what it means for health and care. Budget-level analysis of health funding.
NHS England, NHS Payment Scheme. How NHS providers are paid for activity.
gov.uk, National Insurance. HMRC guide to NIC rates, thresholds, and categories.
House of Commons Library, The Barnett Formula. The mechanism for devolved-nation funding.
House of Lords Library, Long-term sustainability of the NHS: options for systems and funding. Parliamentary analysis of long-term funding options.
Nuffield Trust, nuffieldtrust.org.uk. Independent health policy research, including funding analysis.
National Institute for Health and Care Research, nihr.ac.uk. NHS-linked research funding.
National Audit Office, PFI and PF2. The Private Finance Initiative and its long-term NHS implications.
Clinically reviewed
Dr Seth Rankin · MBChB MRCGP - Founder and Medical Director, LoveMyLife
Dr Seth Rankin qualified in medicine at Auckland School of Medicine in New Zealand in 1990 and worked as a junior doctor across New Zealand, Australia, and the UK before qualifying as a Member of the Royal College of General Practitioners (MRCGP) through the London Deanery in 2004. He was Managing Partner of Wandsworth Medical Centre from 2006 to 2016 and served as a Board Member of Wandsworth Clinical Commissioning Group for nine years. He is the founder of London Travel Clinic, London Doctors Clinic, London Medical Laboratory, and LoveMyLife.
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