It is sometimes said that the entire gross domestic product (GDP) of the UK, or indeed any country, would be insufficient to pay for the healthcare of its citizens. In fact, only about 7% of the GDP of the UK is spent on healthcare, roughly equivalent to £1000 per person per annum (these figures are marginally lower than the equivalent values in Germany and France, and approximately half the equivalent values of the US).

With limited funds and increasing demand for ever more expensive therapies, it is inevitable that a degree of resource rationing occurs, rationing that undoubtedly leads to the problems of healthcare provision. Intensive care bed and staff availability, waiting lists, ‘postcode prescribing’ and hospital mergers are all examples of the consequences of rationed resource allocation.

Since the inception of the National Health Service (NHS) in 1948, successive governments have faced two politically contentious problems, namely:

• how much of the GDP should be allocated to healthcare,

• how this sum of money should be most effectively allocated.

On the whole, governments have responded in a utilitarian manner, by trying to treat as many people as possible, rather than affording high quality, expensive treatment for fewer patients.

Unfortunately, there is no single theory of health economics that adequately and effectively allocates resources. This chapter reviews the two main theories of resource allocation in healthcare (needs theory and cost-effectiveness), before outlining the development of the law in relation to resource allocation in the NHS.