Category Archives: NHS Funding

Tuesday morning was the launch of the Resolution Foundation report, Healthy finances? Options for funding an NHS spending increase – a response to the rumoured government “birthday present” for the NHS as it turns 70 on 5 July 2018.

The audience included party advisers (I spotted a Whatsapp group chat for a party’s comms team), people from various think-tanks, academics (including an Emeritus Professor from Imperial who had a lot to say), and a representative from at least one (non-militant, at least in the room) campaigning group.

The line up:

  • Sarah Wollaston MP, Chair of the Health Select Committee and medic who worked as a GP up until 2010. (Given her generally sensible views, I keep having to remind myself that she’s a Tory).
  • Jon Ashworth MP, Shadow Secretary of State for Health, who has a long history as a Labour professional, including as Special Adviser in the Treasury for Gordon Brown.
  • Ben Page, Chief Executive of Ipsos MORI and fellow of the Academy of Social Sciences.
  • Matt Whittaker, Deputy Director at the Resolution Foundation, who previously worked for the House of Commons Library where he provided stats and economics advice.

The event was chaired by Torsten Bell, Director of the Resolution Foundation, former adviser to Ed Miliband (and, incidentally, architect of the Ed Stone).

Interlude: What is the Resolution Foundation?

The launch was set at Resolution HQ in a bright, wide room, with cosy luxurious seats which wouldn’t be out of place in an up-market indie cinema, so I was curious who they are and how it’s all funded.

Resolution Foundation’s website describes it as “a non-partisan and award-winning think-tank that works to improve the living standards of those in Britain on low to middle incomes.” In their most recent annual report, they defined “low to middle” as those in income deciles 2 to 5, whom they say are overlooked in policy debates. Their focus is on working households.

They receive most of their funding via donations from Resolution Trust, founded by Clive Cowdery with a £50m donation, “believed to be one of the largest endowments for public policy research made in the UK”.

Cowdery made his wealth from “sponsoring insurance vehicles” (an FT article says more) and is also founder of financial services investment firm called (again) Resolution.

Resolution Trust backs Prospect Magazine and, intriguingly, WorkerTech, which seems to be about encouraging alternatives to trade unions for the precarious world of Uberified work. (Here are slides from its launch.)

What did they say on health funding?

All agreed that the NHS needs more funding, so the question is how much more funding and where the money is coming from. The issue was framed as a tug-of-war between Treasury and Jeremy Hunt (with Hunt wanting more money, in case not clear – it’s not always obvious), constrained by a complex parliament and a wish to keep voters happy.

Matt Whitaker took us through some headlines from the Resolution report, emphasising that it was a prediction of what the government was likely to announce rather than what it should do. (Though it sounded very much like advice.)

Borrowing was seen as likely necessary, so long as the total was below 2% of the projected GDP in 2020-21 (to meet a Tory fiscal target). But borrowing alone would not suffice, so some sort of tax raise is almost certainly on the cards – the problem is how to keep keep Tory voters and donors on side, whilst getting it through parliament.

One possibility is increasing National Insurance contributions (or NICs, pronounced “nicks”), which Gordon Brown did when he was chancellor. This is a progressive tax for workers; however, increased NICs was seen by the report authors as “unfair from a generational perspective” since older people who rely more on healthcare don’t pay national insurance (this generational perspective might need some analysis). A solution proposed was to extend NICs to include those above state pension age who are still working.

Increasing income tax could be another way to get the money. LibDems and SNP might support this, and Scotland recently introduced a change to its tax bands meaning some pay more and others pay less tax. Labour, the authors argue, would likely oppose increases for anyone earning under £80k and some Tory MPs might oppose too.

Another approach suggested was to adjust thresholds for (i) when income tax is payable and (ii) the higher rate of payment. Threshold changes were Tory manifesto promises, but the authors suggest a fiddle (p. 24):

“An alternative approach would be to lift the Income Tax thresholds to those pledged in the manifesto in 2020-21, but to freeze both them and the NICs thresholds in the final two years of the parliament. This would of course cost money in 2020-21, but by 2022-23 it would raise £3.7 billion relative to the default of uprating in line with inflation every year.”

Another promising source of funding would come from reversing George Osborne’s 2016 pledge to cut corporation tax by 2020. This tax uncut could provide £5.2 billion in 2020-21 and £5.7 billion by 2022-23. Other political parties would likely support the move and the authors argue (p. 27):

“The Chancellor might also feel emboldened to act given the way in which the estimated costings of the move from 19 per cent to 17 per cent have shifted since George Osborne first announced it.”

Remarkably little was said about Brexit. Will it torpedo all the projections and render the suggestions (sorry, predictions?) unimplementable? The exception was Sarah Wollaston, who noted that she never believed the infamous £350m bus claim; she expressed reasonable worries about the effects Brexit would have.

What might more money mean for mental health?

Although the focus was very much top-level – where’s the money? – speakers did say a little about how it should be spent. For instance, Jon Ashworth quoted numbers on additional doctors and nurses required (it’s thousands), citing a report from IFS – also cited by Sarah Wollaston.

Reassuringly, mental healthcare was mentioned a few times as being important and in need of improvement (though note the history of “warm words”). Ben Page cited public support for increased spending, with mental health being second on the list in an April Ipsos MORI survey of priorities, after Accident and Emergency. Jon Ashworth mentioned improving support for addictions, in particular.

Sarah Wollaston cited the Health and Social Care Committee’s report into integrated care, published yesterday, which discusses detailed contractual changes needed to improve how, e.g., mental healthcare integrates with other services, including discussion of accountable care organisations (ACOs). (Perusing this report just now highlights how difficult it is to have public debates on these issues – it’s technical stuff.)

The coming weeks as we approach July 5th would be a good time to campaign for key specifics on how much money mental healthcare should receive and what it should be spent on. If the NHS received £20 billion more in 2022-23, how much should go to mental health and where?

First published on Andy Fugard’s blog

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Deborah Harrington’s interesting posting on “The Myths and Legends of Hypothecated National Insurance” (March 29 2018) in particularly relevant in the light of media speculation about hypothecated taxes or National Insurance contributions to pay for health or social care.

In Wales there is a further variation on this general theme with Professor Gerry Holtham (Dept. of Regional Economics at Cardiff Metropolitan University ) proposing the establishment a social care levy for Wales. (See link below)

The levy, based on weekly payments between £1.75 and £7, would differ from a tax in that the receipts would not go into a general government budget but rather into a separate social care fund with its own independent trustees. “A portion of ..(the fund) receipts would go to local authorities to expand social care provision straight away. The greater part of the receipts would be held back for future needs and meanwhile invested to grow over time and enable even greater social provision to be made in the future as the population ages.”

And following the National Assembly for Wales having secured its own tax raising powers at the beginning of October 2017 the Welsh Government Finance Secretary, Mark Drakeford, signaled that a levy to support social care was one of the new tax ideas he was considering.

