Over the past several decades, successive Budgets and Statements have become a rather monotonous charade in which a pre¬-set agenda is tweaked at the margins. Will the tax on beer and spirits be raised above inflation? Will corporation taxes be raised or lowered? Each year there is a guessing game as to the ‘main event’, this year stamp duty is number 1 in the charts, as the pressure is apparently on to make the housing ladder more accessible without stoking another property bubble. Afterwards there will be an analysis of ‘winners and losers’ in the media.
Every Budget has an issue on which it is ostensibly focused, this year being about ‘Living Standards’. Since every Budget raises and lowers the relative affordability of everything then every Budget is, in fact, about living standards. Affordability issues are perhaps rather more pertinent this year as the Chancellor has outlined his concerns about the affordability of the Welfare State.
I believe it is time for a new kind of Budget. A Budget that not only addresses the underlying malaise of the country, but which seeks to address it in a more fundamental manner than 2p on a pint of beer or a reduction of stamp duty ever could. A Budget is also a manifesto, a statement of intent. And so I present to you for consideration my ‘Health of the Nation’ Budget.
Why call a Budget on matters fiscal ‘Health of the Nation’? Health and wealth are closely bound and a Budget which ignores this reality has a hollow core. A Budget is a time to reflect on the values of a nation and to ensure that the Common Wealth; that amalgamation of income, purchase and corporate taxes collected for the Common Good; is spent in a way which enables a healthy, equitable, just and dynamic society to prosper.
Part 1: HEALTH
In order to speak with authority and clarity about the health of the nation, we do need to examine its financial basis. At its foundation the principle per se of a National Health Service was welcomed overwhelmingly by the people of this country. They had lived through times of war and great hardship frequently made intolerable by ill health. Doctors had to be paid for and only those in relatively steady employment could afford insurance. To know that from the cradle to the grave anyone could see a doctor without fear of the ‘collector’ at the door come to get payment was, in 1948, a relief it is hard to imagine in 2013. And yet one issue we now face is whether we should decide that the NHS is no longer affordable on a free to all at the point of delivery for all services basis. Should it be the case in the more affluent 21st century that those who can pay should pay from their own pocket, leaving the State to pay the bill only for those in reduced circumstances?
We must look at the truth behind some of the figures then and now and ask: what is a reasonable approach to the very real financial crises being faced by some Hospital Trusts and to the general funding of the Health Service. Much has been made of the size of the National Debt. Each year the country has a surplus if the total tax income of the country exceeds its total expenditure. It has a deficit if the tax income is less than its total expenditure. If there is a deficit the Government has a borrowing requirement to make up the difference. Year on year borrowings totals are known as the ‘National Debt’ although it is a mechanism for expanding and contracting the money supply rather than what is commonly understood as a debt. Debts must be taken seriously and the country may have a difficulty if it is always running a ‘structural’ deficit, spending year on year more than it earns. This may be an indicator that there is something wrong either with the earning capacity of the country as a whole or with the spending regime of successive governments. National Debt is not a ‘crisis’ though, in itself, as the borrowing rates are long term and low and the bonds issued by the Government are safe investments for pension funds, for example. In other words our National Debt is of benefit to the economy. This makes it fundamentally different from private household debt.
Looking at these problems of debt and deficits is not a distraction from the issue of the NHS and the Hospital Trusts in financial difficulty. It is crucial to forming a decision about the spending plans in relation to that service and others. Overall, since 1945, the economy has grown at an average rate of roughly 2.6% a year (ONS figures). This is relatively consistent regardless of who is in Government. Between 1948 and 1973 there were a few monthly contractions, but not significant enough to create an annual downturn. It is worth noting that the ‘3 day week’ in January to March 1974 caused very little contraction in the economy and was followed by rapid recovery.
There have been downturns approximately once a decade since the 1970s, with the banking and financial sector crash of 2008 being the worst. It has also taken approximately 3 times longer for the economy to recover from that than from previous downturns
These figures appear to suggest that our state expenditure may well be constrained by present economic circumstances. But they do not give the whole picture. In 1945, at the birth of the Welfare State, the National Debt was 215% of the country’s GDP. This enormous debt did not stop the government of the day investing in a massive spending programme, building publicly owned housing, investing in infrastructure, including the national railways, and creating the NHS. With the aims of universality, equality, accessibility, the highest standards of care, and a system of payment free at the point of delivery to the patient, funded through the general tax contributions of all, the NHS sits as the foundation stone on which Britain was rebuilt in the post war years. This expansive programme of state funded works did not expand the National Debt in the way one might have predicted. It increased slightly in 1946 and 1947 then fell steadily until 1992. Since then it has fluctuated in the 30 and 40% range until the 2008 banking and financial sector crisis.
The consequence of the banking bailout, that was agreed across all parties and which followed the 2008 crisis, is an increase in the National Debt as a percentage of GDP. It is currently over 50% and is expected to rise over the next few years, for the first time since 1961, to over 100%.
This bears repeating. A destroyed and exhausted post war Britain, with a National Debt of 215% rebuilt the country with public funding AND reduced the debt. A country brought to the brink of disaster by the banking sector bailed it out with public funding and the debt RISES while the social security network built 65 years ago has had its funding systematically reduced. What is the fundamental difference and how does it influence our current spending decisions?
