Why all this misery in an institution so dear to British hearts? Why has that bright emblem of post-war Britain-classless, efficient, humane-become the NHS of waste, waiting lists and grannies on trolleys?
There is nothing so conservative as a failed socialist system. The ideal is so noble-the provision of all healthcare for all people, for free, in state-owned institutions-that to dismantle it requires qualities lacking in politicians thinking of the next election: the intellectual power to convince the public of what is needed, and great practical understanding of how to get the job done safely. It has always proved easier simply to increase the spending, tinker at the edges and hope the problems disappear in time.
The failure of the political class to spell out what everyone who has studied the matter, left or right, knows is wrong with the NHS-its status as a super-nationalised monopoly-is an enduring betrayal of the electorate. Because politicians lack the courage to explain what "the NHS" is, and what its alternative-privatisation, or mutualisation, or liberalisation, or whatever you call it-might look like, the public is left bemused, but believing two things deeply: NHS "good," privatisation "bad." This attitude urgently needs to change if healthcare is to improve.
There was once a politician who had the courage to explain things honestly. Enoch Powell was health minister (not a cabinet post then) for three years in the early 1960s. He authorised the first mass hospital-building programme since the NHS began, initiated the closure of the grim Victorian mental institutions and forged new relations with consultants. He was as good a health secretary as Aneurin Bevan, Barbara Castle or Kenneth Clarke. Yet the experience so depressed him that on leaving office he wrote an essay, "Medicine and Politics," which remains the best short exposition of why the NHS is doomed.
"Dissatisfaction," Powell observed, "is endemic and inherent"-neither the patients, nor the professionals, nor the politicians derive solace from the system. Patients have no sense of ownership of their own healthcare: they are "face to face not with the doctor as an individual but with an institution." Professionals are overworked and demoralised, "prating about vocation and self-sacrifice" (now they call it the public service ethos) while fulfilling what they conceive to be their "ethical duty to bombard the government into providing more money, and then more again." The politician in charge, meanwhile, suffers the tedium of knowing that "the only subject he is ever destined to discuss with the medical profession is money... All discontents can be rationalised by a single, anthropomorphic explanation: it is all the fault of a miserly minister, or Treasury, or cabinet."
Powell, an early Thatcherite who played John the Baptist to Keith Joseph's Messiah, understood the explanation was not human, but structural. The NHS, he said, is characterised by "monolithic centralisation," "unique rigidity" and "the impossibility of autonomous development." These features flow from the fact that the NHS is "a fully nationalised system."
In fact, it is nationalised at three levels. First, supply-the provision of services-is "a near monopoly of the state." Second, the demand side of the equation is also nationalised: the entire cost is met out of taxation and patients have little choice over where they are treated. Hence, third, the allocation of resources is a monopoly process: supply and demand must be approximated by the guesswork of officials. And the well-known problem they face is this: while demand in a free system is practically unlimited, supply is limited by the amount of money the government is prepared to spend on health. So, as Powell said, "demand has to be squeezed down somehow so as to equal the supply. In brutal simplicity, it has to be rationed."
This was a simple fact that escaped the founders of the NHS. They thought that healthcare-unlike other necessities such as food and housing-would escape rationing. Bevan actually expected demand for healthcare to fall after 1948, on the grounds that the NHS would reduce ill-health. He did not account for the insatiable desire for treatment on the part of the public (within a year he was complaining of "the ceaseless cascade of medicine pouring down British throats"). Nor did he anticipate the enormous expansion in the range of treatments: as Geoffrey Rivett, the historian of the NHS, has put it, "more has happened in the field of medicine since 1948 than in all the centuries back to Hippocrates."
The increase in the range of available treatments, and the limitless demand for them, explain the failure of the NHS since its earliest days to meet its aspiration: to provide all care for all people. They explain the endless waiting lists: as Powell said, "time is serving as a commutation for money." And they explain why, contrary to Bevan's na?ve hopes, the cost of the NHS has not fallen over time, but risen inexorably.
Over the first 40 years of the NHS, the health budget quadrupled in real terms. In the last 15 years it has trebled on top of that. This year Gordon Brown accelerated the trend, committing the government to a 43 per cent real increase over the next five years. Moreover, the Wanless report has forecast the need for an annual increase of around 5 per cent over the next 20 years: a further trebling of spending. If this comes to pass, expenditure on health in 2022-23 will be 20 times greater, in real terms, than it was in 1948.
