Since its birth, the NHS has periodically seen off financial crises, charges of unsustainability, and wheezes to fund healthcare in new ways. Is this time any different?by Nicholas Timmins / March 10, 2017 / Leave a comment
Back in 1974, one of my first press conferences as a health reporter was at the British Medical Association (BMA). Such events were then a rarity, although they were soon to become anything but. Shortly after, and for the first time in the history of the National Health Service, hospital consultants were working-to-rule (doing the minimum required by the rules of their contract) over Barbara Castle’s attempt to take private practice out of the NHS—while junior doctors, again for the first time, took industrial action over a new contract. Shades of today, hey?
In a measure of how fast things can change, George Godber, chief medical officer and NHS founding father, had declared in his annual 1972 report that “in time of need for myself or my family, I would now rather take my chance at random in the British National Health Service than in any other service I know.”
Two years on, however, the outgoing Conservative government had slashed spending to cool an over-heating economy, in which—unlike today—inflation was rampant. Like now, the NHS was desperately short of money. It was plagued by strikes from ancillary staff and some nurses over pay differentials. Waiting lists—nobody measured waiting times then—were rocketing. The media had been called to the BMA’s majestic, red-brick Lutyens-designed headquarters to be told that the service was in crisis.
The press conference was conducted by Derek Stevenson, the BMA’s secretary and a former major in the Royal Army Medical Corps, who combined a cavalry officer’s dash with Rex Harrison’s good looks and a top consultant’s bedside manner. He conducted press conferences in morning dress while chain-smoking his way through untipped Senior Service cigarettes.
Stevenson demanded a £500m cash injection—a monumental sum given that the total NHS budget was only £3bn—and a Royal Commission. He declared that the money had to be found somewhere—from where almost didn’t matter. He came out with ideas for hotel charges in hospital, top-up insurance, charges for GP visits, an extra health stamp, or even a sweepstake. “The fundamental thing,” he thundered, fist crashing down on the table, “is that it cannot go on like this.” In what is now the standard refrain of the NHS, he said that “morale has never been lower.”
For once, it may have been true. But the point of this story is that we have been here before. So, what might happen now, given the view that—despite the huge improvements seen in the first decade of this century—the NHS is once again in deep crisis?
For the first time in more than a decade, hospital corridors are regularly lined with patients, often elderly, awaiting a bed. At the same time, and as Anita Charlesworth has highlighted in Prospect (“Don’t care was made to care,” March) there has been a 42 per cent rise in a year in the number of patients stuck in a bed, sometimes for weeks, because the health or social care that they need, in order to be discharged safely, is not there. Both of these problems reflect the interlocking crises of general practice under pressure, and a collapsing social care system in which one quarter fewer adults are receiving care than five years ago.
The furious arguments of the past generation about “reform”—the creation of supposedly autonomous foundation trusts, greater use of choice and competition and of the private sector, seem secondary now—not least when Simon Stevens, the chief executive of NHS England, has just quietly announced that in at least half-a-dozen areas of England, he plans to “effectively end” the 25-year-old purchaser/provider split. Debates about organograms and “quasi-markets” are beside the point when there is a lack of resources and when nominally free-standing foundation trusts find themselves with fixed financial targets that they are failing to meet, while their regulator, NHS Improvement, responds by asserting some traditional central command and control.
The sums are not easy to do. But the government currently spends around £125bn on health and social care in England, £110bn of it on the NHS; the former figure is due to rise to about £140bn by 2020-21. To allow for inflation, handle an ageing population, hold waiting times and maintain services then, even allowing for some productivity gains and continuing pay restraint, perhaps an extra £8-10bn a year in real terms is needed by the end of the decade even after the Budget.
So, what happened in 1974? Well, after two of the most tumultuous years in NHS history, more money was found. The service moved on in phases of relative feast and famine throughout the 1980s, with a tendency more to famine. In the early 1980s, Margaret Thatcher and her social services secretary Patrick Jenkin toyed with alternative
funding approaches. But the “wets” in the Cabinet killed off the Central Policy Review Staff’s proposals to the prime minister, while Jenkin’s study was quietly buried by his successor, Norman Fowler.
But by 1987 the NHS was again in deep trouble. The settlement it received in 1986 had been tough. But ahead of the 1987 election the NHS was told to “keep the lid on,” which it chiefly did by not paying suppliers. When the hapless John Moore became social services secretary, Ian Mills, the director of financial management on the NHS Executive, had to tell ministers that the NHS owed so much that it was “technically bankrupt.” When Moore made a settlement with the Treasury that the NHS knew it could not live with, the lid came off.