Solving Social Care. And more besides

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There are pressing reasons for understanding a bit about how our tax system works and very specifically what National Insurance is. NI is used as successive governments’ tax increase of choice because of a widespread and mistaken belief that it is a direct payment to the NHS. The Liberal Democrats had it in their 2017 manifesto, Gordon Brown put 1p on NI to ‘pay for’ the NHS, Frank Field (Labour) gave evidence on NI to the Lords Committee on the long-term sustainability of the NHS and his website says he is working on this issue with Oliver Letwin(Conservative) and he wants to restore a ‘something for something’ society.

Frank Field’s website says:  ‘Polling last year found that while 42 per cent of the public would support an increase in tax to pay for a larger National Health Service budget, this figure climbs 11 points, to 53 per cent, once the public are asked about an increase in NI contributions.’

One of the most recent additions to this proposition was in an ‘exclusive’ from the Daily Telegraph (18 March 2018 paywalled):  “It is understood there is now broad agreement within the Cabinet that extra money must be provided for the health service. Some ministers have privately suggested an across-the-board rise in National Insurance to provide new ring-fenced funding for the NHS. However, The Telegraph understands that officials are drawing up plans for a more targeted tax rise on older workers as part of a new 10-year funding plan for the NHS championed by Jeremy Hunt, the Health Secretary. One idea under discussion is to make the 1.2 million pensioners who keep working past 65 to pay NI contributions. The move would raise £2 billion per year which could be spent on the health service. Scrapping universal free prescriptions for the over-60s is also under discussion.”

The Telegraph article incorporates many of the issues frequently raised when talking about how to pay for the NHS. These arguments have muddied the waters about how public funding is allocated giving rise to political decisions being made on the spurious grounds of ‘affordability’, ‘sustainability’ and ‘no money’. And it has led to campaigns and petitions calling for 1p in the £ tax or the hypothecation of NI to ‘pay for the NHS’.

Here we make the argument that this is not only misleading but it will undermine rather than support the NHS.

A political consensus – can we afford the NHS if the public won’t pay more?

Earlier this year, thousands of NHS campaigners marched and rallied across the country in protest at the de-funding, cuts and privatisation of the NHS. Anyone who isn’t an NHS campaigner could have been forgiven for missing it, it was given so little press attention.

In contrast, two days later the BBC gave headline space on its flagship news programme, Radio 4’s Today, and on BBC One’s Breakfast, to the Liberal Democrats’ perennial call for NI to be increased for the NHS. They are also calling for NI to be converted into National Health and Social Care Insurance – which they refer to as a hypothecated tax.

Simon Stevens has argued for different funding sources too:

“Would intergenerational fairness support a further increase in the share of public spending on retirees, at the expense of children and working-age people? Should it be easier for families to flexibly fund social care by drawing down resources tied up in housing, pension pots and other benefits?”

A little bit of history (but not too much)

Funding was a key issue in all the prototype versions of the health service that finally became the NHS. The debate about how to pay for the NHS was based around three elements, all of which are reflected to greater or lesser degrees in other healthcare systems around the world today.
These were (and are):

  1. The Exchequer should pay a proportion via government run national insurance.
  2. Local authorities should pay a proportion from the rates (council tax).
  3. People should make a contribution from their own pockets -usually as some form of insurance.

Combinations of these are used across the world in a system known as the Bismarck Model.

NI already existed for working people in the UK before the creation of the Welfare State. It gave an entitlement to unemployment benefit, seeing a doctor and some pension benefits. But Prime Minister Clement Attlee supported Aneurin Bevan’s desire to break the connection with insurance to bring in something quite different for the NHS – and unique in a Western democracy. The NHS was to be paid for in full by the Exchequer. It has caused complaint and consternation ever since about its affordability – ‘growing and ageing populations’ have always been seen as a threat to its survival. Yet it has been consistently one of the lowest cost universal healthcare systems in existence. And that has been largely as a result of this direct funding method.

In 1952 Bevan wrote ‘In Place of Fear’ a remarkably modern set of essays showing that the questions about funding, who gets access, what should be provided are perennial and instantly recognisable across the years. He writes one of the best explanations of why NI was not chosen as the method of payment:

“When I was engaged in formulating the main principles of the British Health Service, I had to give careful study to various proposals for financing it (…) what was to be its financial relationship with national insurance; should the health service be on an insurance basis? I decided against this. It had always seemed to me that a personal contributory basis was peculiarly inappropriate to a national health service. There is, for example, the question of the qualifying period. That is to say, so many contributions for this benefit, and so many more for additional benefits, until enough contributions are eventually paid to qualify the contributor for the full range of benefits.”

So, to answer Bevan’s question, what is the NHS’ “financial relationship with National Insurance” in 2018?

Given the number of people who respond on social media to questions about funding the NHS by saying, ‘I pay for it already with my National Insurance’ – it looks as though the question is answered in popular consciousness, if not in reality.

It might surprise people to learn that the National Insurance Fund (NIF) today is used to calculate employment related and pension benefits, as it did before 1948. It doesn’t include paying to see a doctor! This Fund supposedly contains £30 billion of spare money. You may have seen the petition to parliament asking for the release of the money to save the NHS. John Prescott, former Deputy Prime Minister, was the person who discovered this ‘secret’ in 2015. But, like many things which have an eternal life on social media, it isn’t quite true.

Bevan talks about ‘the qualifying period’ for NI. NI still has qualifying periods for the various benefits it covers.

According to the government website the list below is what NI is for. Each of the benefits listed have different numbers of contribution years needed to be able to claim them. For example, it takes a minimum of 10 years contributions to earn entitlement to any state pension at all and 35 years to earn full entitlement. State pensions aren’t like private pensions. There is no personal money pot built up. Instead your contribution to society through your earnings is a social contract. There is an expectation that, having contributed through your working life, the government of the day will honour the contract when you retire.

Benefit  Class 1: employees  Class 2: self-employed  Class 3: voluntary contributions 
Basic State Pension  Yes  Yes  Yes 
Additional State Pension  Yes  No  No 
New State Pension  Yes  Yes  Yes 
Contribution-based Jobseeker’s Allowance  Yes  No  No 
Contribution-based Employment and Support Allowance  Yes  Yes  No 
Maternity Allowance  Yes  Yes  No 
Bereavement Payment  Yes  Yes  Yes 
Bereavement Allowance  Yes  Yes  Yes 
Widowed Parent’s Allowance  Yes  Yes  Yes 
Bereavement Support Payment  Yes  Yes  No 

The NHS is conspicuous by its absence from the list above.

In the late 1970s over 65% of all unemployment benefits were based on contributions from previous employment with 35% being means tested. Today it’s almost the mirror image and contributory benefits are now just over 42% of the total.

Why do people say that National Insurance pays for the NHS?

Most people will remember Gordon Brown, when he was Chancellor of the Exchequer, saying he would put 1p on NI to ‘pay for the NHS’. There is that claim from John Prescott that he had ‘found’ £30bn in the NIF ‘for the NHS’. And the Liberal Democrats – along with Labour’s MP Frank Field – insist that NI should be changed to fund the NHS and Social Care as a hypothecated tax.

Is it any wonder that people believe that’s how the NHS is paid for, with so many politicians saying it is, or should be?

There is, in fact, a difference between the NIF and the National Insurance Contributions (NICs) collected. And the difference illustrates the confusion that exists about the tax system. At this point it is worth pointing out that, despite any statements to the contrary, NI is just a tax.