So much for the hope that health costs would fall as a consequence of the NHS. In its first year, 1948-49, the service did not even have a limit on expenditure-it was assumed that costs would be equivalent to the total health expenditure in 1939. When the real bill turned out to be two thirds higher, the Treasury panicked and imposed an "expenditure ceiling." This ceiling has remained the governing feature of the system: the amount of healthcare that the British public is entitled to is forever limited by the Treasury.
One effect of the ceiling is that the NHS is, oddly, at a disadvantage when it comes to buying things. The NHS, like Adidas or Nike, is little more than a logo and a system of administration, providing the "value added" to the materials it sources from the private sector. But unlike Adidas or Nike, it adds very little value. The absence of a satisfactory mechanism for establishing marginal utility-the relative usefulness, and hence the proper cost, of a single unit of service-means that the expenditure ceiling is constantly pushed higher as suppliers increase their prices to the maximum they can hope to achieve.
A good example is drugs, which cost the service 15 per cent of its budget. In theory, the NHS decides what to pay for the drugs it buys. But in practice, if the government is not prepared to impose prices-and good sense demands they should not-then suppliers are in charge. It emerged some months ago that as health spending has grown in recent years, the cost to the NHS of certain drugs has risen in line with it (generic warfarin drugs rose from 64p to ?4 between 1996 and 2000). The Fraud Squad is investigating some of the most egregious price rises. But the real fault lies with the system, where marginal costs are out of all proportion to their utility, and price fixing is endemic. Hence between 1997 and 2001, as NHS funding rose by 30 per cent in real terms, actual output-medical productivity-rose by 5 per cent. Meanwhile the NHS itself admits that it wastes a fifth of its budget in fraud and inefficiency.
Staff are, of course, the NHS's biggest cost, accounting for over half its budget. Yet the NHS is in the grip of powerful unions for whom success is measured by the degree to which they manage to resist change. Moreover, medicine in Britain, like teaching, is a profession which devours its own young. Juniors do the most work, for the least pay. The result is a perennial recruitment crisis, and a greying age profile in the public sector, with half as many under-30s as in the private sector. Thousands of young people join the NHS, and leave within two or three years. There are more qualified nurses not working as nurses than there are working nurses. Some hospitals have an annual nurse attrition rate of over 30 per cent. The King's Fund reports that as many as one in three newly qualified nurses fail to register to practise at all. Senior personnel are no happier. A recent survey found that 100 per cent of consultant paediatricians, and two thirds of consultant surgeons, wish to leave the NHS early-almost all blaming the levels of bureaucracy and paperwork.
Enough of the problem. What is to be done about it? Friedrich Hayek, whose Constitution of Liberty was published in the year that Powell took office as health minister, thought one of the main objections to a "free" service was that "its introduction is the kind of politically irrevocable measure that will have to be continued, whether it proves a mistake or not." Powell was almost as gloomy. "The very contemplation of denationalising the NHS," he said, "is enough to daunt the stoutest political heart." Change would never occur, he said, until enough people are prepared to leave the NHS altogether-until they are "willing to pay the difference between nothing and the market price" for healthcare. There was, he thought, "no likelihood" of this happening "in the near future." Well, 40 years on, it is happening-and in a curiously old-fashioned way.
One of the ironies of the founding of the NHS is how it drew inspiration from the wrong aspect of the pre-war medical scene. Bevan saw, in the words of his biographer Michael Foot, that "the most spectacular triumphs" of modern healthcare had been achieved "by public health acts, by sanitary inspectors... by proper drainage systems, by the provision of water supplies; in short, by collective action." It was on this late 19th-century statist model, informed by Bismarck's experiments in Germany and encouraged by the Fabians at home, that the case for the NHS was constructed. The mistake was to confuse the preventative work done by public health acts, sanitary inspectors and others with the curative work performed by doctors and nurses. Public health-epidemiology, immunisation and the promotion of a safe environment-is a proper function of the state, involving simple activities which require only money and co-ordination, and apply to all citizens in the same way. But in the field of actual medicine-requiring individual, customised care, innovative treatment and a high degree of professional autonomy-state control was never the answer.
Bevan should have looked-as Beveridge did-to the other side of the pre-war healthcare scene: the network of co-operatives, trade unions, friendly societies and mutuals which provided medical treatment and private health insurance to the low-paid. By 1948, much of this network had already fallen away, extinguished by Lloyd George's National Insurance Act of 1911 which, by using only "approved" friendly societies-meaning large ones-to administer the scheme, had badly damaged the small-scale roots of the friendly society movement. But at its peak, in the small-state era of the late Victorian period, over half of all male industrial workers were insured against sickness through a registered building society or trade union, and almost all the rest had cover with an unregistered society. In those days, the labour movement was suspicious of the state and many funds chose to evade regulation and inspection. It is to this tradition that we need to return-not, as some have argued, to the provision of public goods by the Victorian town council but to the Victorian private sector.
