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How to ensure the NHS is sustainable for another 70 years

Economy Watch


Danny Boyle’s 2012 Olympic Games opening ceremony tribute to the NHS

Danny Boyle’s 2012 Olympic Games opening ceremony tribute to the NHS

Danny Boyle’s 2012 Olympic Games opening ceremony tribute to the NHS

Aneurin Bevan's creation, the NHS, is 70 this week and it remains very popular. Former Chancellor Nigel Lawson said it was the closest thing we now had to a national religion. It was not for nothing that Danny Boyle included a celebration of the service in his choreography for the London 2012 Olympics opening event.

The NHS has had its achievements. Life expectancy is up by 13 years in England since 1948. However, many indicators imply there is a growing gap between the UK and many other countries. According to the Kings Fund in June 2017, the UK lags in survival rates for cancer and was ranked 15th out of 19 countries for infant mortality. Is the answer to continue with the existing model (care mostly free at the point of use but funded out of general taxation) whilst giving the NHS more money? The difficulty is just how much money might be necessary.

Across the whole UK the NHS now spends about £150bn each year. That's about 10 times more than 70 years ago after allowing for inflation: a real terms increase of 3.7% every year during 1948-2018.

A real growth rate of 3.7% may not seem high but it exceeded both the average growth of GDP and total public spending. If those trends continued over the next 70 years we could end up with the improbable result that most UK public spending would be devoted to healthcare. It is worth noting that the Prime Minister's recent pledge of a £20bn real terms increase over the next five years for NHS England is equivalent to a 3.4% annual increase in real terms: below the post-1948 NHS average.

What are the options for addressing the ever increasing demand for cash?

The recent funding announcement did not really deal with the question of longer term sustainability. Here are some of the options:

1. Increase the efficiency of existing NHS spending

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There may be some scope to increase the productivity of the existing resources, but without some massive and unforeseen technological breakthrough, the scope for this remains limited.

2. Higher taxes/health tax

One proposal is to ring-fence ("hypothecate") part of either income tax or National Insurance Contributions to the NHS. This could work in the short to medium term but would the electorate be prepared to commit to a 3% to 4% real terms annual increase year after year for decades to come?

3. Social insurance/continental European model

Everyone takes out health insurance. Those who could not afford the contributions would have them topped up by the state. There could also be employer contributions. The insurance companies would not be allowed to select customers according to risk but as purchasers of health services they might act as a constraint against cost increase in the health sector. The jury may still be out on how well such cost constraint might work.

4. Private insurance/traditional American model

The US might be thought to exemplify private insurance though for many decades there has been some State intervention in the market - most recently Obamacare (which may, or may not, be replaced by "Trumpcare"). The conventional wisdom on this side of the Atlantic is that the US system is unacceptable because people are allowed to die if they have no insurance form or credit card in their pocket.

That may be an exaggeration but some American middle income earners may suffer from the fear "I cannot afford to be sick". Ironically, some economists criticise the US system for leading to too many resources being devoted to healthcare - about 17% of GDP compared to about 10% on average across Europe.

We need to have a debate which recognises:

● The original Bevan/NHS mission that no one should be excluded from care because of poverty continues to be a civilised one but it is surely not unreasonable to consider other options for funding, especially the European models of social insurance.

● Healthcare is less well resourced in the UK compared to many European countries: total spend (including private care) is about 9.8% of GDP compared to about 11% in France, Germany and Sweden.

● It is a National Health Service and not a National Hospital Service. Even more emphasis on preventative and primary care would make sense at a number of levels. All of us have our own personal responsibility to behave in a way that promotes our health.

● Don't forget there are particular issues relating to funding social care (residential and nursing homes).

● This is a UK-wide issue but, as is well known, there are concerns particular to Northern Ireland. In recent years spending per head in NI has exceeded the average in England but with less favourable outcomes. By implication, we need to improve the allocation of spending.