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Warning: they want us to pay the private sector to make a profit from NHS

Why does the Health Secretary think that the private sector needs a subsidy to be able to enter the market for services now provided by the NHS? Because public provision is a more efficient way to do things, maybe? But then why get rid of it?
Brian Landers
28 January 2011

Why does the Health Secretary think that the private sector needs a subsidy to be able to enter the market for services now provided by the NHS? Because public provision is a more efficient way to do things, maybe? But then why get rid of it?

The Department of Health has just published its 165-page “Health and Social Care Bill 2011 Impact Assessments”. On pages 43 and 44 there is a very curious table headed “Fair Playing Field Distortions”. The table purports to show that the private sector has to incur costs of £114 for every £100 incurred by the NHS because of unfair “distortions” and ways need to be found to level the “playing field”.

What a convenient conclusion for the private sector. Already the suggestion is being made that private sector companies might simply be allowed to charge higher prices.  But it is worth considering the distortions that the department identifies.

The largest is that NHS staff have generous, subsidised pensions. To match those pensions would add 7 per cent to private sector costs. The question is: so what? Considering what most NHS staff are paid the public would probably not begrudge them their subsidised pensions. However the public might well begrudge the amounts paid to the PFI profiteers who are already making enormous sums from the NHS (despite the grave “distortions” that apparently exist).

The Daily Telegraph recently highlighted the case of David Metter, chief executive of Innisfree, the PFI company which owns or part-owns 28 hospitals as well as 269 schools. Mr Metter collected £8.6m in pay and dividends last year. Unsurprisingly, nowhere in its report does the department suggest that the government's failure to pay NHS executives seven figure salaries constitutes a market “distortion” for which the NHS should be compensated.

The second major distortion relates to cost of capital. Private companies have to pay more interest on their borrowings than the government and this is not fair. But of course under the laws of the market it is exactly fair. Private companies are greater risks so banks charge them more. What is distorting about that?

The third distortion is that private companies have to pay corporation tax. The problem with this argument is that so many of them do not. Even HM Revenue and Customs' own properties ended up in an offshore company to avoid tax after its controversial PFI deal with Mapeley.

The justification for bringing the private sector into healthcare provision is that competition will increase efficiency. But this means exactly that costs should be lower, not higher. If costs are higher under competition than public provision, then we have a natural monopoly.

The fact is that the private and public sectors are different with different values, motivations and cost structures. For political reasons, the government wants the private sector to provide a bigger share of health care. By using the excuse of correcting "fair playing field distortions" they are simply proposing to replace public sector subsidies with far larger subsidies to the private sector. What can be the defence - as opposed to the cause - of that?

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