Will Changes to Contracts and Funding Really Make the NHS Fairer?

Health inequalities remain one of the most persistent challenges in our system, and turning ambition into real change is often far from straightforward. This blog series looks at the 10 Year Health Plan for England through an inequalities lens – exploring where the evidence shows we can make the biggest difference, and the potential pitfalls we should avoid. Across the series, our Associate Director for Policy and Practice Engagement, Dr Liam Loftus, draws on the evidence base to highlight what is most likely to work in practice.

It’s often hard to draw a direct line between contracts and funding, and what a patient experiences on the ground. But when it comes to health inequalities, few things matter more. Contracts and funding rules decide where money flows, who has the capacity to provide care, and ultimately, which communities are prioritised.

The 10 Year Health Plan for England promises to move NHS funding “much closer to its fair share of funding, based on health need.” For anyone concerned about inequalities, this is one of the most important commitments in the document. But history shows that changing how money moves through the NHS is politically and technically difficult. Whether these reforms narrow the gap will depend not just on ambition, but on how the details are designed and implemented.

This blog looks at three of the Plan’s most significant funding reforms in this area: the review of the Carr-Hill formula, the move towards capitation and “year of care” payments, and the creation of new neighbourhood-level provider contracts.

The biggest single funding stream for most GP practices is the global sum, and how much each practice receives is determined by the Carr-Hill formula. This formula has long been criticised, in particular for failing to adequately account for deprivation. It’s therefore one of the reasons why practices in the most affluent quintile by deprivation received on average 9.8% more funding per needs-adjusted patient across all income streams than those in the most deprived quintile in 2022/23.

This is one of the clearest structural drivers of inequality in the NHS. It means that the communities with the greatest burden of illness and the most complex needs are supported by a funding formula that systematically underweights them.

The government’s decision to review Carr-Hill is therefore welcome. But experience suggests reform will not be easy. Previous attempts have faltered because redistributing existing funding inevitably creates financial “winners and losers”. In a system already under severe financial strain, even small losses can destabilise practices and make change politically difficult. Without new investment, many therefore believe that significant reform could be politically impossible. For a deep dive into what policymakers need to grapple with to get this right, please see our piece with Nuffield Trust on the topic.

Alongside Carr-Hill reform, the Plan signals a move away from fee-for-service payments towards capitated “year of care” budgets. This model would allocate a budget for a patient’s care over a year, rather than being paid for each individual activity.

The evidence here is cautiously encouraging. Capitation-based models are associated with more equitable outcomes than fee-for-service, because they encourage prevention, continuity and proactive care rather than rewarding high volumes of activity. Our Evidence Brief highlights the evidence. In theory, this should benefit communities with higher health needs, where poorly controlled long-term conditions and unmet need currently drive both urgent and outpatient care.

But the transition will not be straightforward. We currently have little detail on who would control the year of care budget, and on what terms. For general practice in particular, there is understandable anxiety about what share of a patient’s capitated budget would actually flow to GP services. When practices are already financially stretched, uncertainty about future income creates tangible anxiety.

So while the direction of travel is promising for equity, implementation will matter enormously. Capitation can support fairness – but only if it is designed transparently and with primary care properly resourced.

Perhaps the most consequential change in the Plan is the move to new contractual forms: Single Neighbourhood Providers (SNPs), Multi-Neighbourhood Providers (MNPs), and Integrated Health Organisations (IHOs).

These contracts will determine who controls budgets, who holds risk, and who has the authority to shape local services.

In theory, this could be a powerful lever for tackling inequalities. If neighbourhood-level providers are accountable for the health of defined populations, and funded accordingly, there is a strong incentive to invest in prevention, community services and partnership working in areas of greatest need.

But there is also a risk. If these contracts concentrate power and financial control in large provider organisations without strong safeguards, smaller general practices and VCSE partners – often closest to disadvantaged communities – could be left on the sidelines.

Much of the detail in this area is still to come. The forthcoming Model Neighbourhood Framework and System Archetypes will therefore be critical in outlining the opportunity to narrow the gap.

There is a credible route through this reform package to a fairer NHS: a Carr-Hill formula that properly weights deprivation; greater use of capitation to support proactive care; and neighbourhood-level contracts that align responsibility with population need. Together, these could become some of the strongest structural levers for reducing health inequalities that the NHS has ever seen.

But none of this will happen automatically, nor will it happen easily. Each reform has the potential to create political and organisational winners and losers, and in a financially constrained system, that makes progress incredibly challenging.

The next phase – the detailed design of formulas, payments and contracts – will determine whether the Plan genuinely narrows the gap. Leaders committed to equity will need to engage closely, ask difficult questions, and ensure that fairness is built into the plumbing of the system, not just its aspirations.