The Government Actuary’s Department has estimated that NICs will raise just over £125 billion in 2017/18, of which £101.8 billion will go into the NIF and £23.7 billion will go to the NHS.

What is accounted for in the NIF, as explained above, is the estimated amount of contributions needed to pay for the contributory benefits including pensions. Any excess over that amount is supposed to ‘go’ to the NHS, but it isn’t equivalent to the amount of funding the NHS needs. It is simply accounted for in the Consolidated Fund at the Bank of England which is a record of all the Government’s spending and receipts.

This brings us to the central issue of why politicians insist on making the link between the NIF and the NHS. At its most basic it is because politicians believe that if the public think that the tax is being spent directly on something they want and have a direct interest in (working benefits, pensions, health) they are less likely to complain when that particular tax is increased. And why do they believe it? Because countless polls tell them so. They also like going to the polls saying that they will not increase income tax – that’s a huge vote loser. But a manifesto commitment on ‘income tax’ can be neatly circumvented by increasing the other income tax – NI.

Is National Insurance a hypothecated tax?

A true hypothecated tax is one in which the tax is ring-fenced for a named service and pays for all that service. This system effectively enforces a spending cap on the service being paid for as it limits spending to an equivalent of the tax levied. That’s very difficult to do when necessary spending is required before the taxes are received. It’s also difficult to define the ‘whole’ of a service.

The NIF appears to be hypothecated. Its rules say that the Fund must always contain enough contributions to meet all its obligations as listed above. To this end it must have a reserve in hand (John Prescott’s £30bn ‘secret’). But the Treasury also makes grants available to the NIF to make sure it keeps to its rules when it doesn’t have enough contributions coming in. A further adjustment is made between the balances in the England & Wales account and the Northern Ireland account to make sure they both represent the right amounts for their relative constituencies. Yet more adjustments are made because the Department of Work and Pensions and the Department of Business, Skills & Innovation both make payments out of their own budgets for the benefits accounted for under the NI scheme so transfers are made between them to equalise the accounts.

There is also an excess of receipts required to fulfil the contributory principle over the course of the accounting year and that doesn’t go into the Fund at all. It is not a genuine hypothecated tax. It is a bookkeeping exercise.

If NI is just a tax and it isn’t hypothecated, what’s the point of it?

Historically people had a direct link between their NI contributions and the benefits that accrued to them as a result. Pensions retain that historic link, with a defined minimum and maximum number of ‘contribution years’ required. In and out of work benefits for those covered by the NI scheme also have minimum contribution periods. It is the contributory principle that makes NI difficult to abolish. Income tax is simply recorded as an annual amount, no matter what the source of the earned or unearned income. NI, on the other hand, is recorded as the number of consecutive weekly contributions. It is the appropriate number of full years in a given period that defines eligibility for the benefits.

People who take breaks from paid employment for any reason and therefore have a break in their contributions may receive a letter asking if they wish to make a voluntary payment to cover the missing contribution period. That couldn’t happen with income tax. Getting rid of NI therefore leaves a problem of how to calculate eligibility for contributions-based benefits.

NI hides the true levels of income tax

The headline rates for income tax are currently set at 20%, 40% and 45%. This looks as if we have a very fair system where the lowest earners only pay half what higher earners pay. However, if NI is added to income tax the picture looks very different.
NI (tax!) starts below the personal allowance level.

Income bracket  Income tax rate   NI rate  Total tax 
£8164 – £11,500  0%  12%  12% 
£11,500-33,500  20%  12%  32% 
£33,500-£150,00  40%  2%  42% 
£150,000 +  45%  0%  45% 

People often call NI a regressive tax because it doesn’t increase with higher earnings but what is far worse is that it masks the real differentials between the rates of taxation. The lowest rate is quoted at 20% and the higher rate at 40% which leads people to reasonably believe that lower earners are not carrying the burden of tax but as the real figures are 32% and 42% respectively then it is a far less fair system.

So, when campaign groups call for a penny on income tax to fund the NHS or that there should be further increases in NI they may not be aware of how serious the impact is on lower paid workers.  In 2016-17 a fraction over 31p in every £ of tax collected was income tax. NI accounted for just under 22p. The rest is accounted for by other taxes.

Inter-generational Fairness – a concept designed to persuade people that you don’t get what you don’t pay for

Over recent years there has been a change in the general understanding of what the economy actually means. Politicians talk as if the economy consists of the private sector and its wealth creation with government wholly dependent on the taxes raised from that wealth creation. Government expenditure is framed as money lost or wasted or a drain on the economy. The tax ceiling is used as a whip to limit government who must be vigilant against overspending or allowing ‘debt’ to get out of hand. It also tends to focus on income tax and NI to the exclusion of other taxes.

This is the narrative that explains why services need to be reduced or more paid for them by the public. It creates an obligation on those who cost most to be asked to contribute more for the sake of ‘fairness’ and ‘not burdening the state’. It makes means testing into a harsh system of proving you really need state help before you can get it. It reflects Frank Field’s ‘something for something’ idea that you don’t get what you don’t pay for. It is the political and moral opposite of the NHS.

Far from ensuring intergenerational fairness, this system forces the burden of payment for the NHS on to people in paid employment who are paying NI as this tax is not paid on unearned income nor by various other income groups.

The idea of expanding NI to retirees and of extending its range, making it more progressive, also ignores the contributory element. The regressive nature of NI is directly attributable to its contributory nature. Once you have paid ‘enough’ to meet the contributions threshold there is no justification for levying any more, as there is no more additional benefit to be ‘earned’.

This is the landscape that gives rise to the NHS Five Year Forward View with its voucher scheme for maternity and personal budgets for disability and now for the Liberal Democrats arguing for a National Health and Social Care Insurance for older people. Asking pensioners to pay NI when they already made their contributions to earn the status of pensioners is clearly nonsense and anything but fair, but you can change that argument if you change the purpose of the tax.

An insurance-based health and social care system

The Liberal Democrats report says:

“we .. believe that an NHS funded by national taxation continues to be the best option for delivering our healthcare system, and so we decided early in our discussions that we would not explore options for an insurance-based health system as a means of raising additional revenue.
…. thanks to great strides made in tackling pensioner poverty, after housing costs pensioner households are far less likely to be in poverty than households of working age, particularly those with children.
For this reason, we suggest policy makers consider ending the exemption from paying NICs for people who continue working past the state pension age. NICs could either be equalised with the rates paid by the rest of the workforce, or introduced at a lower rate.
(…) this is the age group who are the biggest users of health and care services and, as described in the section on income tax above, on many measures this group of workers are proportionately better off than younger generations.”

Like many of the issues we have examined in this blog these statements appear to superficially make sense regardless of whether or not you agree with them. But health and social care now form part of a single government department and the NHS and local authorities are being brought together within integrated systems with combined budgets.

Despite saying they would not explore options for an insurance-based health system, the Liberal Democrats’ focus on paying some form of insurance for health and social care actually means converting NI to a stateinsurance scheme. They are calling for Theresa May to back their scheme. This would transform our Bevanite state-funded NHS into a Bismarckian system. Currently healthcare is free at the point of need and social care is means-tested, which brings an element of uncertainty to what exactly is to be covered by this insurance.

