NHS: The Black Hole in The Public Purse
When I started writing this article, the UK’s stock of national debt was at £2,628,211,550,492. This is a number so incomprehensibly large that many will not fully understand its significance. By the time you are reading this, the figure will be even larger (I would suggest having a look for yourself at the https://www.nationaldebtclock.co.uk/). The focus of this article, however, will be on why this figure is not likely to fall or ease any time soon.
Fundamentally, the stock of national debt is built upon budget deficits, which have increasingly become an ingrained element of our fiscal policy. However, the future fiscal position looks even more bleak. Deficits can only be affected by changes in taxation and spending. Neither option looks appealing or likely. The UK currently shoulders the highest tax burden since the end of the Second World War. The recent confirmation by Johnson and Sunak that the National Insurance hike will be pushed through further compounds this pain. Thus, taxation has backed itself into a corner, with many economists arguing that we have reached or already surpassed our taxable limit.
If we cannot pay down our debt through tax rises, then the alternative is spending cuts. Yet this may be even more challenging. The post-2010 years of austerity exemplify the difficulties of cutting government spending. At the core of the problem, we have major obstacles which effectively thwart any hopes of achieving fiscal prudency.
The principal obstacle that blocks any meaningful reduction in spending is the UK’s welfare state. After every major crisis we see a change in the role of the state. Following WW1 and WW2, the government’s role in supporting individuals expanded. During the pandemic, governments around the world have been subsidising wages and handing out cheques. It remains to be seen how many of these changes will become embedded, however it is without doubt that the legacy of this pandemic on public finances will be one of a further expansion in the role of the state. Once measures such as these are introduced, it becomes particularly challenging to roll them back. I think it is worth remembering at this point that ‘nothing is so permanent as a temporary government programme’. The expectation of today’s generation is that the government will look after them from cradle to grave. It is these expectations - and the unfunded obligations that come with them - which present the largest problem to state finances. Estimates on the cost of unfunded obligations range from astronomical to unbelievable. This is the black hole in our public finances.
The organisation which presides at the centre of this black hole is the NHS. It takes an ever-increasing proportion of government spending and year on year indiscriminately wastes it. As an organisation, it is so plagued with structural flaws that the endless number of ‘efficiency consultants’ cannot seem to remedy its problems. The use of public funds in the NHS is highly unsettling. Spending during the pandemic went on things like hot tubs, play stations and football tickets. Camilla Tominey estimates that ‘at least 40% of all funding’ is wasted in the health service. If a private company wasted this amount of money, it would be insolvent within hours. Yet the NHS is protected by a sort of national religion which endorses its failings.
This is not to demean the efforts of the workers in the NHS. There is a wide-reaching appreciation for the sacrifices and services of these individuals. However, for all the good work they do, they are undermined by the organisation they work for. It is a clear depiction of ‘lions led by donkeys’.
Economics is driven by incentives; efficiency is moulded out of the desire to make profit. The absence of the price mechanism in the NHS is clear to see. The waste, bureaucracy and organisational failings derive from the void of incentives. Introducing competition between hospitals or health care providers would likely result in lower costs and a better quality of care. Health care should be about providing the best outcomes for the population in the most efficient method possible. The NHS does neither of these; its quality of care and efficiency is dire. We consistently rank in the bottom third in international comparisons based on healthcare outcomes. Countless people during the pandemic have been forced to wait, often until it is too late, for vital non-covid related treatment. The movement to online consultations has been problematic at best.
Therefore, with the extra £12 billion going into the NHS as a result of the NI increase, we must question how these funds will be used. It is nonsensical to think that this money will somehow resolve the issues that face the NHS. These issues are structural and deep-rooted. Throwing money at the problem has not worked in the past and it is not likely to work now. We face a demographic crisis. With the population ageing, the unfunded obligations that the NHS must meet will multiply. When this happens, there will be no tax left to raise to plug the ‘temporary backlog’.
The NHS is the blackhole at the centre of the blackhole in public finances. If we are to get serious about addressing our debt levels and mollifying the precarious fiscal position we find ourselves in, the NHS requires major reform. It is important to recognise that universal healthcare is possible, even without the NHS. Social Health Insurance models, like those in Switzerland, Belgium and Israel, may provide a far better alternative. However, it is also worth considering that the original inventor of the NHS was not Nye Bevan, but Henry Willink, a long forgotten about Tory MP. His white paper in 1944, before Bevan's, proposed a national health service that integrated markets within a framework driven by the state.
As the pressure on public finances mount, the solution should not be further tax rises but fundamental reform of the role of the state in welfare provision. This reform should start with the organisation at the centre of the blackhole, the NHS.