Sadly we have had yet another rounds of claims that £10bn could be saved if the NHS market was removed in England.  Yet again the only basis for the claim is one line in a report from a Health Committee report – in fact misquoting what was actually said.

The claim is that the introduction of the internal market increased NHS administration costs from 5% to 14% of total expenditure; so removing the market will save 9% or around £10b. Sadly this is complete nonsense.

The source for the claims about 5% and 14% is the 4th Report of the Health Committee, Session 09/10 on Commissioning.  The following extracts are from the report…

According to the official historian of the NHS, Dr Charles Webster, the service has traditionally scored highly on account of its low cost of administration, which until the 1980s amounted to about 5% of health-service expenditure.


An estimate of administrative costs made by a team at York University concluded that management and administration salary costs represent, as a very crude approximation, around 23% of NHS staff costs, and around 13.5% of overall NHS expenditure.

Ignoring the figures it is clear that the costs of management and administration in the NHS did rise significantly over the period from the 80’s to the 00’s.  That this was due solely to the internal market is not based on anything at all.

Two things should immediately be pointed out.  The quote about 5% is from an excellent book, A Political History of the NHS by Charles Webster, but the passage in the book does not itself have any references to where the 5% came from or what it actually contained.  It is almost certain that in the era pre 1980 many tasks which might now be characterised as “administration” or “management” were only done as part of a wider job and so would not have been recorded in any way.

And the York University Report – NHS Management and Administration Staffing and Expenditure in a National and International Context, from March 2005, time and again sets out that comparison of costs between countries and between periods in our own NHS are beset with many issues around classification.  So for example the 14% did not include any “estimate” of consultants and others time which might be classed as administration or management.

In fact the report actually put its estimate of administration and management costs on an internationally comparable basis at between 17% and 21% (not the 14% as is often used).

As the report sets out:-

There are no agreed definitions of ‘administration’ and ‘management’ in health care between (and sometimes even within) countries’ health care systems. Substantial ambiguity exists around any comparisons, particularly as definitions shift as groups of workers are recategorised. Consequently, all cross-national and cross-sectoral figures must be viewed with extreme caution.

On every level comparing the 5% and 14% is nonsense.  Even if we had reliable and comparable figures (and we don’t) then arguing the whole of any increase between the cost base in the 80’s and the costs base in 2003 (the base year for the York study) was due to the internal market and that this was wholly without any compensating gains is not justified.

In a paper which uses the same base information Colin Paton suggested that only half of the increase was due to the internal market – although he gave no rationale at all for arriving at the 50% figure.

None of those that claim £10bn can be saved have ever set out where the costs would come out of the system – it equates to many tens of thousands of jobs – so who gets made redundant?  It has to be tens of thousands of jobs as other non-pay expenditure is on nothing like the scale needed to get to £bns.

So these claims are distractions and in fact play into the hands of the conservatives who claim that the NHS does not need more funding it just needs to be more “efficient”.

To get some better idea about what might actually be saved from removing the internal market some insight is provided by some real evidence.  Some real information about the costs of various systems has recently helpfully been provided in a study by Himmelstein et al.  This looks only at the costs of management and administration within larger hospitals across various countries with varying degrees of “market”.  Of particular interest is that it treats Scotland and Wales separately from England in its analysis.

Like the York report it would help if more people actually read what the evidence says, but to summarise: the highest costs per capita (after numerous adjustments) are in those systems with complex payment systems.  Systems which have single payer and block funding have the lowest costs.  Systems like ours in England are in between.  For hospitals the best estimate for England is for administration and management to account for between 17% and 21% of total expenditure.  (Spookily but coincidentally similar to the York finding of a decade ago.)

In comparisons of relative expenditure England comes out slightly higher than Wales but Scotland is significantly lower.  The explanation though appears to be a technical one in that management of capital in Scotland is more centralised.  In fact there is not a lot of difference between the three nations.  What differences there are appear to be due to costs of administration not of management and to be due to numbers of people not wage levels.

But there are differences which can be seen mostly to do with the costs of information used to drive the payments systems, which in England is DRG and activity based plus a bit of block funding.  So if we went back to very simple single payer funding with no competition for funding and centralised all capital management it appears that there could be savings of the order of 1% to 2% in hospital costs.  That is a lot less than £1bn in total even if it were possible.  In fact much of the information used to drive payments systems is used anyway and would be required so nothing like £1bn could be saved.

