One-third of NHS's extra £5.2bn spent on pay rises

Nearly one third of last year's £5.2bn increase in the health service's budget went on pay increases to attract and retain staff, the Government revealed yesterday.

The announcement will aggravate concerns that much of the extra billions allocated to the health service will end up in the pockets of staff rather than benefiting patients.

In its first detailed expenditure report showing where the money spent on the NHS actually goes, the Department of Health said that, as well as the £1.6bn on pay increases, £2.2bn went on employing new staff, increasing prescribing, and buying more goods and services. Almost £1bn went on investment in training, capital and research. In all, more than half of the NHS's £55bn budget was spent on staff and pay in the latest financial year.

Alan Milburn, the Secretary of State for Health, said: "Patients are starting to see the difference and feel the benefit." But he said it was important to "keep a foot on the accelerator".

In the coming tax year, the NHS will receive a further £5.1bn increase in spending, which will be partly paid for by a 1p increase in national insurance contributions.

The NHS employs 1.3 million people and the report said staff costs took up 55 per cent of total expenditure in 2002-03. Prescribing accounted for 15 per cent and investment in buildings, infrastructure, training and research 11 per cent.

Responding to threats by health unions to reject the proposed NHS reforms in the "Agenda for Change" – which calls for greatly increased productivity in return for raised salaries – Mr Milburn said: "This year more money will go into reforming the pay systems, including the Agenda for Change."

The report suggests that extra resources had led to an increase in hospital admissions and a fall in waiting times.