If this were simply an argument about tax there are, of course, many other forms of tax. It takes experts to calculate the changes in government receipts and the effect on households when tax thresholds are raised or lowered. That is what would be being considered if this was about changing our tax structures or raising taxes in general.

But this is not an argument about tax. This is an argument over the role of the government.

While it may appeal to many to call for increased taxes to ‘fund’ the NHS what we really need is to understand how public funding works. The root of the problem does not lie in our tax system. It lies in public policy decisions.

If you are asked to sign a petition or support calls for a hypothecated NHS & Social Care NI or for 1p in the £: just say ‘no’.

For further reading:
Post crash economics and ‘Professor’ George Osborne
Jeremy Hunt calls for increase in tax to pay for Trident

First published on the Public Matters blog

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‘Where to find the money to pay for the NHS’ is a recurrent theme of successive governments. As if changes to our public services are simply a matter of practicality under adverse financial conditions rather than political choice.  

Jeremy Hunt appears to have added his voice to the calls for tax increases, which apparently is now ‘general consensus’ in parliament and being ‘backed’ by the public.

This blog looks at how those arguments are presented from different sources. Politicians and think tanks – yes, and campaigners too – limit the debate about funding to who will have to  pay the tax burden and which tax needs to be increased.  For some the answer is simply to tax corporations and stop tax evasion to raise the necessary funds. 

We think that the principles of funding and the relationship between funding and taxes must be better understood. If not then arguments will continue to reinforce the mistaken idea that the Government is trapped in a spiral of debt from which it can only escape by balancing its books. That balance, it insists, can only be maintained if government borrowing stops and public spending stays within its means – that is to say, its tax receipts. 

Should we stick to arguments that aren’t true, just because they are easy to understand? 

Questions about the economy have been conflated with questions around how the Government looks after its accounts and records its cashflows. Those questions need to be disentangled. Focusing on tax, deficits and debt masks political decisions to reduce and defund public services.  

It’s a terrible truth of politics that people are more swayed by appeals to the heart than by facts or evidence. It is also true that many people don’t want to know much about economics or are happy to accept simplified explanations about tax-and-spend or household budgets. You don’t need a degree in economics to understand how wrong those explanations are – but it’s very important to know how wrong they are.  

Implicit in the arguments about affordability is that those who use services most should pay most or that the government should focus on which section of the population that has the most assets and how those assets can be turned into a source of income. Whichever way the subject is approached, at its core is the message that if we, the public, will not tighten our belts, be less selfish and dig deeper into our own pockets then we are stuck as the government is too financially constrained to do more.  

This leads to debates about the best way to tax to raise the money – 1p in the £? Increase National Insurance? A Robin Hood Tax? Grow the economy? 

Public purpose first and foremost 

Calling for specific additional taxes is part of a simplified explanation of how the economy works. Running the economy is a complex interplay of different elements. The household budget analogy of the last 40 years is wrong but serves a political agenda to shrink the state. Trying to ‘put it right’ with 1p on income tax or an increase in NI supports that narrative, it doesn’t challenge it.  

Here are some simple facts that do challenge that narrative:

  1. Arguments about who gets taxed and at what levels are separate from discussions of policy and public purpose. 
  2. ‘Choosing’ which taxes the public will or won’t support isn’t a useful part of that discussion. 
  3. You can’t ‘cost’ a manifesto with tax unless your starting point is that the deficit and debt are the most pressing issues the government has to face rather than the level of services it needs to provide. 
  4. When a manifesto is ‘costed’ in this way the reality is that the government spends the money first anyway. Balancing it against tax receipts is a bookkeeping exercise. 
  5. Hypothecation doesn’t protect spending. It puts a self-imposed tax constraint on government’s ability to fund services. 
  6. Public sector employees are private citizens whose salaries are spent into the private sector which generates more tax (income tax, NI, VAT, etc). Their employment boosts both public sector service delivery and the private sector. 
  7. Public sector expenditure on buildings, plants, equipment, drugs and consumables fill the private sector’s order books and increases tax receipts. 

Resources not money are the true policy constraints governments face:  

  1. What kind of services does the government want to provide? Equality of access and standards for all or variable standards and access according to ability to pay? 
  2. Are the resources available for the services the government wants to provide?  
  3. Will providing the resources for one service reduce the availability of resources for another? How will those competing claims be settled? For example, building both houses and hospitals – are there enough bricks, wood, steel, plumbers, etc? 
  4. What will the impact be on the wider economy of using those resources? 
  5. Restricting the money available to put the resources to good productive use is a tool to achieve unpopular political ends by giving a false reason for its necessity. 

Is it true that we need a strong economy to provide our public services? 

Conservative Manifesto 2017: Without a strong economy, we cannot guarantee our security, our personal prosperity, our public services or contented and sustainable communities. 

Theresa May says, as David Cameron did before her, that we need a strong economy to pay for the NHS. There are many who share that belief from across the political spectrum. This includes both sides of the Brexit argument who either fear that the economy will shrink so much we won’t be able to afford the NHS or believe that reducing our obligations to the European Union will release the money to pay for it.  

But what constitutes a ‘strong economy’? And at what point does the strong economy become strong enough to fund our services properly? According to that same manifesto we have the fifth largest economy in the world, we are the biggest recipient of foreign investment in Europe and the fastest growing economy in the G7. According to the International Monetary Fund our National Debt is at least 10% lower than the average amongst advanced economies. There are 16 advanced economies which spend much more per head on their citizens for healthcare than the UK, yet 11 of them have larger National Debts. So why isn’t the UK strong enough to fund its health service if they are?  

The manifesto also says that the Conservatives are committed to low taxation and reducing taxes for families and corporations even more. Theresa May said in Parliament that the government has no money of its own and needs taxes to pay its bills but that she is committed to ensuring our services receive the funding they need by having a strong economy. But how can that happen if they rely on taxes and she would like to lower taxes?  

The answer clearly lies somewhere else. 

Is the answer simply to tax the rich? 

Jeremy Corbyn, twitter account 22 March 2018: ‘Over the last 8 years the Tories have cut councils’ budgets in half. In that same time the Tories have slashed corporation tax, cut the bank levy, abolished the top tax rate on high earners and cut capital gains tax for the very richest. Austerity is a political choice.’ 

It appears that the Leader of the Opposition agrees with the Prime Minister about where the problem lies in the government’s ability to spend but disagrees with her about tax regimes. Theresa May wants to cut corporation taxes and council business rates. Jeremy Corbyn thinks that this is where the problem lies and that our local councils and public services could have been funded if the government had not chosen to cut taxes instead.  

Between the Government and the Opposition the battle for public services is fought on the grounds of who is most ‘responsible with the economy’. This includes assurances for the necessary taxes to fund spending ambitions and who will best provide the conditions for the private sector to flourish. These arguments pervade the public consciousness so completely that rather than supporting calls for properly funded services many people ask: ‘has it been costed?’ And costing means being able to list which taxes will be raised in addition to those already being collected to fund any additional expense.  