But in England there are also commissioning costs and system management and regulation costs.  Opinions vary about what we do in terms of planning if there is no market and about how much system management and regulation would still be needed.  But we could envisage savings from the £1.2bn spent by CCGs plus spending on CSUs, and much of the regulatory infrastructure.  Maybe £2bn in all.  But much of what is actually done within these bits of the NHS still has to be done somewhere. We do need to know how much various things cost and how variable outcomes are and we do need someone designing pathways and we do need some kind of oversight.

Anyway nothing even at the wildest extremes of what might be possible gets to savings of even one quarter of the claimed £10bn.  Still the mythical £10bn is so firmly entrenched the facts are unlikely to be of much use.

When the Health & Social Care Act is repealed and the competitive market is removed then there will be scope for savings but not of the order of £10bn.  Further savings could come from reducing the number of NHS organisations through consolidation, but merges and other transactions have a bad track record.  We can only “guesstimate” but this might over time be of the order of 1 – 2% of total English NHS expenditure, but there would be considerable transition costs to be met and neither change would be easy and consolidation would be contested!

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  1. Hi Irwin (or rather Richard Bourne).
    it seems your piece is in response to mine, here, though I do note that this widely read piece was not shared by the Socialist Health Association anywhere. Many people do of course feel that the SHA tolerated the move to markets under the Blair administration, far too uncritically, so perhaps this is not surprising.
    Ironically, perhaps, my piece was in fact originally inspired by your argument earlier this summer to Lewisham campaigners (privately, via Brian Fisher) where you suggested that it was not really worth talking about the cost of the market. You made some odd claims in that, for example suggesting Calum Paton did not even look at recurring costs, though I note you don’t repeat this clear factual error above). You were also considerably more dismissive of Charles Webster, former NHS Chief Historian and All Souls Fellow, so much so that I was prompted to get in touch with him for his response, part of which is quoted in my article. Charles talks in my article about the ‘clever tricks’ played by the ‘management lobby’ of focusing only on senior management costs and ignoring ballooning admin costs – something your piece does yet again.
    Anyway. A few further points.
    Your article sets up some straw man arguments. My piece did not suggest that £10 billion was the only estimate of market costs, it pointed to a range of estimates that ranged from £4.5 billion to £30 billion a year, and argued that £10 billion was too low. The latter comes from more left-wing Lib Dems on their public services working group.
    It highlighted various ways – not just the 14% figure – that such estimates were arrived at, including international comparisons, costing individual bits of the market in operation, and sheer common sense.
    In some ways, we agree. You critique the 14% figure by saying it does not include consultants time – an argument I also highlighted, that even aside from managers and admin staff, clinical staff are spending time on admin as a result of the market.
    You highlight the lack of definitive figures, and the need for them – a point my article discusses in detail, highlighting the way the last government (and this one) have deliberately suppressed figures, including the York report which they refused to release for 5 years. I completely agree with you that we need more scrutiny of the figures and discuss in detail how those with vested interests – including think tanks and management consultants as well as government – have refused to do so, despite urgings from the Health Select Committee who said ‘the suspicion must be that the government does not want the truth to be known’. Regrettably I have not heard the SHA calling for such figures to be collated.
    You say you wish more people actually read the reports. I have read them, including the Scotland/England report you cite. Though I note, I asked you for a copy of the York report that the government suppressed, several times, and you told me you would send it to me but never did.
    It is most odd that the SHA a position in relation to market costs that is to the right of not only my piece, but to the excellent cover story in this week’s Spectator, which also says that getting rid of the market is the key solution to saving the NHS!
    I completely reject the allegation that highlighting bloated management and administration costs due to the market, plays into the conservatives hands. I regularly talk to NHS staff (I mean frontline staff, not just chief executive types) and they recognise this problem more than anyone else (indeed this is highlighted in the Spectator report). Pretending it is otherwise, ignoring the argument, in fact plays into the hands of UKIP, who are making considerable capital from populist arguments about red tape, which are partly true but of course UKIP’s solution (more privatisation) will make it worse, and we need to be saying so loud and clear, to see off the UKIP threat. People aren’t going to stop noticing this waste if we don’t talk about it, they will just draw the wrong conclusions as to the solutions. Nigel Farage pretends that more privatisation will solve the problem, whereas in fact my central argument is that more markets and privatisation creates a ballooning bureaucracy, because markets simply don’t work in the NHS (a point made also by Debbie Abrahams MP in her excellent report).
    I’d hope the SHA will be more responsible in future. If the SHA continues to encourage Labour to see itself as the party of senior NHS managers, committee men and management consultants Labour will lose its electoral advantage on the NHS, indeed, there is some evidence that is already happening, polling is highly variable on this.
    I say none of this to bash NHS managers as people. I would hope we could have a sensible conversation about redundancies and transitions to a more sustainable system, and (as I have said in the active discussion on my article) the reality (which you gloss over) is that so much of the market expenditure ends up in the pockets of management consultants and lawyers (Hunt has basically misled on this, looking only at central DH costs, whereas most costs are fragmented to Trust and quango level). So if we started by chopping those and using in house expertise to transition to a system that is run for patients, not the market, we’d need a fair few managers for a while yet, though the long term system would be far more sustainable.
    Lastly I note the language in your recommended solutions is worrying in that it says very little if anything about the public ownership and public ethos that was at the centre of Bevan and Beveridge’s vision, and it is this type of stuff that makes many feel Labour are not yet offering a clear and robust enough defence of the NHS, for example by signing up to the NHS Reinstatement Bill.