Over the autumn, some 4,000 beds shut. The newspapers were filled with horror stories from the wards. One of the, quite literally, killer moments came in December at the Birmingham Children’s Hospital. A shortage of intensive-care nurses led to the life-saving operation needed by David Barber, a baby with a hole in his heart, being cancelled five times in six weeks; he eventually had the surgery but died days later. In January 1988, Thatcher appeared on Panorama to claim that an NHS review, which had not in fact been set up, was under way.
It is often forgotten that this started out as a review of the financial model. Moore wanted a hypothecated tax—that is, one for a specific purpose, in this case health. People could opt out of the tax, taking a rebate for providing their own insurance. Nigel Lawson, the chancellor, initially proposed a significant extension to charging. Thatcher wanted tax relief on all private medical insurance, which Lawson refused on the grounds that it would likely produce “not so much a growth in private health care, but higher prices,” as it would provide a subsidy to a relatively fixed supply of medical services. And when he looked at other countries’ systems, he concluded that they too had financial problems and any switch would be “out of the frying pan and into the fire,” adding later, “and not such a bad frying pan.” For all its problems, the NHS was, Lawson saw, an effective cost-control mechanism.
Halfway through the review, Moore was sacked, Kenneth Clarke took over, and the focus moved from how the service should be financed to how better value could be secured. That shift led to the purchaser/provider split in 1991. The only ghost of new financing methods was tax relief on private medical insurance for the over-60s, something Lawson would never have conceded if he knew Moore was about to go. At the press conference to launch the reforms, Clarke came as close to disowning that policy as it is possible for a serving minister to do, and the Institute for Fiscal Studies confirmed later that the tax relief cost more in income foregone than it saved the NHS. Soon enough, the New Labour government killed it off.
The launch of the white paper—“Working for Patients”—read more like a paean of praise for the NHS than the obituary that it might have been. As its reforms came in, the NHS enjoyed a then-record spending increase to ensure that the purchaser/provider split did not crash and burn in its first year.
When Labour took power in 1997, it too was to face funding problems. In its first comprehensive spending review, it also looked at—and then rejected—new or higher NHS charges, and a possible switch to financing the service through national insurance. But by 1999 cash was so tight that a not particularly bad winter saw the wards overflowing and one East Anglian hospital hiring a freezer lorry because its mortuary was full. By Christmas, there were only three national newspapers—the Financial Times, the Guardian and the Daily Mirror—whose leader columns still supported the NHS as a tax-funded, largely free-at-the-point-of-use service. The others backed some other form of funding as again, the argument ran that the NHS had become “unsustainable.”
But again it was the personal stories that triggered action. In 1999, Ian Weir, a 38-year-old Northern Echo photographer and Labour supporter who had taken constituency photos of Tony Blair and soon-to-be health secretary Alan Milburn, died from heart disease after months on a waiting list for a bypass. Both Milburn and Blair have said that his death hit them hard. In another case that recalled the Barber one, 78-year-old Mavis Skeet’s operation for throat cancer was postponed four times in five weeks to the point where it became inoperable. And then Robert Winston, one of the country’s most famous doctors and a Labour peer, gave an interview in which he talked about the appalling treatment his elderly mother had recently received in hospital, saying it was “normal” and that “the terrifying thing is that we accept it.” Days later, in a moment reminiscent of Thatcher on Panorama, Blair appeared on Breakfast with Frost and issued his pledge to raise NHS spending to the European average. It was dubbed “the most expensive breakfast in history.”
Times were, of course, different. The economy was in the midst of what turned out to be 16 years of uninterrupted growth. But what might be learned from this trip down memory lane?
First, that financial crisis is nothing new in the NHS but a regular occurrence: we have only touched on some of the more serious squeezes. Second, that since 1948 there have always been siren voices arguing the NHS is unsustainable. And third, that when governments, including Conservative ones, have looked at alternative funding mechanisms, they have always shied away.
This is because none of the alternatives offer anything like a free lunch. There are myriad options for changing the way the NHS is funded, and this article can’t possibly look at them all. But we can take some of the common propositions.
New or higher charges are tempting, not least because at the moment, a smaller percentage of the NHS budget comes from charges than in the past. Other countries with decent tax-funded health systems—New Zealand for example, or Sweden—have charges. But to raise serious money, ministers would have to be brutal. Take a charge for visiting the GP. There are roughly 300m GP visits a year in England and a back-of-the-envelope calculation shows that a £25 charge would raise £7.5bn. But only if everyone paid, and if the charge did not deter visits—and if it did not stop people going when they should, which could end up piling extra costs if the result was conditions being diagnosed at a later stage, when they required more complex treatment.