It also means committing to ‘balancing the budget’ and reducing borrowing – which means reducing the sale of government bonds. 

This argument is being taken further with ‘additional’ funds for public services being allowed only if there are trade-offs elsewhere. Foundation Trusts get capital funding if they are prepared to sell-off land and staff get pay rises if they will give up their increments or holiday. 

Jeremy Hunt offloaded the responsibility for making these trade-offs onto the public, saying it is what they expect: “If you ask the public…they are very clear they would like to see more money going to the NHS and they would be prepared to see some of their own taxes going into the NHS but they are very clear they want to know that money is actually going into the health and social care system and they want to know the NHS is going to reform and tackle some of the inefficiencies.” 

We are not arguing against the raising and collection of appropriate taxes. Our argument is that tax forms part of a well-regulated economy. It is not a constraint on government spending. If the real-world resources are there, the money can be spent. The idea that the de-funding of our public services is the fault of tax evasion and can’t be put right until the money is collected does not bear examination. 

The Office of Budget Responsibility 

Health Service Journal  says: ‘Many will applaud the OBR’s de-politicisation of public finance forecasts, because it helps keep the government on track to meet its fundamental commitment to eradicating the deficit.’ “Clearly ministers are not bound completely by the OBR forecasts, but they do provide a solid defence when besieged by demands on the public purse.” “This reduces (the) power of the NHS, which because of its political importance has been a constant and effective battering ram against the Treasury doors throughout its 70year history. Will individual tragedies such as Mavis Skeet have the same power over government spending, when the chancellor can use the OBR’s cold and compelling logic as a political buffer?” 

There has been a very successful message repeated over the last few years that insists Labour’s public spending during its time in government created‘the deficit’ and has left the country in the grip of an unsustainable debt as a result. The Office of Budget Responsibility (OBR) was set up to make sure the government kept on track to eliminate the deficit. It is supposed to be an independent authority overseeing government spending. It is, of course, a government body ensuring that the government has an ‘external authority’ on whose shoulders it can place the responsibility for there being ‘no money’. 

De-politicisation is in name only. The Treasury is the ultimate arbiter of spending decisions. We do not need, nor should we want, those decisions to be moved elsewhere. Indeed, they cannot be. The Treasury owns the Bank of England and the Bank creates funds on the Treasury’s authority. That is the ultimate public spending decision-maker. 

The OBR is part of a movement that wishes economics to be seen as having hard and fast rules which apply regardless of which party is in government. This is despite the fact that its predictions are usually wrong. The reality is that economics is a political activity and reflects the government’s ideology. A government which believes in free trade and a small state will have a different set of public policy objectives from a statist one, or one which believes in devolving power from the centre.  

The idea of an independent judge of a country’s economic competence is also reflected in the use of two US accountancy firms, Moody’s and Standard & Poor’s, to give ‘credit ratings’ in a similar fashion to companies like Experian and Equifax who credit rate individuals. Economists across the spectrum agree that the idea of bankruptcy for a country that issues its own currency, like the £ sterling, is meaningless. The currency might temporarily lose some of its spending power relative to others but a government can never be unable to re-pay its debts in its own currency because it creates it when it needs it.  

Although modern economics involves complex analysis and modelling, it is still about the political governance of the country’s trade and productivity, distribution of wealth and income levels and how they relate to the law.  

Since 2010 all parties have signed up to the principle that there is an absolute obligation on the shoulders of government to balance its budget or create a surplus. The debate centres on how – or if – they will manage it, not whether they should. 

This is matched by an equal insistence that the private sector is responsible for the economic success of the country. In this scenario the government is wholly dependent on taxing the private sector in order to gain its income. Its spending on public services is therefore a drain which must be carefully balanced against the overriding need not to damage the private sector in the process. 

This is a damaging image which undermines the role of government and democracy. Government is responsible and must be held accountable for balancing the needs of all the different sectors of society. These are interdependent. The objective of public spending should be to provide a well-educated and healthy population. There is a serious problem when the budget itself becomes the objective. Restricting the money available to put public resources to good productive use is a tool to achieve unpopular political ends by giving a false reason for its necessity. And claiming that all spending must be equal to the tax take and that deficits are inherently bad is part of that false reasoning.  

What does fund government if it is not limited by tax? 

Conservative Manifesto 2017: “The greatest impact a government can have on future generations is the amount it chooses to borrow to pay for current spending. Borrowing always means spending money you don’t have; but government borrowing differs because the repayment falls to others – those who come later, including people not yet born. Conservatives believe in balancing the books and paying down debts – because it is wrong to pass to future generations a bill you cannot or will not pay yourself.”

At the beginning of the financial year each Department is given its budget by the Government. At this point of the year no tax receipts have been collected. But the departments and arm’s length government agencies have expenses that must be met right away. The Government is not able to calculate with any certainty what its total tax take is going to be by the year end. But that doesn’t stop it spending. 

In simple terms, the Government tells the Bank of England to credit its departmental accounts to pay for whatever it has decided needs to be paid for. It ensures that inflation is controlled and other policy objectives are met by a combination of taxation and issuing Treasury bonds. It has complete control over each of these actions – the creation of the reserves, the level of taxation (and who gets taxed) and whether or not to issue bonds. This does not mean that tax has no purpose or is not important nor does it mean that the Government can just spend at will on whatever takes its fancy.  

This is the point when Magic Money Trees are invoked or accusations of creating Zimbabwe/Weimar/Venezuela levels of inflation are thrown around. But stating the fact that the Government creates central bank reserves to meet its obligations is not outlandish. Nor is the idea that it will further create reserves to meet its own fiscal objectives. In the modern world no printing or minting of notes or coin is necessary. Keystrokes on a computer are all that is required. (Radio 4’s File on 4 went to the Bank of England and were shown exactly how it is done – link no longer available). 

The NHS is the only thing we are ever asked to ‘pay extra’ for. If taxes and spending really were linked in that order then surely every time the Government wanted to launch an additional project – HS2, Trident or even the bankers’ bailout – we would be called upon immediately to pay more tax. Especially in the case of the bank bailout. The bank bailout amounted to £435 billion. Compare that with the £4 billion a year extra for the NHS. 

But that’s not what happens. The Bank of England has been buying up the Treasury’s bonds from the market in an attempt to stimulate growth. In the case of the bank bailout these purchases were very large scale. A private company has also been set up, wholly owned by the Bank of England, to purchase private sector assets on its behalf. These are financed in the same way as the purchase of Treasury bonds, by the creation of central bank reserves under the instruction of the Treasury. Both the Treasury and the Bank of England form part of the Government. How these purchases were financed and what the intention was behind them gives a clear picture of why the Government is not reliant on taxes or NI to spend on public purpose. The picture below is an extract from the annual report of the Bank of England Asset Purchase Facility Fund Limited.  

Bank of England report

The last sentence says: “These actions were intended to boost the supply of money and credit in order to raise the rate of growth of nominal spending to a level consistent with meeting the inflation target in the medium term.”  

Politicians say we need a strong economy to pay for the NHS. They then go on to say that only a strong economy produces the level of taxes that the government needs in order to pay for its public services. They say that if there is not enough tax, they are forced to borrow and that borrowing puts future generations in debt for the spending of today. But the final sentence of the extract above gives the lie to that explanation.  