  2. For those who want the above in a nutshell – I have highlighted how the 14% and £10billion figures are in fact an underestimate, given justification for why, and shown how the true figures are deliberately ignored or even suppressed by those with vested interests in maintaining the market system they and their allies profit from.

  3. bhfisher says:

    The SHA has a clear position on the dangers of a market and competition in healthcare. We want it out of the way.Getting rid of the market is indeed a key solution to saving the NHS.

    This is a discussion about the cost of the market. When the Lewisham Campaign met Monitor, they said that they have no idea of the cost of the market that they supervise.

    We do need to highlight the dangers of the market and its cost – if we could agree on what the cost is. To me this is a debate about the data and our best interpretation of it. Let’s continue the discussion and generate light rather than heat.

    What about the data comparing Scotland, Wales and England?

  4. According to the Nuffield Trust both Scotland and Wales have delivered broadly similar performance to England. This is despite the fact that both have held down NHS expenditure whilst England’s has increased. Both get relatively low funding, compared to their poorer, and more dispersed, population (this is well understood). Yet their non marketised systems mean they are holding their own. In fact Scottish people’s satisfaction wth their NHS is rising sharply (as my piece makes clear) whilst England’s is falling as the market grip strengthens.
    My piece also refers to the lower hospital admin costs in Scotland, another clear argument for getting rid of the market (I don’t really understand the slightly garbled point Richard aka Irwin is making here). Clearly though, over and above that, hospital admin costs are only one small part of the problem and in England there is much waste in the market quangocracy.
    Yes, let’s have light, not heat. Those who come from NHS senior management backgrounds like Richard (ex Chair of SHA and ex Chair of Colchester NHS Trust) could start by being a bit more open with information such as the York report, less dismissive (without evidence to justify), more open about the sheer absence of any robust evidence to support the introduction of markets as in any way beneficial. The SHA could also be publicly demanding the government to release more on market costs. Why is it left up to campaigners and academics to collate such information? Why has the SHA never (as far as I can make out) said anything much about this? Transparancy is a huge issue with privatisation and one we haven’t even really touched on here. But Kelsey, Hunt et al seem to think transparancy means collecting and sharing lots of data on us – the patients – and not giving us data on the costs of running the NHS for the benefit of corporations.

  5. Brian, you say “We do need to highlight the dangers of the market and its cost – if we could agree on what the cost is.”
    Are you suggesting that until we get precise figures, we don’t highlight it? Surely that way we fall into their trap.
    We have tried waiting and asking for better figures (or at least, the Health Select Committee demanded them) but clearly as the HSC said ‘the government doesn’t want the true story told’. My piece also suggested why well funded think tanks like the Kings Fund don’t seem that interested either.
    In the mean time we have good bases to believe it is substantial each year – bigger than the current NHS annual shortfall by some margin. So let’s not wait. Let’s start shouting now. I am glad you say the SHA wants markets and competition out of healthcare. I have to say it has not always been clear to me that is the case, from some of the messaging put out by the SHA, and certainly not that the SHA is committed to publicly provision of the NHS (which is a slightly different point). Let’s hope that changes. There are enough well funded corporate-biased lobby groups out there already, we need more voices on the other side.

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