Between 1945 and 1979 there was a broad political framework common to all political parties known as the ‘post war consensus’. The guiding principles of this consensus included the idea that it was in the interest of the country as a whole that certain infrastructure organisations were best held in the common good. These were seen as ‘natural monopolies’. They included transport links (road, rail and airports), communications (telephony, postal service) health (NHS) and utilities (gas, electricity, water). The economy contains a mix of private, public and voluntary sector organisations: all of these contribute to and benefit from publicly funded infrastructure. A second tier to this framework was the belief that full employment was a proper objective of government, but that a social security net was crucial to prevent periods of unemployment reducing people to destitution. During this period there was a surplus in most years: the country earned more than it spent and it was able to pay down some of its debt as a consequence.
Since 1979 successive governments have worked within a different political framework, known variously as neo-liberal, monetarist, or free market economics, The guiding principles of this framework are that on the one hand the market is the best regulator of supply and demand and that the process of competition provides the best balance of price and quality and on the other that the role of the state in the marketplace should be limited. ‘Natural monopolies’ do not exist in this economic model and therefore the liberalisation agenda included selling some state assets into the private sector (some transport, all utilities, all communications) and sectioning off parts of the NHS to create private service providers. This latter action has fundamentally redefined the principles of the NHS, leaving for the moment one core principle that the services provided are free at the point of delivery and funded by central taxation. This excludes those NHS services which are already paid for at the point of delivery, dentists, opticians, prescription medicines.
In both cases year on year expansion of the economy has reduced the debt in real terms. The production of North Sea oil, starting in 1975, added a bonus to the economy which helped reduce the debt through the 1980s and inflation also has had the effect of reducing debt in percentage terms.
There is, however, a significant debt which is absent from the nation’s balance sheet. Since 1992 loans in the form of Private Finance Initiatives (PFI) have been used as a way of allowing money to be raised for public expenditure by different governments without that expenditure appearing as a debt. These loans have come in various guises, but essentially they have been delivered from a politically almost universally accepted standpoint that the private sector is better at management than the public sector. The truth is more likely that the public sector has different management criteria than the private sector. These loans are extremely expensive. By 2011 the NHS owed £121.4 billion for infrastructure which was valued at £52.9 billion, and as PFI repayments are rising at approximately 18% a year this figure will continue to escalate. Because these repayments are being made from NHS annual budgets, rather than from capital, they are diverting money from front line services. Before PFI when budget restraint was imposed on the NHS the costs of maintenance and renovation of buildings would have been a lower priority than patient care.
Given that the focus of this Budget is the health of the nation and that health is better served by patient care than by buildings maintenance the first spending priority must be to recapitalise the infrastructure costs of the NHS and to cancel all existing PFI debt. These financial arrangements have largely been the product of successive mechanisms to divert public monies into private profit. It should be unthinkable that private capital should benefit at the cost of patient care when the service in question is the health of the nation. However the cost of the debt cancellation is equivalent to approximately half of the NHS annual expenditure for 2012/13 and must be provided for within the Budget. It should be noted, however, that savings to the taxpayer potentially in excess of £100 billion will be made as a result of this recapitalisation. This deals with the specifics of those Trusts facing financial collapse as a result of unsustainable PFI agreements.
What then of more general funding issues affecting the NHS? The cost of the NHS as a percentage of GDP is increasing. Until 1992 it had never exceeded 5%. Early costs did not include health centres, health visitors, ambulances, vaccination and other services which were in the remit of local authorities and only transferred to central government in 1974. Since 1992 PFI agreements have been in place and growing in terms of their cost to the service. It was also around this time that the market principle of a purchaser/provider split in the service was implemented, leading to an increase in administration costs. All fragmentations of the service and reorganisations carry substantial administration costs. By 2010/11 the cost of the NHS had climbed to 8.2% of our annual expenditure. Of course modern developments in healthcare are far more costly than the treatments available 65 or even 15 years ago, but it is also true that the NHS is now subjected to more non-core activities and costs than prior to 1992. The current privatisation agenda, involving further fragmentation of services and complex tendering processes focus resources away from patient care.
We cannot ignore the relationship between private funding, fragmenting services and private provision and the overall growing cost to the NHS. These issues have added more to the cost of the service than all the additional responsibilities which were transferred to it from local government in 1974. To pretend otherwise will lead to further chaos within the service.
These issues are the reason this Budget has addressed historical changes of service and finance in the NHS. Budgets and Governments are notoriously short term in their objectives. History is used as a means to score points off the opposition and future goals are limited by the horizon of a General Election. In addressing issues of Health the political process needs to be more grown up. If we allow perceived short term financial constraints to control far reaching decisions about who can access services, when the evidence indicates political rather than service driven financial problems then future generations suffering ill health and unable to afford a doctor, repeating the experiences of families pre-1945, will curse us and rightly so.
Therefore the recommendation on revenue funding for the NHS must be to maintain it at current levels for the current period and to focus activity on restoring the service to full public ownership. Removing competition will reduce costs significantly and enable a proper audit of resource allocations to be made in future Budgets. With so many cost streams currently not accountable to Parliament it is not possible to properly forecast service provision. To announce further budget changes with such a range of variables and a service under such pressure would be irresponsible in the extreme.
End of Part 1 of my fantasy budget…Part 2 to follow soon.