Only higher taxes can save the NHS. That will require serious political reform

Dr Chris Morris on the picket line. Picture: BMA

For once it is not the usual journalistic hyperbole to suggest that Britain’s National Health Service is failing. Waiting lists mount as the service is racked by strikes. With little sign of an end to these severe workforce issues, it is hard to see how the service is going to recover from the stresses placed on it by the covid pandemic. Indeed, things just seem to be getting worse. But Britain’s politicians are not being honest with the public about what is required to bring the service back to an even keel.

Just how bad are things? Workers and their union representatives have an interest in painting a bleak picture to support their pay claims; journalists suffer their normal bias towards the sensational and the bad; so it is hard to get a clear objective picture. Parts of the service appear to be operating reasonably well. Recently my household, in East Sussex, has had cause to use local primary care services, and cancer treatment. Neither service has been up to where we wanted it to be: it very hard to get a face-to-face appointment with a general practitioner, and the 8am scramble to get an appointment of any sort is both farcical and painful; there are delays of weeks in the cancer service. But neither service has fallen below the acceptable – and when you get the it, the service is excellent. We are not signing up for private services yet – though we have done this for dentistry and optometry. But there are places – such as apparently to the east in Kent – where things are more desperate. Reported waiting times for ambulances and at Accident & Emergency in hospitals are starting to alarm. The unions paint a picture of a workforce crisis – with high vacancy rates, and staff leaving the service either through burnout, or to better opportunities outside the NHS, including in Australia. Statistics back these claims up, and nobody is seriously challenging this narrative, not even the government. For that reason I largely accept it – though I suspect that in some parts the country NHS staff may be paid generously by local standards – though this is unlikely to apply to doctors, who are much more mobile.

It is the strikes that are the greatest cause for concern. High inflation comes on top of many years in which real levels of pay have been squeezed. Nurses, ambulance operatives and other more junior staff may be arm-wrestled into accepting pay that does not meet their longer term concerns. But the doctors are only getting started in their campaign, and are taking a very aggressive line indeed. There are no settlement talks. Throughout these disputes both sides seem to be talking at cross-purposes. The unions are trying to address a workforce crisis that has been building up over years; the government talks about a year of temporary hardship in order to combat inflation and meet government financial targets. This mismatch goes to the heart of the issue.

The main problem is that the NHS has an effective monopoly on employment for the key medical skills – what economists call a monopsony. This allows them to frequently get away with paying below what should be a market rate for the job. The Treasury ruthlessly exploits this market power in its annual attempt to make its budgeting work. Longer term issues are always tomorrow’s problem. The NHS as an institution is very popular with trade unions, but the dirty secret is that a privatised system would almost certainly pay its workers more, at least in most parts of the country. The government suggests that higher rates of pay can be contemplated if workers become more efficient. It’s generally not hard to find inefficiencies – but much harder to address them in such a complex environment, There is no evidence that I am aware of to suggest that the NHS is inefficient by international standards – the opposite in fact, although greater “efficiency” may be a function of low pay. Besides, efficiency gains are overwhelmed by rising demand and medical inflation. Meanwhile high staff turnover only makes the financial squeeze tighter.

But what about affordability? Here again it is very easy to get caught in a cross-purposes argument. The NHS budget is a major headache for the government, as it is almost entirely funded from taxation. But health care is a major priority for people, and given the ability to choose, people would spend a lot of money on it. More money, almost certainly that the country now pays for its health services. And since it does not require much in the way of imports, there is no good reason that the country can’t spend a lot more on the NHS, and less on nonsense and luxuries. That doesn’t help the government, as its budget does not cover nonsenses and luxuries, which are for private choice. It can only square the circle by raising taxes. To spend more without raising taxes would be inflationary, the last thing the economy needs right now. The Chancellor of the Exchequer, Jeremy Hunt, is quite right about that, though he somehow fails to explain that it wouldn’t be inflationary if he raised taxes.

What is needed is a long-term workforce strategy for the NHS, covering both pay and recruitment, showing how the country intends to sustain the workforce required. I have heard that the government is working on such a strategy, but somehow it keeps being delayed. That would not be surprising, as surely there is hole in the heart of it. The government is adamant that it wants to cut rather than raise taxes. Labour is no better. It is terrified of being painted as the party of high taxes, especially as inflation has put many people under financial pressure. It comes up with a few tax-raising gimmicks (taxing non-domiciled residents more; taxing private schools; and so on). These aren’t enough to do the necessary heavy-lifting. Besides, in order for extra spending on staff not to be inflationary it is necessary for any tax rises to reduce consumption. The sorts of tax gimmick Labour are proposing are more likely to affect the savings rates of the wealthy, and not have much impact on domestic consumption; it would help public debt, which is just a statistic, but do little for inflation. Other opposition parties (the Lib Dems, the Greens, the SNP, etc.) are no more convincing.

What happens if the NHS is not given more funding? People will spend more on private health care. This would create a doom loop, as the private sector competes with the NHS for staff, making its workforce problems and waiting lists worse. This is what has happened to dentistry. And a growing a private sector creates a whole variety of inequities and inefficiencies, with the system as it now is.