For it is this movement-long dormant and still below the radar scanner of media and political attention-that is fulfilling Powell's condition for change: increasing numbers of people are "willing to pay the whole difference between nothing and the market price" for healthcare (or at least some healthcare); in effect, to pay twice, through their taxes and their medical bills. Each year more than 250,000 people without any insurance choose to self-fund for private treatment and surgery. Seven million people have standard private medical insurance (PMI) provided by the big insurers. This figure has remained steady for the last ten years, and fairly closely approximates to the richest 7m people in the country. But over the same period, there has been a startling upturn in the numbers with the forms of PMI which cater specifically to the middle-income and the low-paid-those, in short, for whom the NHS was designed. Today, a further 7m people choose to pay for the health cash benefit plans provided by trade unions, friendly societies, and other not-for-profit agencies.
These cash plans dispel the myth that only the rich can afford to go private. Already, despite the howls of the union leaders whenever the prime minister mentions the private sector, many of the TUC's 6.8m members enjoy PMI in some form or other. Until last year, when they realised they were involving themselves in hypocrisy, both Bill Morris of the TGWU and John Monks of the TUC had private medical cover arranged through Simplyhealth, one of the leading insurers catering to the trade union market.
What is the government doing about all this? Challenged in the Commons in February to state the basis of his "political philosophy," the prime minister had the presence of mind to splutter, "the National Health Service." Even as he spoke, however, that term was undergoing drastic revision. A month earlier, in a speech to the New Health Network, Alan Milburn had announced that the government was engaged upon a "redefinition of what we mean by the NHS."
So what is this new definition? Simply put, it is this: the NHS is not an institution, but an idea. As Milburn said in his speech, "the NHS is not its bricks and mortar. It is not a set of structures. It is fundamentally a set of values. An ethos, if you like." What this ethos seems to amount to is the principle that all healthcare should remain taxpayer-funded. How the healthcare is delivered is another matter.
This approach is due both to government infighting and to wider New Labour strategy. On one level, Gordon Brown does not want to give up control over health spending. The famous Wanless report, spun by the Treasury as independent corroboration that general taxation remains the best way to fund healthcare, in fact merely answered its own question. Its terms of reference were to work out the money needed to pay for a tax-funded NHS in 20 years' time-it did so, extravagantly.
But Wanless was not purely an exercise in the eternal Whitehall war. Tony Blair knows it is easier to move forward on the supply side of the equation-medical provision-than the demand side-the source and control of the money. Some changes are occurring to the purchasing arrangements, which ostensibly bring control closer to the patient-the commissioning of secondary care (hospital and specialist) is henceforth to be done by bodies known as primary care trusts (PCTs) in a hotly denied re-run of the internal market experiment of the early 1990s. PCTs are not, however, as the name implies, groups of family GPs, but large local monoliths with as much feeling for patient need as the health authorities whose commissioning role they have taken over. Anyway, an "internal" market is not enough: the market must be outside, not within, the bureaucracy. Real demand-side reform is off the cards until after the next election. Supply side reform is very much alive.
The day after April's massive budget was delivered, backed by publication of the Wanless report, a document slipped out of Whitehall which might yet prove of greater importance then either. "Delivering the NHS Plan" was the culmination of the process begun with Milburn's speech.
That speech, had it been made by a Tory would have confirmed everything the left thinks about the right. It might have come straight from Powell's "Medicine and Politics." "The whole system is top-down," Milburn observed from its very pinnacle. "There is little freedom for local innovation or risk-taking... Queuing is endemic. Services are slow and unresponsive. Patients are disempowered. The system seems to work for its own convenience not the patient's... It is run like an old style nationalised industry controlled by Whitehall."
And the solution? "The NHS should not be run from Whitehall," said Milburn. It must change "from a centrally-run provider of services to a values-based system where different providers-in the public, private and voluntary sectors-provide comprehensive services... the task of managing the NHS becomes one of overseeing a system not an organisation."
"Delivering the NHS Plan" sets out how this system will operate. It goes further than just allowing NHS patients to be treated privately-the principle behind the concordat signed with the independent health sector in 2000, under which over 100,000 patients have now been treated in private hospitals, with the taxpayer collecting the bill. The document explained how NHS hospitals might achieve what it calls "foundation" status-and here we see how radical the government is, in theory, being.
