Not safe in their hands

New Labour is in the process of achieving what Thatcher didn’t dare – the demolition of the National Health Service

March 1, 2006 · 13 min read

If the government’s current policies are allowed to succeed, by the end of this decade the NHS will effectively have disappeared as a national institution providing the most economical high-quality health services in the world, freely and equally to all. The ‘NHS’ will still exist, but increasingly just as a logo attached to the provision of healthcare by private hospitals and GP surgeries. The services available to patients will have become more and more uneven. People will look back nostalgically to the days of ‘postcode rationing’ – drugs available to patients in one area being denied to those next door. At least that was in the open, and could be changed by democratic pressure. Soon entire clinical services – for example, mental health or paediatrics – will become unavailable locally, as hospitals drop unprofitable activities in order to survive in the market, and without any opportunity for the public to prevent it.

This unevenness will be offset by new opportunities to buy ‘superior’ or ‘enhanced’ services through ‘co-payments’. Those who can afford it will buy the kind of services that the NHS was created to provide free to everyone, regardless of ability to pay. Everyone else will get a ‘basic’ service, which will decline steadily as the middle class loses interest in it, and good staff flee to better-resourced and less stressful work. If this picture seems far-fetched, it is because government spin and media bias have prevented a clear picture emerging. Most of it has already occurred, or is explicitly planned.

Privatisation so far

NHS premises are increasingly owned and operated by private corporations. In the case of hospitals this is occurring through the private finance initiative (PFI). Of the 100 hospitals promised in the 2000 NHS Plan virtually all will have been procured via the PFI, while local investment finance trust companies are set to own a fast-growing proportion of primary and community care facilities. Non-clinical work – hospital cleaning, laundry, catering and so on – has long been outsourced to private companies, and services such as radiology are also beginning to be privatised. Assurances were always given that direct clinical work with patients would stay public – with hospital doctors salaried, and GPs independently contracted with the NHS. But from 2000 onwards this also changed. Now clinical work is being handed to private companies too.

Of course some clinical work has long been privatised – dentistry, routine eye care, and long term nursing-home care – and is no longer free. But now 15 per cent of all hospital procedures are to be provided by the ‘independent sector’. Privately-owned specialist treatment centres, undertaking routine hip and knee replacements and cataract surgery, have been given special risk-free terms, being paid at rates well above those of NHS hospitals, and with guaranteed revenues for five years. By 2008, when all hospital trusts will have become foundation trusts, 80 per cent of their income will come as ‘payment by results’ – separate payments for every completed ‘episode of care’ – so that for all intents and purposes they will be like private businesses. They will no longer be subject to direction by the health secretary, and will be free to enter into joint ventures with private companies. Indeed next year, for the first time in the history of the NHS, they have been told to make a profit (described as a ‘surplus’).

Privatising primary and community care

There remains the question of primary and community healthcare, provided by 34,000 GPs and some 250,000 community health staff (GP practice and district nurses, health visitors, speech therapists and so on), largely employed directly by the primary care trusts (PCTs). How is the market to be introduced here? Last July, all PCTs, which commission all primary and most secondary healthcare from GPs, community health trusts and hospital trusts, were instructed to stop directly employing primary care or community health staff themselves. This was a step too far. There was an astonished and outraged reaction. Who were all these NHS workers going to work for? Were they going to form businesses themselves (some are now doing so), or would their PCTs ‘enter into discussions’ with some private company, to which they would be compulsorily transferred? The health secretary, Patricia Hewitt, eventually backtracked and apologised.

Meanwhile, however, Thames Valley health authority was being instructed to ‘pilot’ the outsourcing of PCTs’ commissioning role to the European branch of a private American company – United Health Europe, led by Blair’s former health adviser, Simon Stevens (see page 10). This too had to be abandoned in the face of local outrage, backed by intense concern across the country. PCTs had originally been promoted as putting power in the hands of GPs and other community health workers on behalf of their patients. Now that power was to be handed to private corporations? The plan was dropped, or perhaps just deferred, while an alternative route was explored.

This involves bringing in private corporations via ‘practice-based commissioning’, whereby GP practices take over the commissioning function from the local PCT. Practice-based commissioning was first introduced in 2004. It is very like the old ‘GP fundholder’ system, except that GP practices will commission not just hospital care for their patients, but also local community health services. So if a private corporation operates GP practices, it can then commission virtually all other health services for the patients covered. If it decides to commission only private services it will be free to do so. This is the long-run significance of the recent decision of two PCTs to contract with the same United Health Europe to run general practices in Derbyshire.

If that deal goes ahead – and it is subject to a legal challenge, as well as strong local and national opposition – and is widely replicated, the drive towards further privatisation will obviously accelerate. Community health staff will realise that their jobs are at risk if they don’t form or join private companies. Hospitals will intensify their efforts to offer better ‘deals’ to the new corporate commissioners of hospital services. And the new corporate commissioners will start counting the cost of every treatment given to the patients in their care, to see if it can be reduced: money saved on treatment will be money added to their profits, as with US for-profit health maintenance organisations (HMOs).

The government defends its plans by saying – correctly – that it has hugely increased spending, then pointing to the fact that a high proportion of NHS trusts have financial deficits. This is blamed on weak financial management. The trusts with the biggest deficits are ‘named and shamed’ and ‘hit teams’ sent in, in New Labour’s usual fashion. The only way to ensure that NHS bodies spend their revenues efficiently, the government argues, is to make them compete with private providers.

