The NHS: The new dividing line in the Labour Party?

The crisis in health and social care shows how badly we need an end to the inefficient market-based system. On that score, Team Corbyn looks a lot more convincing than his Labour leadership rival Owen Smith and his allies.

Thomas Mills
15 September 2016
jeremy corbyn junior doctors.jpg

Image: Jeremy Corbyn pictured at a rally in support of the Junior Doctors in April this year. Rights: Flickr/Garry Knight.

The Labour leadership contest has been a stultifying affair, only really succeeding in damaging Labour. The contest has been made all the more tedious by the apparent absence of policy differences between Jeremy Corbyn and his challenger, Owen Smith. Many Labour MPs insist that the issue with Corbyn is his leadership skills. Yet there are significant differences between the Corbyn camp and Labour “moderates” on the NHS, suggesting the contest has a distinct political dimension.

In July this year the “NHS Reinstatement Bill”, drafted by Professor Allyson Pollock and initially presented in parliament by Caroline Lucas, was tabled for a third time in the House of Commons. The Bill’s objective is to secure the NHS as a public health service. Crucially, it seeks to reinstate the legal obligation on the Secretary of State to provide a universal and comprehensive health service: the cornerstone of the NHS for sixty years and annulled by the Conservative Party’s Health and Social Care Act of 2012.

One might imagine that a Bill that explicitly seeks to secure Labour’s proudest achievement for future generations would be welcomed by Labour MPs. Yet support has been marginal. Jeremy Corbyn and shadow chancellor John McDonnell signed the bill as backbenchers and Corbyn has also pledged to “re-nationalise” the NHS. Yet Heidi Alexander, Labour’s shadow health secretary prior to July’s mass resignations and now co-chair of Smith’s campaign, has been a vocal critic, accusing McDonnell of undermining her by voicing his support for the Bill. Alexander has also criticised the Bill for seeking a return to the “structures of the 1980s” and another “disruptive reorganisation”, for which there is apparently little support. Labour should instead seek to stop “further NHS privatisation”.

The problem with this position is that it does not address problems with existing NHS structures. The future viability of the NHS as a public health service will depend on reversing marketisation policies pursued by both the Conservatives and New Labour alike. Hence, Corbyn’s position should be an important factor in the leadership contest for labour members who see the NHS as a priority. A nationwide campaign on the NHS is urgently required once the contest is over.

Marketisation or privatisation?

Figure 1 provides a useful typology of public sector governance. The original NHS model, set up by Labour in 1948, is located in segment 1 of the figure below, with both financing and provision a matter for the public sector. Services were funded through taxation and provided free-at-the-point-of-use, while healthcare units were nationalised; health professionals would now be public sector employees, or long-term contractors as in the case of GPs.     

figure 1.png

Source: adapted from Klein, 1984

The last thirty five years have been a period of marketisation. NHS organisations have been set up to operate on a commercial basis and are increasingly in competition with the private sector for contracts financed by the government: segment 2 in the figure.

The Conservative Party introduced competitive contracting for cleaning and ancillary services in the early 1980s and the ‘internal market’ for health services in 1990, splitting the NHS into “purchasers” and “providers” of care. New Labour’s reforms, seeking a ‘self-improving’ market, incorporated private sector management into hospitals through the Private Finance Initiative and permitted the direct involvement of private providers in the delivery of health services for the first time. The Health and Social Care Act has taken marketisation even further, leaving the public sector with the unprofitable bits. The Act also provides new freedoms for NHS hospitals to raise money by selling services to private patients: segment 3 of the figure, where funding is private but provision is public.

The Conservatives and New Labour alike have justified marketisation policies on the basis that they do not amount to privatisation, where the state withdraws completely from public services: segment 4. Rather, marketisation brings the efficiency potential of markets into public services without compromising core public values of equity, fairness and universalism. Hence, because the government continues to fund NHS services, the organisation’s founding ideals are left intact.

However, this argument grossly overstates the potential of markets in public services. In the case of the NHS, market reforms have had the paradoxical effect of greatly reducing efficiency.

Historical data collected by the OECD attests to the remarkable cost effectiveness of the NHS. The UK has had one of the lowest health expenditures out of OECD countries and one of the highest proportions of public expenditure, with spending dominated by NHS expenditure. In 1990, the year of the Conservative’s ‘internal market’ reform, total health expenditure was 5.1 percent. This compares with 8 percent in France and Germany in the same year and 11.3 percent in the US, the country with an outright market in healthcare. Yet despite far fewer resources, the NHS produced similar health outcomes and achieved universal coverage.  