There are perhaps three ways that the circle might be squared, and the pressure on taxes reduced: economic growth, reducing demand, and private/public integration. Economic growth is, of course, every politician’s favourite answer. Readers of this blog will know that I am growth sceptic – the demographics and deeper economic dynamics are against it. Still, Britain has some particular issues that might allow the country to be more economically efficient: more affordable housing; trade integration with the European Union; looser immigration rules. For various reasons these are all politically unacceptable. Liz Truss has shown how politically unpopular a growth agenda can be – though her biggest ideas about achieving this (tax cuts, for example) were laughable. Meanwhile deteriorating health is acting as a brake on growth – though it is hard to tell how much the NHS workforce problems are part of this.

Could we reduce stress on the NHS by moving to healthier lifestyles? Reducing consumption of processed foods; healthier relationships with drugs and alcohol; better approaches to mental health? Good luck with that.

My third suggestion is more integration between the NHS and private care. That would mean things like hospitals accepting “co-payments” – supplementary payments for higher standards of care or non-essential treatments. But that would undermine the egalitarian ethos of the NHS, which is again considered politically toxic.

So every way of tackling the NHS crisis hits a political roadblock. It is at this point that I could suggest that this is not the fault of our politicians, but the public itself. It refuses to confront the tough choices required. But that isn’t fair on the public. Many suspect that tax rises are on the way – and there is widespread sympathy for NHS staff. But our political system forces politicians to concentrate on narrow groups of marginal voters, who dictate the political weather. All parties have concluded from this that it is suicidal to have an honest debate on tax and the NHS. No party can, say, try to make a case for higher taxes, which convinces, say, 25% of the electorate to create a substantial block in parliament, which would in turn force other parties to deal with it to form a government.

Instead our politicians throw insults at each other in the hope of influencing a minority of voters in a minority of parliamentary seats. And there is no momentum for serious reform.

3 thoughts on “Only higher taxes can save the NHS. That will require serious political reform”

  1. So, we are not spending enough on our health care. To my mind, one reason is that much of our population feel confident in their own health,:if they have children the children are known to be healthy: and the need for major health costs is a distant prospect. This applies to most voters up to the age of say 55, after which the prospect of health costs when they are say 70 may start to loom. So the NHS principles involve a major cross-subsidy between this healthy group and those who need substantial medical assistance now or in the foreseeable future. There are limits to which voter will support this cross-subsidy..

    When the NHS was founded, it was largely as an emergency service dealing with life-threatening situations – a job it should be able to do well. Its founding principles are clearly come under serious strain from the costs of treating g chronic conditions which modern medicine can manage but not cure. For my money, I would keep its egalitarian principles when it comes to saving lives, but drop them for the management of chronic conditions. I would also adopt a principle that the elderly – those over retirement age – should as a group pay for their own health care. Both these moves would reduce the cross-subsidy element, and gain sources of income from those that can afford it.. B

    But for the moment, we have a first class workforce crisis which is getting even worse, and as you say Matthew a dearth of politically acceptable solutions. Things are , I regret to say, going to get worse before they get better.

  2. @ Matthew,

    On the whole, a good summary of the problem.

    Do I detect an influence of MMT in these sentences?

    “Besides, in order for extra spending on staff not to be inflationary it is necessary for any tax rises to reduce consumption. The sorts of tax gimmick Labour are proposing are more likely to affect the savings rates of the wealthy, and not have much impact on domestic consumption; it would help public debt, which is just a statistic, but do little for inflation.”

    This is quite right. However, it is a point that many on the left have a problem accepting. Having said this we could use the taxation mechanism to prevent the wealthy being quite so wasteful with the resources they do consume – like buying up property and keeping it empty for example.

    Politicians of all parties like to suggest that the problem of staff shortages can be solved by training new staff. This is another fallacy. If pay levels in the NHS aren’t good enough why would anyone want to sign up for them? All we’ll end up doing is training staff for the private sector either in this country or overseas. We could probably go a long way to solving our NHS staffing problems if all those who are already qualified could somehow be persuaded to return.

    We do need to get away from only “pounds and pence” type thinking when it comes to the big issues of how to fund the NHS. It’s essentially one of how to allocate scarce resources. This is nothing new economically. Keynes addressed the issue in his short book “How to pay for the war” published in 1940. If we’d thought in only in terms of £sd then, at a time when the kitty was equally bare, we wouldn’t have been able to put up much of a fight at all.

    This is not to suggest we just create the money. However the primary purpose of spending is to allocate available resources and the primary purpose of taxation is to divert them from the private sector to the public sector without causing inflation.

    I’m not sure about your point about imports though. In principle we could import health services just as we import anything else. It would mean flying patients off to somewhere it was cheaper to provide them than in the UK. That’s going to raise a few problems naturally, but it could be a possibility. We could make a start by making more use of the available spare labour in the more depressed parts of the country by moving patients greater distances when the resources aren’t available locally.

    1. Indeed you are right that MMT insights have shaped my thinking! But of course you are right that there are many good reasons to tax the rich and wealthy. It does annoy me when people suggest that we “can’t afford” a decent NHS – it’s a matter of choices.

      Yes we can use import medical services – but these are factory procedures that probably don’t cost all that much in the great scheme of things. Most health care has to be personalised, and we need local access to the support system. But high productivity procedures surely have a role.

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