The economy cannot grow unless it has sufficient money in it and there will not be sufficient money unless the government creates the central bank reserves necessary for that to happen.    

But what about the warning that spending today causes the payment to fall on others in the future – even those not yet born? Since 1948 the NHS has been there for all who need it. In that time the National Debt has dropped from two-and-a-half times our national income to less than 90%. It has fluctuated in between despite huge investment in public infrastructure and equally huge revenue spending. The generations in between have not found themselves being taxed at higher and higher rates to ‘pay for it’. Tax rates have changed, indirect taxes like VAT have increased, but income tax and National Insurance have fallen. And the Debt – in the form of assets for things like keeping our pensions safe – is simply renewed. Each time a limited bond expires a new one is issued to take its place. This might be the height of irresponsibility for an individual whose life span is measured in decades, but not for countries which measure theirs in centuries. 

Funding the NHS  

The greatest obstacle to overcome when talking about funding the NHS (or any public service) is how to counter the debt and deficit myth which has taken such hold on public discourse. Deficits are connected to the activity that is taking place in other parts of the economy. If tax is increased to ‘pay’ for more services that action is reducing the spending power of the whole population. At a time when levels of personal debt are precariously high and increasing numbers of people are in precarious employment, removing people’s spending power simply increases poverty. The reality of an austerity agenda is that it both decreases the availability of public services while simultaneously reducing people’s ability to pay for their day-to-day needs.    

The proper responsibility of Government is to match its spending with the real needs of the population and the resources available to provide for those needs. At any point this may involve running a deficit. Most of the last 300 hundred years has involved running a deficit. It isn’t new, it isn’t dangerous and it is not ruining the lives of people in the present or in the future. What is dangerous and what is ruining lives right now is a determination to balance the books or to run a surplus based on the false notion that taxes are the only legitimate funds it has to spend.   

Our real danger is that with the closure and sell-off of NHS land and buildings, the loss of staff (from early retirement, demoralisation, emigration and failure to train) and the loss of planning skills through privatisation and fragmentation we may no longer have the resources needed even if the funds were forthcoming. And those are the things the Treasury cannot create with a few keystrokes on a computer. 

For more on this subject see our blog: Post Crash Economics and Professor George Osborne  

This first appeared on the Public Matters blog

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MAY AND HUNT announced that this winter the NHS was the best prepared ever – a claim worthy of Trump. As the New Year began, stories of horrendous delays – waits for and in ambulances, patients sitting, standing or lying on trolleys in A&E corridors, long waits for hospital beds and treatment – shocked the nation. Dozens of avoidable deaths resulted. Mental health crises have hit the news and 50,000 elective operations in January were cancelled, adding to the immeasurable misery. NHS staff have done their best – they are holding the NHS together by their exhausted commitment.

Why is government allowing this to happen? There are two linked mainstays of their ideology: firstly, a belief that market competition and privatisation will improve NHS efficiency; secondly, the belief that funding for public services should be cut back and replaced by private finance. Austerity is the method and justification for years of deliberate neglect.

The fallacy of this ideology is demonstrated by the collapse of Carillion: £900m in debt, a £587m hole in pension funds and 20,000 staff and projects costing £1.7bn in contracts at risk. Two new PFI hospitals, Royal Liverpool and Midlands Metropolitan, face an uncertain future. And now Capita is in serious financial trouble.

Notwithstanding the positive investment in the NHS 1999-2009, we must not forget the PFI years of the Blair government and the privatisation it promoted. But current Labour policy has rejected those mistakes. Labour’s re-commitment to the NHS, captured in composite 8 from 2017’s Labour conference, resonates with voters. Government claims to be spending more every year are a deception. Rising health need is predictable – more people, greater complexity of need and of treatments, which society both demands and welcomes. Since 1948, on average the NHS has required 4% more funding every year on top of inflation to keep pace with expanding health needs.

Government-imposed austerity has on average underfunded the NHS by 3% every year since 2010, reaching 30% by 2020. That is why, eight years in, there are more referrals than the NHS can manage, longer waits, more pressure on staff, more complaints, more human error. The NHS is the most cost-effective, democratic and accessible health service of a major economy worldwide.

Government ideology is breaking it. Sustainability and Transformation Partnerships (STPs) are being used as a Trojan horse for £26bn of cuts. Visionary claims without evidence that “excellent community-based care” will “reduce the need for district general hospitals by 30%”; plans to centralise hospital services in fewer ‘specialist’ hospitals – to an unnecessary and dangerous extent which will increase health inequality by reducing access: this vision not only lacks an evidence base but is delusional when set alongside the massive cuts that undermine those very community services.

Accountable care organisations (ACOs) are now being trialled under the radar in accountable care systems (ACS). But ACOs are undoubtedly the delivery vehicle for an NHS fragmented into 44-50 management organisations, put out to tender and ripe for further privatisation of management, financing and procurement of NHS services. Strict cost control limits will add impetus to diverting patients who can afford it into paying for treatment in the private sector. Hunt faces a judicial review on this.

Most hospital clinical care is still in public NHS hands. But many are unaware of the inroads privatisation has made, in PFI builds, catering, cleaning, portering, pathology, radiology and significant swathes of community healthcare. Virgin Care holds £2bn worth of 400 contracts and last financial year won £1bn of new contracts. Only 34% of tendered clinical contracts last year went to the NHS. The government has given £11bn of our current annual clinical budget to private companies.

And it has chosen where not to spend – with dramatic impact.

Evidenced by this winter’s chaos, far too many beds, 15,000 in total, have been lost since 2010 – 8,000 in acute care, and in mental health (25% lost) and learning disability, 7,000 combined. Comparable European economies spend far more than the UK, which has fewer beds per 1,000 (2.3 in England, 4 in Scotland, 8 in Germany), fewer doctors per 1,000 than the OECD average (2.8 compared to 3.3) and fewer nurses per 1,000 (8.2 : 8.9). Germany has close to twice as many doctors. We have 40,000 nurse vacancies -100,000 across all NHS staff – which explains why £3bn is spent on agency staff and why permanent staff are exhausted.

Some 120,000 excess deaths have occurred since austerity cut into essential health and social care services. Avon’s coroner concluded that the death of a 15-year old girl in September was the consequence of neglect due to the lack of resources of local community mental health services to support her.

A healthy well-educated childhood population makes for a healthy country. Research shows that state investment in healthcare gives a fourfold payback to the economy. The wellbeing of our children and adults is paramount: people are dying as a result of waits for critical mental and physical healthcare, bearing in mind that three-quarters of enduring mental health problems first present before age 18.

Keep Our NHS Public campaigns to defend our NHS, challenging government, using all means available. We reached out to other organisations and set up Health Campaigns Together (HCT) in 2015, building with the People’s Assembly for the 2017 demonstration and the NHS Roadshow during the June election. Our Emergency Day of Action on 3rd February held the government to account this winter with 60,000 marching in London and 50 events across the UK.

Our demands are: more beds, more staff, fund our NHS; no cuts, no closures, end privatisation; health and personal social care must be free at the point of use and, as in Scotland, not means-tested.