People don’t want a choice of hospitals, any more than they want a choice of fire brigades

The deficits crisis

In fact, the NHS ‘deficits crisis’ is a product of government policy. Part of the reason that trusts have deficits in spite of big increases in spending is that they had huge spending backlogs, due to years of underfunding. Catching up consumes a large part of the new funding before any big improvements can be felt. Part of it is due to long overdue improvements in pay for NHS staff, and to the government’s failure to get its sums right on the new doctors’ contracts. Part of it is due to the PFI, under which the extra cost of using private finance has to be paid for out of hospitals’ current income. To meet this, hospital managers had to cut services. But reduced services mean reduced income. Even the most capable executives and directors of finance find it impossible to close the resulting ‘affordability gap’.

The recent case of the Queen Elizabeth Hospital in Greenwich is a clear example. An accountants’ report for the Audit Commission showed that the trust would have a deficit of almost £20 million in 2005-06, in spite of having achieved an efficiency level above the national average. Half of the deficit was due to the extra cost of the PFI. In the case of the St Bartholomew’s and London trust’s huge new PFI project, the extra annual cost of using the PFI will be over £48 million. A sample of eight other PFI schemes shows that the share of their annual revenue that had to be devoted to servicing capital costs rose from an average of 4.5 per cent to 16 per cent after the completion of their PFI projects. (See Mark Hellowell, What problems does PFI present for Barts and the London NHS Trust?, Centre for International Public Health Policy, University of Edinburgh, 2006.)

Another reason for the deficits is the introduction of ‘payment by results’ – since last April, for elective surgery, and by 2008, for most hospital treatments. Instead of having secure revenue for blocks of work commissioned in advance, hospitals will be paid in arrears for the work they do on every individual patient; and with patient choice, to be fully introduced by 2008, some of this work will fluctuate unpredictably. The requirement on PCTs to place 15 per cent of elective surgery with private providers, adds to the problem, while Patricia Hewitt’s latest white paper makes it even more intractable by proposing to transfer £4 billion from the hospital sector – about 10 per cent of hospital revenues – to primary care. In other words, NHS hospital finances have been critically destabilised.

In the original NHS, shifts in revenues could be handled relatively easily, since a loss in one sector was compensated by a gain in another. Now that all hospital trusts have to be self-financing, fluctuations hit them individually and imply cuts in services if their deficits become too large. Patricia Hewitt is not interested in this. Her aim lies elsewhere, in forcing the NHS and the public to accept further privatisation, all in the name of the supposed greater efficiency of the private sector. If anything, though, the evidence points the other way: the fact that the private sector could only be induced to provide the easiest, low-risk kinds of surgery for NHS patients in the new specialist treatment centres by being offered more money than NHS hospitals for the same work suggests that even in narrow business terms the NHS is substantially more efficient.


Instead, Hewitt invokes the deficits as a reason for pressing ahead with more privatisation, talking of having written the NHS a very large cheque but not a blank one, and heavily stressing the idea of offering more ‘choice’. Research by the government’s own Consumer Council has shown very clearly that people don’t want a choice of hospitals, any more than they want a choice of fire brigades. What they want is a hospital near them that is as good as any other in the country. The real reason for the focus on choice – apart from denying it to the Tories – is that you can’t have a market without choice-making consumers. The truth is the opposite of what Hewitt asserts: we are not being given a market in healthcare to satisfy our wish to choose between hospitals, we are being induced to choose between hospitals in order to make them compete with each other, instead of cooperating as they did in the past.

The cost of privatisation

The most general and obvious result of privatisation is to push up costs. First, costs must now cover the payment of dividends to shareholders. The effects on PFI hospitals are all too clear: to pay the PFI consortiums, which borrow privately and have their own shareholders, hospitals have had to cut beds by an average of 25 per cent, and staff by 15 per cent. Second, the loss of integration – making every organisation cover all its costs, instead of costs in one area leading to savings in another (such as more money spent on prevention leading to less spent on treatment) – involves further costs. Third, the whole operation of a market has enormous transaction costs – paying for the marketing, invoicing, accounting, auditing, contracting, lawsuits and so on – not to mention losses from fraud, which in the US market system are enormous.

In the mid-1970s, Charles Webster, the official historian of the NHS, estimated its administrative costs at 5-6 per cent of its total spending. Today they are probably approaching 20 per cent (which is the norm in the least wasteful sector of the US healthcare market). The difference means that something like £10 billion is being consumed annually by administration, due mainly to the replacement of the NHS by a market. You don’t have to be a health economist to realise that the supposed superior efficiency of a market couldn’t possibly offset that.

The hospitals’ government-induced financial crisis is already producing a result that has been obvious for some time: the end of free services. This is coming in the shape of fees for so-called ‘superior’ or ‘enhanced’ services. As services are cut to save money, and patients’ health ‘needs’ are redefined (for example, you can no longer get a knee replacement in Suffolk if you are seriously overweight), people have a new incentive to ‘go private’.

In the new market-oriented NHS, hospital managers see in this a chance to raise revenues by offering something semi-private themselves. Thus Queen Charlotte’s and Chelsea NHS hospital in London is offering expectant mothers ‘one to one’ services of a midwife for £4,000, and Harrogate and district NHS foundation trust is opening a new fee-paying skin clinic to deal with minor skin conditions – described as a ‘half-way house’ between state and private care. The implication is clear: routine skin care will no longer be offered free, and a one-to-one midwife, which is the recommended standard for childbirth, and reduces the need for medical interventions, will cease to be the NHS standard. The fact that the government has not immediately banned these developments is highly significant. It is evidently ready to see a growing distinction between ‘basic’ and increasingly inferior services, which will remain free, and ‘superior’ ones, which must be paid for.

By 2008, if no real resistance is aroused, New Labour will have done what Thatcher couldn’t, and replaced the integrated, economical and egalitarian health service created by Nye Bevan with a fragmented, expensive service, based on ability to pay.

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