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British ¡Afuera! is a new series of pieces applying the principles of the IEA’s ‘Sharper Axes, Lower Taxes [ [link removed] ]’ and Argentinian ¡Afuera! to Britain today.
Read Kristian Niemietz’s introductory piece explaining the project here [ [link removed] ].
As a paid Insider subscriber you have exclusive early access to this: part one, on the NHS and national pay scales.
In my IEA Discussion Paper The Denationalisation of Healthcare. How to replace the NHS with a social health insurance model [ [link removed] ], I presented a broad-strokes plan for ‘afuera-ing’ the NHS as a whole.
It is a particular kind of ¡Afuera! The NHS would be replaced by with a regulated health insurance market and a regulated marketplace for healthcare, along Dutch or Swiss lines. The role of the state would change from that of a healthcare provider and the main healthcare financing agency to that of a healthcare regulator and a subsidiary healthcare financing agency.
Public healthcare spending would not fall to zero in this scenario. There would still be a role for public health (although ideally, that should mean infection control, not regulating the content of cereals or lemonade – I will leave this point to Dr Chris Snowdon). There would be regulatory agencies which would have to be paid for (although these would not be new ones – they would do things that the current system also needs to do). Above all, there would be transfer payments to people who could otherwise not afford their health insurance premiums.
Let’s assume that after such a transition, current levels of total healthcare spending would remain broadly the same, and that the composition of healthcare spending would resemble the one we currently see in the Netherlands. This would imply a permanent reduction in government spending on healthcare by more than six percentage points of GDP, or more than £170bn in absolute terms. Other things equal, total public spending would drop from the current level of 45% to below 39%.
This would be a shift from the public sector to the private sector, not an overall saving. The healthcare services which this money currently finances would still have to be paid for, just in a different way. The idea is to drive up standards, and give people greater control over their healthcare, not necessarily to reduce total spending. A reduction in healthcare spending could well be the result, but this would depend on the choices people make in the new system.
Is this a realistic proposal? Can we ‘afuera’ the NHS?
If ‘realistic’ means ‘something which could be done if the political will were there’, the answer is yes. We know that it can be done, because, as I show in the above-mentioned paper, others have done it before.
But if ‘realistic’ means ‘something which is likely to happen anytime soon’, the answer is no. It will not happen. So I only mention it here for the sake of completeness, and to make clear that the reasons why it will not happen are political ones, not economic or logistical ones.
Still, large, radical steps can sometimes be broken down into smaller ones that are not especially radical on their own, and that would make sense in their own right. A large ¡Afuera! can sometimes be broken down into several smaller-scale Afueritas [sic]. Health reform is one of those cases. A marketised healthcare system would work best if combined with an efficient medical labour market. But even in a non-marketised system (such as our current one), the creation of a more efficient medical labour market would make sense on its own.
This is why I would afuera [sic] national pay scales within the National Health Service.
In his IEA paper ‘Is There A Doctor In The House? [ [link removed] ]’ (2020), Mark Tovey describes how the UK’s medical labour ‘market’ suffers from severe imbalances. Some medical professions are permanently oversubscribed, having far more applicants than vacancies, while others are characterised by persistent staff shortages. This would not happen if relative wages could adjust to something closer to a market-clearing pattern:
“Medical workforce planners in the NHS are handicapped by a politically motivated reluctance to use large pay incentives and differentials to re-direct doctors from oversubscribed specialties to those where shortages have been identified. Instead, doctors in training of all specialties are put on nearly identical salary progression scales”.
The same is true if we split the medical labour market along regional rather than professional lines: some regions experience a glut of medical professionals, others shortages.
Tovey’s solution to these imbalances:
“Why should the question of pay be determined at the level of ‘the NHS’? […] McDonald’s […] does not set a single worldwide or countrywide level of remuneration for store managers, burger flippers or cleaners. ‘Doctor deserts’ could be solved by treating every NHS Trust as an employer in its own right. This would mean NHS Trusts would negotiate with their employees (or their representatives) to determine payment packets that balance the local conditions of supply and demand – instead of being forced to operate under a one-size-fits-all pay scale negotiated by distant health bureaucrats.”
Tovey does not explore the question whether marketisation should be taken any further than this, or whether it should be a standalone measure. But he does not have to: this question is irrelevant to his proposal, which, on its own, is purely a reform within the current system. Indeed, arguably, it would make the current system more coherent, not less.
A major theme of the Blair-era reforms was to give NHS providers greater operational independence and responsibility. It would be a perfectly logical step to extend this principle to hiring practices and workforce planning. Healthcare is a very labour-intensive sector, so if NHS providers do not have autonomy over workforce matters, ‘operational independence’ does not mean very much in practice. The best time to do this would have been 20 years ago, as part of the original Blairite reform package. Doing it now would, at long last, correct that mistake.
Apart from the economic inefficiencies, the current setup also has the downside of turning what are really quite conventional industrial disputes over pay and working conditions into a political theatre. Representatives of the medical professions often feel like they have to frame their demands as if they were part of a broader political cause. They cannot just say ‘We want more money’; they have to act as if they were part of a crusade for the survival of the NHS, which, due to a lucky coincidence, happens to align with their own financial interest. As the [ [link removed] ]Guardian [ [link removed] ]noticed [ [link removed] ] during a junior doctors’ strike:
“[I]n today’s dispute, doctors’ representatives articulate themselves almost universally in terms of their defence of the service and the public sector more generally. As the rallying cry put out by the BMA National Executive […] puts it: “It is our view that the proposed contract represents an existential danger to the NHS as an institution.””
One consequence of this is that strikes follow political cycles. They are more likely to happen when a government is seen as weak and unpopular. This means that pay decisions are even further removed from healthcare demand and clinical priorities.
It is, of course, far easier to present a strike as political when actual, senior-level politicians, such as the Health Secretary, are involved in them. It becomes harder to do when the other negotiating party is not a frontbench politician, but the management of the Royal Wolverhampton NHS Trust or the Barnsley Hospital NHS Foundation Trust. To take the politics out of the process, we need to take the politicians out of it.
It is not possible to depoliticise the process entirely, because the NHS is an inherently political system. Central government would still set the overall NHS budget, and the generosity of those budget increases (there are no ‘budget cuts’ in the NHS; the choice is between big increases or small increases) determines how generous individual NHS employers can be. But in a system of decentralised pay setting, politics would at least be several steps further removed.
This is a realistic measure which could be achieved within the current system, and even in the short term, because while there is a strong sentimental attachment to the NHS, that attachment does not extent to the pay-setting process. In 2020, people were clapping for the NHS on their doorsteps, revealing a sentiment which makes system-level reform rather difficult. But nobody ever clapped for the system of national pay scales.
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