Economic assumptions 2016/17 to 2020/21

Published 23 March 2016

Applies to England

1. Inflation

This table sets out our latest assumptions for annual increases in unit costs.[footnote 1]

Element 2016/17 2017/18 2018/19 2019/20 2020/21
Pay and pensions (including drift and mix effects) 3.3% 2.0% 1.6% 1.6% 2.9%
Drugs 4.5% 4.6% 3.6% 4.1% 4.1%
Capital costs 3.1% 3.2% 3.2% 3.1% 3.1%
Other operating costs 1.7% 1.8% 2.1% 1.9% 2.0%
Overall 3.1% 2.3% 2.0% 2.0% 2.9%

These inflation assumptions are under continuous review and are subject to change as new information becomes available. They exclude changes to bills for the Clinical Negligence Scheme for Trusts (CNST) and adjustments for new policies or service development. These elements will continue to be assessed annually and recognised through adjustments to the national tariff.

2. Tariff efficiency factor

In the 2016/17 national tariff, the proposed efficiency factor is 2%. While we are unable to definitively set out what the national tariff efficiency factor will be over the 4 years following 2016/17, we understand the service needs a view on the efficiency factor to undertake planning. We propose for planning purposes an efficiency factor of 2% is assumed each year throughout the period from 2016/17 to 2020/21.[footnote 2]

3. Notes on assumptions


Includes drift and mix effects and uses the Department for Health’s (DH) assumption. Uplifts are included of 1.75% in 2016/17 due to pension reforms, and 0.4% in 2017/18 due to the apprenticeship levy announced in the July 2015 budget.[footnote 3] The assumption on pay has reduced compared to the previous publication to reflect the announcement on continued public sector pay restraint. Assumptions on pay will be dependent on decisions made by the government over the remainder of the Parliament.


All secondary care drugs, taken from DH and NHS England.[footnote 4]

Capital costs

Revenue costs of capital. This includes Private Finance Initiative (PFI) and depreciation.

Other operating costs

Covers general costs such as medical, surgical and laboratory equipment, and fuel.

Any potential impacts from the 2016 budget policy announcements have not been included in these figures.

  1. In 2016/17, the estimated share of cost base is pay and pensions (65.44%), drugs (8.17%), capital costs (4.76%) and other operating costs (21.63%, of which CNST was 1.46%). 

  2. Note that 2% is the net efficiency improvement not including quality improvements or service developments. If providers are not being separately reimbursed for these quality improvements, this implies they will need to deliver efficiencies above the 2% requirement. 

  3. The 0.4% apprenticeship levy is subject to change. 

  4. The drug pressures include specialised high cost drugs, as well as non-specialised drugs expenditure, and thus should be used accordingly.