The attack on the NHS

By Michael Burke

The first major domestic political initiative by the Tory-led Coalition since the TUC’s March 27 demonstration has to been to call a pause in the implementation of its plans for the NHS. The government’s unpopularity is likely to deepen over the next period as the combination of spending cuts and tax increases in the Financial Year (FY) just ended amounts to £9.4bn compared to £41bn in the FY just begun. The TUC-led manifestation of opposition to the governments cuts agenda has prompted the government rethink. How thorough a ‘reorientation’ that becomes will in part be a function of the degree of continued mobilisation against the cuts. But it is clear campaigning and demonstrating does have an effect.

The attack on the NHS is on two fronts. First, despite assertions that the NHS is ‘safe in our hands’ and that spending on it was being ‘ring-fenced’, it is now widely understood that real cuts are taking place, even if government speakers insist on calling them £20bn of ‘efficiency savings’. Secondly, the fundamental character of the HNS is being altered, with the Tories seeking the maximum possible role for the private sector. This scope of that role is only circumscribed by the political situation - and this is what they have now paused to reassess.

NHS Cuts

In assessing the degree of cuts to the NHS budget in real terms three factors need to be taken into account:

• Government data are presented in nominal (cash) terms, not real terms


• Therefore the level of inflation needs to be included in calculations - and this is usually greater in medical equipment, drugs, etc., than in economy-wide inflation


• The population is both growing and ageing, which means that real medical spending would have to increase simply in order to keep with the natural rise in demand

With those factors in mind, it is clear that government cuts are deep in real terms. From the Comprehensive Spending Review of October 2010 to the ‘Resource Departmental Expenditure Limits are shown in Table 1 below (Table A.9, p.85).

Table 1

To take the current FY, spending is set to rise by 2.0% compared to the spending in FY 2010/11, even though RPI inflation is currently running at 5.5%. In fact, the total level of spending on the same measure under the last Labour government in the FY 2009/10 was £103bn (Treasury, Budget 2010, Table 2.2, p.43). By the end of the current FY this government will have been in office for just under two years. Over that time spending on the NHS will have risen from £103bn to just £105.9bn, or 2.8%. According to the Office of Budget Responsibility, RPI inflation will have risen by a cumulative 10% over the same period (OBR, Economic and Fiscal Outlook, March 2011, Table 4.3, p.95). This represents a decline in real spending of 7.2% in just two years.

This continues so that over five years nominal NHS spending is projected to rise from £103bn to £114.4bn, or fractionally over 11%. At the same time, the OBR projects that inflation will have risen by 22%, representing a real decline of 11%.

According to the OECD health spending tends to increase internationally by around 1.5% per year over the long run, because of growing and ageing populations as well as the higher inflation rate of medical processes. If that long-run international pattern applies to Britain overt the 5-year period, the additional real spending required would increase by 7.7%.

The Tory-led cuts to the NHS are therefore nearly 19% in real terms compared to normal trends over the lifetime of this Parliament.

NHS Restructuring

The cuts in real spending on health will have disastrous outcomes. They will also be difficult to achieve because cutting spending on preventive treatments and minor procedures will tend to have the effect of significantly increasing the health bill on major procedures. As a result, health outcomes will actually deteriorate more rapidly than the headline data suggest. By definition, the most vulnerable will suffer as a result.

Much more than the real cuts in spending, which are not fully appreciated, the government has drawn fire for its plans to restructure the health service. It is intended that the Primary Care Trusts (PCTs) will be abolished and replaced with consortia of GPs to commission medical services, with much talk of local devolution of decision-making. As elsewhere the reactionary utopia of patients (or students) becoming ‘customers’ who choose their service-provider gives way to the reality that it is the professional entity which does the choosing (GPs, school governors, etc).

PCTs themselves are a New Labour half-way house, designed to continually introduce private sector providers among the rosters of legitimate ‘NHS’ service providers – indeed they were obliged to do so. But this piecemeal privatisation of health services- while maintaining the NHS brand – is insufficient for the Tory-led government. It intends a wholesale transfer of provision to the private sector, and a variety of mechanisms may be deployed.

These include insisting the GP consortia allocate to the lowest bidder, or rewarding them financially for doing so. The option of removing the NHS from British and EU competition law is also considered, which allows ‘social providers’ to be excluded from lowest-bidder regulations. Any of these would have the effect of allowing the private sector firms to provide services in only the most routine and simple procedures- but remove the equivalent funds from the NHS which would increasingly struggle to cope with more complex, difficult procedures or chronic conditions. The costs of the public sector would rise and be increasingly unable to cope against a backdrop of continuous and deep real cuts. The private sector could increasingly win a greater proportion of formerly NHS provision, leaving it to wither.

The Inefficient Private Sector

Figure 1 below is taken from the OECD’s ‘Health At A Glance’ 2010. It shows the per capita health spending for the OECD countries in comparable US$ Purchasing Power Parity terms.

Figure 1

Health spending in Britain is already way below the average of its peer group in the richest OECD economies. Tory cuts will take it to below the OECD average as a whole.

The chart also shows that in general, as the proportion of private spending on healthcare rises, so does the overall cost. The US has the highest proportion of private provision and its total healthcare costs are off the chart - even although 45 million Americans have no healthcare insurance, compared to the universal system for the NHS. For 2007 (latest data) the US spent 16% of GDP on healthcare, whereas Britain spent 8.4% (OECD, 2009). Yet there is the same ratio of health workers in the workforce and life expectancy at birth is higher in Britain.

The private sector is more inefficient than the public sector in the provision of health care. At every level of input, a private system requires an additional level of profit to be extracted. Because the government has cut first and begun privatisation second, one of the effects is the PCTs are currently abandoning private firms – because they are more costly than the NHS! The government intends to investigate this breach of the right to profit.

The aim of government policy is not better healthcare, or even more efficient, less costly healthcare. It is to boost the profits of the private sector by displacing the more efficient public sector.

Campaigners to preserve the NHS and make it more responsive to the needs of patients have already caused a pause in the programme. They should know that maintaining their campaigns can force either a more profound rethink, or hugely increase the political price paid by this government for this policy.