For the British Labour Party, health has always been a simple issue. The NHS, they say, is the most perfect system imaginable and only fails due to underfunding. Even after the modernisation of Labour policy under Tony Blair, this delusion remained undiminished as the government spent its first term engorging the NHS with unprecedented sums of public money (the NHS budget is almost 50% larger than in 1997). It is only now, with little to show for six years of profligacy, that Labour is revising its approach.
Health expenditure has risen from 6.8% of GDP in 1997 to 8% in 2003, and will hit 9.5% by 2007. Yet the rate of increase of hospital activity has fallen from over 4% a year in the mid-1990s to under 1% now. The fear that the money would be absorbed by pay claims rather than improvements in physical capacity has been confirmed, with wage rises accounting for somewhere between a third and two-fifths of the extra funding. The number of administrators in the NHS now exceeds the number of beds.
Crudely, the division within Labour is now between leftwing MPs (and their de facto Cabinet leader, Gordon Brown) who believe that vast outlays of cash combined with central performance targets can still make the NHS a first class health system, and a reformist elite at the top of the party that insists on the need for structural liberalisation to create choice for patients and competition between providers.
It is ironic that the most devastating repudiation of Brown’s statist vision comes from his native Scotland. There, the NHS budget of £1,300 per capita is 21% higher than in England and its ratio of government health spending as a share of GDP (8.7%) is one of the highest in the developed world. The results have been shocking: outpatient waiting times have increased from 41 days in 1997 to 56 days now; accident and emergency waiting times doubled to 40 hours between 1998-99 to 2000-01; and the average cost of accident and emergency cases and theatre surgery have inflated by 30% and 39% over the same period.
A welcome policy innovation of the Major government was the introduction of an “internal market” into the NHS, whereby GPs were allocated budgets with which to buy services from hospitals on behalf of their patients. This gave an incentive for hospitals to perform efficiently and, as a result, the productivity of the NHS increased for five years. Then came the Labour government, and specifically its Health Secretary Frank Dobson, the kind of dirigiste leftwinger who will go to the grave believing that there is nothing wrong with the NHS that more taxpayers’ money can’t solve. The internal market was abolished, and health productivity began a steep decline that still hasn’t been reversed.
Recognising its folly, and under the stewardship of Dobson’s more reformist successors (Alan Milburn and John Reid), Labour reintroduced the internal market in the form of Primary Care Trusts (PCTs), which now manage three quarters of the country’s health budget. The PCTs, of which there are roughly 300, draw up contracts with hospitals that reward those that provide a high output at low cost. Alain Enthoven, the Stanford health economist who designed the Conservatives’ internal market, regards the new system as “an extension” of his original idea.
But while the PCTs are merely the restoration of an old policy, “foundation hospitals” are something new. The idea is to liberate NHS hospitals – starting with the best-performing “three star” ones – from Whitehall control. Like in Scandinavia, while still subject to national standards and the oversight of a regulator, hospitals would be able to set wage rates, specialise and expand at their own discretion, and even borrow money independently from private capital markets. They would be accountable to a board of governors elected by locals.
However, due to the opposition of public sector vested interests, these reforms have been diluted beyond any usefulness. Foundation hospitals will be subject to even more regulators than ordinary hospitals; their freedom to set wages rates will be limited; and the number of private patients they can take will be capped, which will keep them financially dependent on the government and limit their exposure to competition. Their ability to borrow money will be subject to an upper limit determined by the new Commission for Healthcare Audit and Inspection.
It should be said that alternatives to the NHS have their own flaws. American private insurance provides the best standards in the world but leaves 40 million people uninsured. Corporatist social insurance imposes labour costs that discourage firms from hiring workers, and partly explains why France, Germany and Austria have higher unemployment than Britain. Nevertheless, Labour’s profligacy and timid reforms guarantee failure. The sole benefit of this is that the next Conservative government will have a mandate to finally terminate the NHS as a monopoly provider of healthcare.
The experience of Scandinavia has shown that even with large state spending, radical internal reforms are needed to make a national health system viable. Labour’s half-hearted attempts to save the NHS will only delay its ultimate demise.