Even putting that reservation aside, it is extremely unlikely that everyone would be asked to pay. Just look at prescriptions. Some 40 per cent of the population are liable for the £8.40 charge, but pensioners, children, pregnant women, those on low income and those with a range of specified long-term conditions, including cancer, are given exemptions. And the upshot of that is that only 10 per cent of items are actually charged for—the reason being that many of these groups are much more likely to need medicine than the largely healthy young adults who do pay.
Apply similar rules to our £25 GP charge—90 per cent exempt—and you would only raise about £750m, less than this year’s likely hospital overspend, and not a lot compared to the £110bn NHS budget. One could try and avoid exemptions by applying a cap instead—of say £100 or £200—on how much any one person would pay in a given year. But because many GP visits are made by people with long-term or multiple conditions, even quite a high cap would soon dramatically eat into £7.5bn. And imagine the politics of asking people who are presently exempt to start paying for prescriptions, let alone GP visits. What would be the chances of getting any policy that could raise serious money through parliament? You could look to hospitals instead—with charges for A&E visits, and out-patient appointments—but to raise similar sums here, charges would have to be far higher because there are fewer visits. It could be done—it is elsewhere, although usually in countries which have always charged so individuals are used to paying. In the British context, it is neither politically attractive nor a free lunch.
What about tax relief on private medical insurance? The core objection that Lawson had 30 years ago still applies: it is as likely to lead to higher prices as to anything else, given that capacity—the number of clinical staff and facilities—would not change quickly. In the UK, private patient charges are already among the highest in the world. And in recent decades, governments of all stripes have soured on subsidising many kinds of private industry. As we have seen, the one time the UK tried it, the tax relief cost more than was saved by the NHS. Furthermore, as NHS staff would either do more private work, or move entirely to the private sector, this would create a two-tier service, with the better off—who are likely to be healthier as well as wealthier—subsidised to go private while the rest would remain with a shrunken NHS. Could you do it? Of course, but why would you want to?
No one would advocate switching to the system in the United States where, even after Obamacare, millions remain uninsured, but some favour a move to social insurance of the type certain European countries use. In many ways, however, this is a second-order issue. At a high level, there is little difference between tax funding and social insurance. Both involve compulsory payments and can provide comprehensive cover. But tax funding uses the widest possible base—general taxation—while classic social insurance chiefly relies on payments by employees and employers. The employer levy makes jobs more expensive to
create, which is hardly attractive in a globalised world.
Insofar as there has been a shift in continental Europe over the years—and it has not been a large one—it has been to inject more general taxation into their social insurance systems; probably because of these pressures. One could, of course, devise a social insurance system which would take extra money from particular groups—especially the better-off elderly, who are exempt from National Insurance. But no one has a credible model for a British version of social insurance sitting on the shelf. Designing one, legislating for it and then implementing it would take years. When the problem, right now, is now.
“It may take a truly awful personal story to turn the headlines into something politically unstoppable”
There are many other ways to raise extra finance for health. One could scrap winter fuel payments and free bus passes. But often, free travel is key to the social engagement that keeps people healthy. Tax reliefs around pension saving have already been reduced in recent years, but perhaps more could be done there.
Or one could try a hypothecated health tax, but the Treasury is always opposed to such “ring fenced” revenue raisers. For a start they tend not to last, or at least they gradually become a fiction. Look at the road fund, for example, or National Insurance, where the link between the contributions paid and the benefits received is now tenuous in the extreme. Gordon Brown jacked up NI contributions in his 2002 Budget expressly to pay for the NHS, but not all of this money went to the service in the end.
With a real hypothecated tax, room for manoeuvre would be limited as priorities changed. The revenue from any individual tax—whether it be National Insurance, Stamp Duty, cigarette levies or anything else—is likely to be more volatile than the tax base as a whole. So why would you want to make the number of hip replacements or cataracts treated a function of the buoyancy of the job, housing or tobacco market, rather than taking a more rounded view of what you could afford? Besides, any “health tax” is really another way of raising the extra revenue that the NHS and care service requires. As such, it is about scarce resources, and thus in unavoidable tension with other public policy objectives such as education, transport infrastructure or pensions.
So along the NHS’s memory lane there have been turn-offs that looked like they might lead to alternative funding models. But in practice, they have never led anywhere—and, as we have seen, chiefly for the reason that there is no free way out of a funding crisis. Reflecting on NHS crises past suggests several other lessons, too. For one, that for all the data now available on NHS performance (far more than during any previous crunch) it may take a truly awful personal story—a baby Barber, an Ian Weir or Mavis Skeet—to turn the headlines into something politically unstoppable. For another, up until now at least—and the past is of course not necessarily a guide to the future—when push has come to shove, governments have always found more money.