New Labour did increase spending on the NHS following a crisis in the late 1990s, but even then expenditure peaked in 2009 at 8.7 percent of GDP. This compares to 10.8 in France, 11.1 in Germany and 16.4 in the US.

The relative efficiency of the NHS can be explained by a unique capacity of public health systems to save upon administrative costs. Indeed, market-based systems, including the mixed systems of France and Germany, feature contractual relations between different healthcare units. Payment is also secured from a range of sources, including insurance schemes, individual co-payments and the government, if to a limited extent. As such, a large tier of non-medical staff is required for marketing, accountancy, contractual work and invoicing, diverting resources away from frontline services and onto what is effectively bureaucracy.

Effective administration is of course central to any well-functioning health system and costs are likely to increase as health services become more complex. Yet the pre-reform NHS had remarkably low administrative costs of around 5 percent and the US system has always been the outlier. One estimate from 2003 put the figure at 31 percent of total cost.

Indeed, by far and away the most efficient way to organise a health service is to fund it through taxation and provide services free-at-the-point-of-use. That way, resources can be concentrated on the frontline and health professionals can focus on the job of providing health services to the people who need them.

NHS services do largely remain free-at-the-point-of-use and thus the extent of waste and excess characteristic of the US system has not yet materialised. But market reforms have greatly increased administrative costs. Estimates range between £4.5 billion a year to £30 billion a year. On top of this, the costs of New Labour’s Private Finance Initiatives and an unprecedented funding squeeze under the Conservatives render the current model unsustainable.

Denied the unique capacity of public health systems to save on administrative costs and under pressure to make savings somewhere, the NHS has responded by imposing costs on staff and privatising services: segment 4 of the figure.

Services at the periphery of the NHS have already been privatised, including dentistry and long-term care. New Labour’s system of disease-specific performance management also saw organisations focus on big hitters like cancer and stroke care, with less “priority” services falling by the way side or at least receiving less attention. Today, there are reports of patients being denied mental health care, hip and knee replacement surgery and expensive drugs; access to specialist services is increasingly constrained; and so-called “life-style rationing” is used to deny care to smokers and people with obesity. Charges for GP appointments and hospital stays are being discussed and in some areas certain services, including some cancer drugs, personalised midwifery and skin care, are available only to those who pay extra for them.

Here, then, is the problem with the assumption that markets can be unproblematically incorporated into public services: marketisation is a process that is closely intertwined with privatisation, creating the economic and ideological conditions for the state’s withdrawal.

Which way ahead?

On current trends, the stage is set for the NHS to become a state-subsidised private health insurance system. Indeed, although insurance remains low comparatively speaking, the industry expects growth in the sector and people who can afford it are likely to take on insurance to fill the emerging gaps in NHS coverage, avoid queues and offset declining standards of care. Private health insurance could merge with NHS budgets to guarantee people a certain level of entitlement, over which they will have to provide funding through their insurance or co-payments. Already, this is being vaunted as the solution to the current crisis: Christopher Smallwood, chairman of St George’s University Hospitals NHS Foundation Trust, has argued that ending free-at-the-point-of-use would “help save the NHS”. In reality it is the path to wasteful, inequitable and poor quality care.

Yet the progressive decline of the NHS is not inevitable. Wales and Scotland have already abolished the market in their health systems, making the English NHS the outlier. The “NHS Reinstatement Bill” sets out in detail how the English NHS could be saved. A national campaign on the NHS is urgently required and the Labour Party’s position will obviously be crucial. It is worth considering here a recent statement from Lord David Owen. Having left the Labour Party when it swung to the Left in the 1980s to form the Social Democratic Party, Owen’s praise for Corbyn on the issue is a sign of just how far rightward the centre ground has shifted and just how far Corbyn’s policies are moderate in historical terms, saying:

“For the first time in 14 years we have the leader of the Labour Party today unequivocally committing the party to reversing the legislation which has created in England a broken down, market-based healthcare system: one which is unrecognisable from that which was introduced in 1948 … Surely now the whole Labour movement can combine together, left, right and centre to make this official party policy.”

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