For what "foundation" status represents is a return to the model of locally-accountable hospitals, to the voluntary institutions that Labour abolished when it took British healthcare into state ownership in 1948. A handful of "three star trusts"-high-performing hospitals-are to become self-managing, independent legal entities along the lines of non-profit mutuals or co-operatives, free of daily interference from Whitehall, free to vary the pay of their staff and free to keep the proceeds from sales of their assets. Foundation hospitals will have a new legal form, "the public interest company" (PIC), which will be "profit-making" but not "profit-distributing"-surpluses will be ploughed back into the business, as with most hospitals in the US and France. They will become, as near as dammit, private sector institutions.
The foundation hospitals initiative, in theory at least, amounts to the dismantling of the NHS designed by Bevan in 1948-and, incidentally, it acquits the Tories of an ancient political slur. Labour is fond of saying that the Tories opposed the creation of the NHS-Blair makes the accusation whenever he feels particularly harassed at the despatch box. Technically speaking, he is right: the Tories did oppose the NHS bill on its second reading. But they did not oppose the principle now enshrined as the "ethos" which, according to New Labour, "defines" the NHS: the principle of a comprehensive, taxpayer-funded service. They had themselves, before losing office in 1945, presented a white paper which advocated just that. It was this agreement in principle that led them to support Bevan's bill on its first reading, and to endorse, as their spokesman put it, "a national, comprehensive, 100 per cent health service." They opposed the second reading because at the last minute, contrary to previous policy, Bevan announced he would take the entire hospital stock into state ownership. Five weeks before the bill was introduced, Herbert Morrison told the Commons that the government felt "it would not be right to take the hospitals over into a national concern." At the last minute, Bevan reneged on the pledge and committed what the BMA called "the largest seizure of property since Henry VIII confiscated the monasteries."
It is this confiscation which the government is now, seemingly, revoking. The NHS they are seeking to create is similar in all respects to the NHS the Tories would have introduced, given the chance, in the 1940s. And yet, and yet... there remains the enduring question which hangs over New Labour: are we seeing change merely to language and argument, or to reality? Are they trying to change the "definition" of the NHS in order to change its actuality, or merely in order to change perceptions of it?
The answer depends on the outcome of the battle over what foundation status will actually mean. That battle-between Gordon Brown and the Treasury on one side and Alan Milburn and the health department on the other-began last April and finally surfaced at the Labour conference in Blackpool in early October. In mid-October a compromise was reached on the issue of whether foundation trusts can raise money privately. It was agreed that they can borrow privately but that the loans will be categorised as part of the agreed NHS borrowing requirement.
The dispute will now disappear underground again but it is likely to continue-and it is not just about control of public spending. The question, in the last analysis, is whether foundation hospitals are to be private sector institutions or public sector ones. They might be nominally privatised-given ownership of their assets, free to employ their own staff and so on-but while they are dependent on the Treasury not only for their revenue but for their capital borrowing, they will remain local outposts of the state. This is what Brown is committed to ensuring.
Brown wants to keep control because he fears the consequences of foundation trusts' freedom to charge patients for "non-core" activities. Given the "comprehensive" aspiration of the NHS, these activities are currently limited to cosmetic and complementary healthcare. But Brown believes that foundation hospitals, straining for more financial independence, will come to place too much importance on "non-core" activities-with great loss to the equity principle. It is this "two-tier NHS" argument which is often deployed against private pay beds in public hospitals.
It might not be a bad thing, however, if the government were forced actually to define the "core" services the NHS is supposed to offer. The comprehensive aspiration has never been fulfilled, yet given that it underlies the entire philosophical justification for the existing structures, the subject is shrouded in a shameful omerta. If we, as other countries do, were simply to list those procedures which we require to be provided to all people at the taxpayer's expense, we would go a long way to realising the transparency and fairness which is presently so absent. The danger that hospitals would divert energy and resources to the money-making aspects of their business would be offset by the requirement to provide all core services to a consistent quality. After all, it is not a hospital's expertise at removing tattoos or varicose veins that will ensure its prosperity, but its competence in the core activities of acute and life-saving care.
Tony Blair, who sides with Milburn, insists that foundation hospitals will have real freedom. But it is not clear that this is so. Hospitals will become independent of government insofar as they demonstrate obedience to the government's wishes. Under the current proposals, Whitehall's detailed performance measurement regime will remain in place, and foundation hospitals will suffer the constant threat of losing their "autonomy" if they fail to meet the appropriate targets. It is also not clear how much freedom from union agreed pay and staffing agreements the foundation hospitals will actually have.
