Can we still afford the NHS?

Every healthcare system worldwide, including the NHS, will have to deal with rising costs over the coming years due to a rise in chronic disease and in the proportion of older people in the population. These escalating costs always prompt the question – can we afford the NHS? Most often from people who would prefer an alternative model of health care system. 

Rising healthcare costs in Britain largely reflect the rising health needs of our population, and these have to be met somehow: if not met by the NHS then more of these costs must be borne by the individual.

The apparent affordability of the NHS has varied with the economic circumstances and political preferences of governments; but we should remember that the NHS itself was born in 1948 in a war-ravaged, debt-ridden economy still in the midst of rationing of food and other basics.

A question as old as the NHS itself

From almost the moment the NHS was born, people have been arguing over whether the country can afford it. As a quick history of successive government attitudes to funding over the last 75 years shows.

Bevan had noted that the financial plight and physical condition of an ageing stock of hospitals meant that even if no NHS had been established they would have needed large and continuing government subsidies to keep them open. By nationalising them, the government took responsibility for the development of a national service, and gained the possibility of shaping that service around the needs in each area.

Overspent in year one

The NHS was such a novel concept when it was first launched, that nobody knew how much it was likely to cost. In its first year it cost more than double its initial allocation of £180m.

The Chancellor of the time Sir Stafford Cripps, an eager proponent of austerity and financial discipline, was horrified by the overspending, and wanted to impose charges, especially for spectacles as a way of holding down costs and raising revenue – but failed to get his way in Attlee’s Cabinet.

The instantaneous and overwhelming public support for a service that filled a long-standing gap in accessible healthcare tipped the political balance in favour of social solidarity rather than rigid financial discipline. However, this progressive influence waned and eventually Bevan was replaced as Health Minister, Labour policy shifted – and the Tories won the next election.

That Tory government, seeking a justification for cutting back NHS spending, established the Guillebaud Committee in 1953 to investigate. Two years later Ministers were surprised to receive a report that argued that real terms spending on the NHS had fallen between 1948 and 1954, that investment had fallen back to 1930s levels, and that the rising costs of caring for older people could be covered from economic growth.

Tax funding

Funding the NHS through general taxation is one of the reasons the NHS is affordable. This method of funding has many strengths; it’s cheap and efficient to raise money through an existing tax system; it’s as fair in its impact as the tax system itself, sharing the cost across the whole tax-paying population; and it allows the government to plan the allocation of resources according to need rather than relying on the uneven political decisions of dozens of local councils or the whims of charitable donations of the wealthy.

But the weakness of the system is that the level of spending at any point is decided by the government of the day, and shaped by the political priorities and allegiances of the party in charge rather than by any link to levels of health needs or the costs of delivering services.

Tax-cutting governments seek to hold down health spending (and this reduces the level of public funds, making the NHS seem less affordable).  Labour governments have in the past (not least 1997-2000) also prioritised financial rectitude over their voters’ expectations of investment in the health and welfare of the population.

Significant cuts in the 1980s

The election of Margaret Thatcher’s hard line neoliberal government in 1979, with its commitment to reducing the size of the state and maximising the role of the private sector broke the 30-year consensus of the main parties in accepting the post war welfare state and the popularity of the NHS. That’s why the 1980s saw significant real terms cuts in health spending in times of high inflation, creating severe crises over delays to emergency and elective treatment, especially in 1987.

Successive spells of Conservative governments have shown governments that are ideologically driven can act to hold down, cut or reverse previous growth in health spending. They may, however, face a political cost if they do so: the state of the NHS after 18 years of Tory governments was a key element of the landslide New Labour win in 1997.

A decade of growth with Labour

While Labour governments since the 1960s have varied in their approach, Tony Blair’s government from 2000 was a clear outlier in making a deliberate political decision to increase spending towards the higher European average percentage of GDP. This resulted in an unprecedented decade of growth that achieved record levels of NHS performance and record reductions in waiting times.

Figures from the House of Commons Library show that between 2000 and 2010 NHS spending in England rose by 83% in 2018 prices, and spend per head of population grew by 71%.

By comparison the previous TWENTY years in which Conservative spending limits applied (1980-1999/2000) had seen NHS spending increase by just 77% and spending per head by 50%.

Significant falls in austerity years

The first ten years of austerity from 2010 to 2019/20 brought a meagre 17% increase in real terms total spending and a frugal 9% increase in spending per head.

That squeeze on spending took an especially heavy toll on allocations of NHS capital. The result has been a steadily rising backlog of necessary maintenance – currently in excess of £10bn – the resort to private sector provision of imaging and other services in the absence of NHS investment, and of course the paralysis and effective collapse of the promised programme of new hospital building (“40 new hospitals”).

Value for money

Of course the availability of more money is not the only issue at stake: the money needs to be spent wisely in developing the NHS and its resources.

Money for the NHS has not always been spent widely. Vast sums were squandered by New Labour from 1997 on implementing the Tory policy of funding new hospital schemes through the Private Finance Initiative, at inflated prices paid out over 25, 30 or more years, when much cheaper and more effective ways could have been used to pay for a wave of new hospitals. PFI appears to have bitten the dust with the ignominious collapse of Carillion in 2018, leaving a costly mess in two uncompleted hospitals in Liverpool and Birmingham.

But New Labour’s experiments in the 2000s with the use of private hospitals and a newly created private sector of so-called “Independent Sector Treatment Centres” led to tens of millions being effectively wasted on over-priced contracts to treat the least complex waiting list patients – while NHS trusts took the main strain of reducing waiting times, and shouldered the whole burden of improving A&E performance.

The idea of handing contracts for treating the lowest-risk elective patients to the private sector has now been embraced once again by the current Labour leadership. But it was also adopted by the Johnson government in the peak of the Covid pandemic, and now by Rishi Sunak’s tight-fisted government, and by hard-right provincial governments in Alberta and Ontario in Canada, happily sinking public money into profit-seeking clinics while public sector hospital facilities stand idle.

Some things have always been left to the private sector, notably the provision and direct maintenance of technical equipment, the physical construction of hospitals, and the supply of a range of manufactured products.

But if the NHS can afford to pay a premium to get private hospitals or contractors to deliver clinical or other services at a profit, it could deliver even more care for less if that profit element were removed, and NHS capacity developed to deliver in-house.

Despite it all NHS proves resilient

The NHS has time and again been called upon to demonstrate its resilience in continuing to cope despite severe underfunding. But in so doing the NHS has demonstrated and exploited its advantages as a cooperative network, linked to public health and prevention on the one side, and community healthcare on the other.

The current crisis requires extra investment to make good on the impact of the pandemic and the decade of underfunding since 2010. Economists estimate the NHS needs rises of around 4% a year to keep pace with health needs.

Where should more funding come from?

Whether or not proper funding of the NHS is possible always comes back to the political preferences and priorities of the government, where they choose to land the burden of taxation, and which sections of society are required to carry the cost.

With uncollected tax estimated at between £36 billion and £119 billion per year, can we afford for the country’s economic options (and health funding) to be dictated by the wealthiest one percent?

With tens of millions of people wholly dependent upon the NHS, with no option to skip queues and go private, Britain can not afford the long term economic and social cost of keeping taxes low for the rich by allowing the NHS and its performance to fail? It is not a question of – can we afford the NHS – rather – we have to afford the NHS or this country’s economic outlook will be bleak.