Campaigners have reversed plans for bed closures; hospital mergers have been slowed or prevented; STPs have been challenged; judicial reviews have forced concessions on ACO scrutiny. But Labour in local government must adopt national policy and oppose the undemocratic ACOs and cuts to health and social care, and come out fighting for our NHS before it’s too late.

» Please consider affiliation. www.keepournhspublic.com www.healthcampaignstogether.com » Tony O’Sullivan is co-chair of Keep Our NHS Public and member of Health Campaigns Together.

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2018 marks the seventieth anniversary of the founding of the NHS, but also the fiftieth anniversary of the 1968 Green Paper that marked the beginning of a series of attempts to reorganise the NHS that lasts up to today. What were these other reorganizations about, and did they work?

A most basic organisational challenge the NHS continues to face is the split between NHS, GP and community health services (including social care). This was the result of a political compromise in the founding of the NHS. The big idea in 1968 was bringing NHS organisational boundaries in line with those of local government. However, it did not succeed, failing again to due to political constraints. The split between the three areas of the NHS continues to cause us so many problems is testament to the force that past decisions about organisational forms can continue to hold over us, decades later.

Any discussion about the NHS inevitably takes us to the question of funding. In the 1950s there was a government inquiry examining why the NHS was costing so much more than anticipated. What it showed is that the NHS is, comparative to other health care systems, remarkably inexpensive. We still haven’t really learned that lesson. Apart from above-trend increases in funding in the 2000s, the NHS has continued to lag behind its neighbours in funding healthcare, year after year. This seems to get somewhat lost when politicians make lazy claims about how ‘unaffordable’ the NHS is.

Since the 1980s, the two big reorganizational ideas have been about management, and about markets. In the 1980s general managers were put in hospitals to try and make the NHS more ‘business-like’, and that didn’t seem to make much difference other than to increase management pay. This led to an ‘internal market’ for care, in which public providers competed with one another for care contracts to try and bring the discipline of competition into the NHS. Apart from some innovative changes the way GP practices worked, the internal market seemed to do little other than introduce new functions such as care purchasing which did little to improve services.

When they came to power in 1997, Labour promised to abolish the internal market on the grounds that it was wasteful and bureaucratic. Labour also embraced the Conservative ‘Private Finance Initiative’ (PFI), which allowed it embrace a radical building plan for new hospitals, but without breaching their own budgetary rules. However, PFI deals were often negotiated locally, and where poor bargains were struck, this left the hospitals involved with substantial funding deficits running over decades.

In January 2000, the Prime Minister committed to increasing NHS funding to the European average, taking his cabinet (and Chancellor) by surprise, but, for a short period in the NHS’s history, giving it sufficient resources to avoid winter crises and reduce waiting lists. Then devolution happened, and the paths of the home countries started going down different routes. In England, performance management and markets reigned. In Scotland, a more collaborative route was taken. At the end of the decade, evaluations suggested that there was actually little difference in reported health outcomes between the two, again asking questions about whether reorganisations actually improve things at all.

Labour’s performance management changes included hospitals and GP surgeries. The hospital system was widely gamed, and seemed to lead to managers ‘hitting the target but missing the point’ at best, and at worst was probably a causal factor in the horrific events at Mid-Staffordshire with staff becoming so driven to hit targets that they forgot about patients. The early years of the GP performance system appeared to show promise, with GPs being consulted upon and engaging strongly with the system, but policymakers then extending it and introducing more bureaucracy until it became deeply unpopular. It has already been abolished in Scotland.

Labour’s new market for care created greater scope for private providers to enter in England, and paved the way for an extended version of it appearing from the coalition government after 2010, leading to huge controversy and expense. What is remarkable is how little there was to show of this reorganization by the end of 2017 – much of the attempt at driving further competition in the NHS has been slowly abandoned in the face of budget pressures and high profile cases of private provision failure. Reductions in budgets, have, however, led the return of winter crises and budget overspends.

The NHS is all about its staff, but relationships between the government and clinicians have gone through cycles of antagonism and co-operation. In the 1970s industrial action and threats to the provision of services dominated, with governments fearful of challenging doctors. In the 1980s staff protests continued, but with the government taking a harder line, until they ignored the doctors completely in introducing the internal market in the 1990s. The doctors got their revenge though, teaching the government the lesson that it is one thing to make policy, and entirely another to implement it. Labour’s funding increases in the 2000s appear to have led to a period of co-operation, before the 2010 coalition government’s reorganisation leading to a groundswell of opposition. Since then relationships between Secretary of State Hunt and the doctors, in renegotiating employment contracts or in demanding a ‘7-day NHS’ at a time of reduced budget settlements, have seldom been friendly. The basic lesson of industrial relations in the NHS, again not learned by politicians, is that it unwise to introduce new policies unless you have the co-operation of those that you will need to implement them.

By 2018 we’ve had 50 years of NHS reorganization. Mostly, it hasn’t really made things better. Indeed it is hard to see what lots of it was actually for. We still haven’t managed to find a way of overcoming the tensions of the tripartite split. We know we need more collaboration between local government and the NHS, especially as the demands on social care services increase and the lack of funding for it has real consequences for services currently paid for by the NHS. However, for many of us the boundary between health and social care is an artificial one that does not serve our needs.

What does seem to have made a difference is increasing the funding for the NHS in real terms in the 2000s, with a range of measured improvements coming along soon after, but which are in danger of disappearing in the more austere environment of the 2010s. If there is a big lesson from the history of the last fifty years it is that health reorganizations often do as much bad as good, but increasing the funding of the NHS has a much better chance of improving healthcare for us all.

A version of this article was first published on the Social Policy Association website

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Following the Budget we now see the effect of this austerity ridden economy on the future prospects of the UK economy, revised down to:

  • 1.5% – 2017
  • 1.4% – 2018
  • 1.3% – 2019
  • 1.3% – 2020
  • 1.5% – 2021
  • 1.6% – 2022

In March the forecasts were 1.6% in 2018, 1.7% in 2019, 1.9% in 2020 and 2.1% in 2021. These are major reductions in forecasts made in March this year.  What is the government hiding about the reasons for this sudden about turn in economic expectations? `

In considering issues of Health the basic question is willingness to pay. Related to it is what is the appropriate size of the state now running at 43%. 

I here quote from Polly Toynbee and David Walker’s excellent new book “Dismembered”.

“The NHS needs real-terms funding increases of 3.5 per cent a year to 2030 as a bare minimum.  To cope with changing demography health services will require a greater proportion of GDP to be spent on them, rising from 7.4 per cent to 8.8 per cent.  Is that such a big ask ?   The Nuffield Trust’s John Appleby says that such a rise would not put under undue pressure on general taxation and would still be less than many equivalent countries.  The Office for Budget Responsibility reckons most other things being equal, health spending in an ageing country will have to rise by 8 per cent of GDP over the four decades from 2020 or £156bn in today’s money.  A lot or a marginal addition (nearly £4bn a year) ?    That level of extra health spending comes from both the ageing population and technological advances and would apply regardless of the division between public and private sectors.