Control over capital raising; control over performance measurement; control over staffing-are all vital elements of a liberalised system. But the really important reform is to allow trusts to earn their revenue in free and open competition with one another, rather than have block budgets allocated by the health department. Money-the nearly ?1,100 per capita cost of the NHS-must follow the patient. Vitally, people should be free to top this up with their own money if they want a better deal than the standard package-a private room, say, or a more convenient appointment (although definitely not the ability to jump queues for operations). Finance must flow into the system from another source than the Treasury-the pockets of patients themselves.
This last requirement is the real genie in the bottle of health reform. Ultimately, supply-side liberalisation-setting hospitals free-will come to nothing if the demand side remains a state monopoly. Even the "independent" hospitals will not be free while all their revenue comes in the form of a Whitehall grant: while all the money in the system flows downwards, accountability will still flow upwards.
There is a related danger. Even worse, in a sense, than the present arrangements would be for the state to sever its day-to-day control of hospitals while maintaining the flow of funds-hospital bigwigs (the consultants, in short) would take over. "Producer capture" is as real a threat in a private agency as in a public one. This was, in fact, one of the arguments for the nationalisation of healthcare in 1948: Bevan took exception to the paternalism of the consultants and their cronies on the voluntary and municipal boards. Yet it was this feature of the pre-war situation, the attitude of "get what you're given and be thankful," which was hardened into stone by the state's undertaking to provide all care for all people. It is real liberalisation, not nationalisation, which will break the stranglehold the consultants hold over healthcare. The patient, if he is to be treated in a responsive manner, must hold all the cards-must, in short, control the cash spent on his behalf by the Treasury, and be free to use his own to supplement it.
The final problem raised by the present proposals is that foundation trusts, if they are given freedom to alter pay rates, will poach the best staff from other hospitals. Moreover, most of the trusts eligible for foundation status are large acute hospitals in big cities. Smaller and remoter hospitals-where capacity is tightest and waiting lists longest-will be unaffected, except by the drain of manpower and money to the new trusts. The solution, therefore, is to mutualise all the trusts. All hospitals should become free-standing, independent legal entities with the right to hire, fire and remunerate staff, retain profits, and so on. And they should become so in perpetuity: the government should not be able to revoke their independence except by another confiscatory act of parliament.
We are moving, slowly and so far purely rhetorically, towards a plural and diverse healthcare market. What seemed impossible two years ago is now in prospect. All three parties are committed to radical supply-side reform, and the race is on to wrest ownership of the concepts of diversity, choice and freedom from the Tories. There are good reasons, on the Nixon-in-China principle, why Labour should win this race-they, at least, are trusted on the NHS. But strange shapes in the shadows exert strong pressure on the leadership through the unions, the backbenches and the national executive. Moreover, Gordon Brown is wary of dismantling Bevan's NHS and will try to block the way to real foundation trusts. This issue challenges the cherished New Labour belief that equity and efficiency do not conflict. Sometimes, of course, they do conflict and foundation hospitals may be a case in point. When such conflicts arise Brown is more likely to side with equity and Blair with efficiency. Hence the slow sideways shuffle in the direction of reform, and the fear that the battle at the heart of government might end in an elaborate fudge.
New Labour's contribution to the transformation of British healthcare might simply be to make reform acceptable. It only required the government to open the door, and its rivals have rushed through. The Liberal Democrats are pushing a radical decentralisation agenda, promising to allow NHS trusts to transfer out of the public sector and become non-profit organisations. Most welcome of all, the Tories are emerging from the long sleep of reason and wakening to the possibility of doing with healthcare what, in the early 1980s, they did with housing: that is, bring to the poor the benefits currently enjoyed only by the rich. Margaret Thatcher was curiously timid on the NHS-and little was done until the last years of her reign, when Kenneth Clarke began the experiment in internal markets which the government is now repeating. At their 2002 conference in Bournemouth, however, the Tories promised to complete the "unfinished revolution" of those years. They will allow all hospitals to apply for foundation status, with full capital-raising powers. And they are hinting at ways of following this supply-side reform with a scheme to give patients full choice of hospital and full control over their personal healthcare budgets. Under this plan Britain would at last have high-quality, independent healthcare for all, tax-funded but not state provided. It's called privatisation-or what you will.