What is stopping that this time? First, the apparently touching belief of Theresa May and Philip Hammond that they and others have overseen big cuts in other parts of the public services without the roof coming in—although the frightening conditions inside Britain’s prisons, and the fact that the UK will shortly have an aircraft carrier but no planes to fly from it calls that into question. If others can do it, the argument seems to be, then Jeremy Hunt and Simon Stevens can do it in health, and councils can do it for social care. The result of the Copeland by-election, where Labour tried unsuccessfully to make the NHS both locally and nationally the key issue, may have reinforced that dubious view.
A second and much larger reason, is £52bn—this year’s likely gap between revenues coming in and money being spent by the government. In other words, the deficit, which clings stubbornly on, two years after it was meant to be eliminated.
And third, for well over 20 years it has been becoming clearer that the issue is not just the NHS but the joint one of health and social care. For the growing numbers of people with multiple and/or long-term conditions, care at home is at least as crucial for quality of life as medical attention, while also acting as a relief valve for the NHS. Good quality social care can prevent people going to hospital unnecessarily in the first place, and it helps ensure they can go home promptly once they are medically fit to leave.
And while social care has finally—and rightly—moved to centre stage in the debate, there is even less agreement about how to tackle its funding than there is about NHS funding. Despite countless think-tank reports, one Royal Commission and three sets of government proposals—one from the Conservatives in the 1990s, one from Labour, and one from the coalition—no one yet has found a way of marrying a universal and largely free NHS with a social care system that is both heavily needs tested (you need a certain level of disability to begin to qualify) and then means tested. The weight of history is heavy.
It is obvious, as councils are now telling the government, that too little is being spent on social care. But there is no agreement on where the balance between public and private should lie, and how far individuals should be responsible and how far the taxpayer.
Andrew Dilnot’s review for the coalition was an attempt to answer both questions. His solution was more money at the bottom end—a more generous means-test that gave some protection to poorer people, and a cap on the overall expenditure that anyone should have to pay. His proposition was a £35,000 lifetime cap, the hope being that the insurance industry would cheerfully provide affordable cover for this newly limited financial exposure. But the plan was diluted, with the government embracing a higher cap, and the insurance products never arrived. When the Conservatives became a majority government in 2015, one of their first acts was to postpone implementing any Dilnot proposals to 2020, rendering the report, in all likelihood, a dead letter.
So here is yet another road not taken, but even if it had been—or indeed, if it were taken in 2020 or later—it is important to be clear about what it addresses. Dilnot did tackle the question of where individual liability should lie—more on the taxpayer, less on the individual—but did not look at (and was not asked to sort out) the overall level of spending on services, beyond offering the hope that, with the ultimate liability capped, people would spend money early, and to their advantage, on their social care.
Here, then, is one of Sherlock Holmes’s three-pipe problems. Obviously, we need to ensure the NHS spends its money to best effect—but it also clearly needs more cash. So does social care. The two need to be far better integrated. And a new settlement is needed—probably for both—over where individual and taxpayer responsibilities lie. There might, for example, be a deal that sees some new NHS charges levied in return for a fully integrated and less financially stringent social care system. But there is nothing like a consensus on how to do that for either health or social care, let alone for the two combined.
One won’t be built overnight. And it is highly questionable whether a government with a working majority of 16 and the problem of Brexit on its plate can build one. The Budget has provided a social care sticking plaster of £2bn—and that’s over three years. That may stem the rot on that side of the equation without restoring the huge cuts already made. A green paper on new funding mechanisms is promised, but only for social care. That will not cut the Gordian knot of how better to integrate health and social care in terms of both organisation and funding. That may yet require another external review—on the lines, for example, of Adair Turner’s for pensions. It would aim to make the money go further. But the key task would be more political. To prepare the public for the grim reality that it is going to have to—by one means or another—stump up more money if it is to get the health and social care that people want.
In the meantime, the government faces the starkest of stark choices. Without billions more a year for health and social care—not a few billion over several years—we may lose the vast achievements of the 2000s for good. The decline in NHS waits was spectacular: it cost almost countless billions to achieve and will cost more to restore. Either that, or quality and safety will go.
But health and social care do not operate in isolation, and with a £52bn deficit, that will mean more taxes or bigger cuts elsewhere and, with the uncertainties of Brexit, can the economy stand more taxation? That’s the heart of the problem. As someone once said, “It’s the economy, stupid.” Put that in your pipe, and smoke it.