David Smith in the Sunday Times opines 28th Jan 2018: A cash injection alone won’t cure NHS ills and I have been warning the Liberals that extra hypothecated or otherwise tax would solve nothing without the ideological and philosophical changes which will win the support of the professionals. All health systems are rationed: most overtly, but not the UKs 4 health services. Lets be clear: there is no more money, and no Brexit dividend.
If it is winter, there must be a National Health Service crisis — and indeed there is. There was one last year, which was described by the Red Cross as a “humanitarian crisis”, and there is one this year. There was one in 2005, halfway through the biggest increase in NHS spending in its history, and there was one in 2008, even further into that splurge.
Look hard enough and there is a crisis every year, though they vary in severity. I do not diminish the distress for people caught up in this one, but it would almost have been bad manners not to have a crisis in this, the year the NHS celebrates its 70th birthday.
The question is what to do about it. This one has provoked much debate, and two things should be clarified at the outset. The first is the idea that there will be some kind of Brexit dividend available for the NHS, as claimed by both Boris Johnson, the foreign secretary, and Liam Fox, the trade secretary.
There will not be. Any saving on Britain’s next contributions to the EU budget — and we are yet to see whether there will be any — will be swamped by other effects on the public finances. Britain will be borrowing more, not less, in future years and, as the Institute for Fiscal Studies put it a few days ago: “Brexit has reduced rather than increased the funds available for the NHS (and other public services), both in the short and long term.”
The other thing this winter crisis has done is bring forward an old chestnut: a dedicated, or hypothecated, NHS tax. There are many reasons why this is a bad idea but two will suffice.
One is that tying something as important as NHS spending to the stream of revenue for one particular tax would be hugely risky. What happens when revenue falls short? You might respond by putting up the tax but there is no guarantee that a higher tax rate means an increase in revenues.
Second, hypothecation destroys the ability of governments to spread revenues across popular public services, such as the NHS, and unpopular ones, of which there is a fairly long list. If the NHS is to be financed out of taxation, it should be out of general taxation (which includes national insurance).
The financial backdrop to this crisis is that the NHS is four-fifths of the way through the tightest decade for spending in its history. NHS spending has risen by an average of 4% a year in real terms since 1948, an increase that accelerated to 5%-6% in the 2000s. In the current decade, real increases in NHS spending are averaging 1% to 1.5% a year, alongside a rising population.
As long ago as the 1980s, it was discovered that NHS spending needed to rise by 2% a year in real terms just to keep up with higher medical inflation and technological advances. That figure may have increased. When the population is adjusted for age (an ageing population puts greater demands on the NHS), per capita spending is now essentially flat. Money is tight.
So what should be done? It would be folly to pretend that next year’s winter crisis could be averted by action taken now but, over time, we should be able to do better than an NHS that lurches from crisis to crisis.
There are five things that can be done. The health service can be helped over time by taxing more, borrowing more, rationing more, charging users more (which itself could ration use), or introducing genuine efficiency improvements.
Taxing more is always a possibility. This was the route used by Gordon Brown in the early 2000s when, much to the distress of business, employer and employee, national insurance was raised to put more money into the NHS. These days there is not much low-hanging fruit for the Tories when it comes to tax increases for either business or individuals. A Labour government would be much less constrained.
The second route is to borrow more, which was what Philip Hammond did in November. Faced with an underlying deterioration in the public finances, he chose to spend more, notably on the NHS. Will it be enough, and the last time that happens? No. There will be more borrowing in future.
What about rationing? A problem for the NHS is that the range of services, and treatments, increases in line with medical advances and demographics. Nice, the National Institute for Health and Care Excellence, has the task of issuing guidelines, including guidelines on which new treatments should be used, based on a budget impact test, but some costs of healthcare rise naturally — for example, because of the ageing population — and are not easily rationed.
Many people favour a different kind of rationing by dropping the NHS “free at the point of delivery” maxim. Prescription charges were introduced early in the NHS’s history and people have for many years expected to pay when visiting an NHS dentist. Paying for a GP appointment, as is the practice in many other countries with state healthcare systems, or charging a penalty for patients who do not show up for appointments, could be a way to go. But the politics of that is very tricky and charging for GP appointments might have the unintended consequence of directing more people to already highly pressured casualty departments.
That leaves efficiency. Three years ago, NHS England, having identified a £30bn funding gap by the early 2020s, committed to £22bn of efficiency savings in return for £8bn more in government money. It is fair to say that progress in achieving those efficiency savings has been disappointing.
As in the past, top-down pledges of this kind tend not to work. Tony Blair and Gordon Brown’s NHS spending splurge was supposed to be a return for reform and greater efficiency. We had the splurge but not the efficiency.
Far better, as the think tank Reform argues, is that ideas that reduce waste and improve efficiency develop on the ground and are spread around the NHS. Some of that happens now. Not enough of it does. An excessively bureaucratic organisation that employs at least 1.5m people across the UK is not an obvious candidate to be fast on its feet when it comes to efficiency savings. There is good practice in the NHS, however, some of which has eased the pressure on A&E departments in some parts of the country even this winter, and it needs to be spread. Otherwise, each winter crisis will stretch, unbroken, until the next.
In one bound, Britain’s job market was free. After two months in which the Office for National Statistics had reported falling employment, the latest release showed a strong bounce. Employment in the September-November period of last year was up by 102,000 compared with June-August, and by 415,000 on a year earlier. While self-employment fell, full-time employee employment rose strongly.
This was good news, although, as I sometimes get reminded by statisticians, the margin of error on these figures is large. So the small falls in employment of the previous two months may not have been falls at all, and the latest rise may have been exaggerated.
One oddity of the latest figures was that a good rise in employment coincided with a 0.5% fall in hours worked in the economy, despite an increase in full-time employment. That will be good for one measure of productivity, output per hour, which should show another robust rise in the fourth quarter of last year. But the other measure, output per person employed, may well go in the opposite direction.
The employment news boosted the pound to its best level against the dollar since before the EU referendum. So too did the belief that something is stirring on wages, which in turn could bring forward the next interest rate rise from the Bank of England. Friday’s slightly better and expected fourth quarter GDP figures pointed in a similar direction.
The uptick in wages in the official figures was tiny. Average earnings growth for total pay was 2.5% in the three months to November, the same as the upward-revised figure for the previous month, but lower than the 2.6% and 2.7% of a year earlier. Regular pay growth edged up from 2.3% to 2.4%.
There was a bit more excitement in the latest figures for pay settlements from XpertHR, a firm that monitors them. Early 2018 pay settlements have moved up to a median of 2.5%, it says, after being stuck at 2% last year. Indeed, this was the highest since early 2014.
There have, of course, been false dawns before. This might be another, but it could be that, at last, in what economists would see as evidence of a classic Phillips curve relationship, wages are responding to low unemployment.