So let’s have an end to the interminable attempts from the right to push for health insurance or cash payments in place of our NHS: that’s fools gold, a recipe for hugely greater inequality in care, a ticket to bureaucracy  and waste, and, as the chaotic American system shows, a way of spending far more money for far less value”                                                                

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This branch condemns seven years of Tory austerity that has brought NHS to the brink;

regrets that the Tories have spent less than 1% per year while NHS costs rise by 4% leading to pay caps, rising waiting lists and tighter rationing nationally and in this constituency;

therefore we call on the Labour Party to stop austerity in the NHS and re-commit to increase the NHS budget in line with rising costs of new treatments, fair wages and increasing health needs, rather than the 2.3% average increase promised in the 2017 manifesto.

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Ministers have ignored a strident “winter warning” from NHS Providers – the body that represents NHS and foundation trusts. The government is determined to stick to their plan to freeze NHS budgets for the decade to 2020 even as costs and population rise.

England’s hospitals and other NHS providers warned that if an extra £350m were not found by August at the latest, we will face another winter crisis even worse than the situation last year.

It’s the middle of September, and there’s no extra cash, and none promised.

Nor is there any let-up in the brutal 8 years of frozen or below inflation pay for more than a million NHS staff. Hospitals and community health services are finding it increasingly difficult to maintain hard-pressed services, so hospital bosses are now being threatened with the sack if they don’t meet A&E targets despite the struggle to retain and recruit staff.

Theresa May’s government opted not to contest a vote on scrapping the 1% cap. But May has made clear that she will ignore the will of Parliament, meaning NHS pay levels will be further eroded as inflation nears 3%.

The combined impact of these policies can be seen in Oxfordshire. 110 beds have already been closed with connivance of local councillors, and now the local acute hospitals trust has revealed a further 92 are now closed for “safety” reasons (presumably staff shortages). The county already tops the league for delayed transfers of care. The impact of spending cuts is a system seizing up and increasingly unable to maintain key services.

The quest for massive, unprecedented cash savings is of course the backdrop to the 44 Sustainability and Transformation Plans (STPs) secretively developed last year. These plans hinge on “new models of care” which appears to centre on cutting and de-skilling staff, and downgrading, downsizing or privatising key areas of care to cut NHS spending – while maximising openings for private companies to scratch out profits from under-funded services. There’s no evidence any of this will be effective, of course.

The current round of massive reorganisation and pressure for ‘new models’ is a bonanza for management consultants who are coining in millions and effectively now steering many Clinical Commissioning Groups and trusts.

The latest step was the publication last month of hundreds of complex pages of guidance and draft contracts for ‘accountable care systems’ (ACSs) and ‘accountable care organisations’ (ACOs) — explicitly drawn from privately-run systems that first emerged in the US. Jeremy Hunt has on several occasions stated: “We need clinical commissioning groups to become accountable care organisations.”

Pace-setters on this among 8 vanguard Accountable Care Systems have been South Yorkshire & Bassetlaw (where five Clinical Commissioning Groups have created a ‘shadow’ ACS without bothering to ask the five local authorities to sign it off. It will become a legal entity before April 2018).

In Nottinghamshire the Sustainability and Transformation Partnership is spending £2.7m this year getting bungling consultant Capita and US health provider Centene to help shape up an ACS.

In each case the reality will be an Accountant-Controlled System, focused primarily on cutting services to fit within a rigid cash limit. Nottinghamshire could even wind up giving the US company a contract to do the CCGs’ job, controlling budgets and services.

Neighbouring Leicestershire Sustainability and Transformation Plan leaders claimed the local authority backed their Accountable Care System. But the County Council has denied this, and it’s likely that many elected councillors and MPs in the other “vanguard” ACSs will be equally reluctant to take political responsibility for plans which masquerade as “integration” of services but threaten to bring only declining quality and restrictions on access to care.

The STPs and ACSs all lack any legal status to force through cuts. Councils still retain powers to challenge and force a review of decisions that represent a threat to local health care services – and they must be pressed to use them.

However politicians – like the wider public – will remain in blithe ignorance over developments in the NHS – unless campaigners can pile on enough pressure and present sufficient compelling evidence to make clear what is happening.

There is more and more evidence to show which way things are going. It’s reported in Healthcare Europa that NHS England has surreptitiously decided to award all six of the NHS contracts for organising the new “Integrated Care” models to private companies. All but one are American-owned – the other, OptiMedis, is from Germany.

If this proves to be correct, Tory politicians will find it even harder to convince suspicious voters that they are not destroying our NHS with cuts only to open the doors to the ultimate horror: US-style health care. Even NHS-run ACSs represent a huge retreat from a national NHS to 44 local plans each with rigid cash limits and no remaining accountability to local communities.

Theresa May’s team has adopted an ostrich-style response to the rising cash crisis and its likely impact this winter. But it’s clear that many of her MPs, fearing they could lose their reduced majorities at the next election, are pressing hard behind the scenes for a reprieve for local services.

MPs have already forced significant retreats from hospital downgrades in north Devon and Essex. Cabinet minister Andrea Leadsom has backed calls for a reprieve for hospital services at Banbury’s Horton General, and may yet have something to say about Oxfordshire’s latest bed closures.

Many more Tory MPs need to be confronted by local pressure to force this weak minority government to back off on cuts and new models – just as they have been forced to drop privatisation of NHS Professionals.

We urgently need to build a big enough and strong enough movement to force politicians to take notice if we are to avoid a further irreversible decline this winter and ever-deepening crisis in the NHS.

That’s why Health Campaigns Together has called for the biggest-ever gathering of health campaigners on November 4 in Hammersmith Town Hall in a conference that will share information and experiences, link trade unions, pensioners and campaigners, and build networks that can unite and concentrate the strength of local campaigns.

We have nationally known speakers and local campaigners – and lots of time for workshops, networking and discussion. Join us: book your place now!

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We need better policy for the NHS. But we are not going to get it if the entire debate is a Manichean point scoring contest conducted entirely in shibboleths and lacking reasonable analysis of alternatives. Too many serious people seem to believe that everything in the NHS would be fine if we undid the Lansley act and spent a bit more money. That analysis is naive, is stopping serious discussion of what the real challenges are and is distracting people from improvement that could come right now.

I went to the recent Royal Society of Medicine event (the one where Stephen Hawking condemned Jeremy Hunt’s selective use of evidence on weekend mortality generating a flood of media commentary). There were a lot of serious, senior thinkers on stage and in the audience. I naively assumed that a debate about the past present and future of the NHS would contain some disinterested assessments of the real problems and their causes. What I found was a desire to blame all the problems on the government and/or longstanding conspiracies to destroy the system. There was a remarkable lack of serious analysis and a widespread belief that every problem would miraculously go away if we simply reversed government policy.

Once you have adopted this position, you are clearly absolved from doing any serious analysis of the state of the NHS and you don’t have to do any thinking about how to improve it. This is a catastrophic position for the NHS as it desperately needs some better thinking about how to improve.

The debate consisted of shibboleths not substance

Here are a few examples of just how futile that debate was.

Richard Murphy made some good arguments about the limits of government spending (in a sovereign currency area, he argues, we don’t need austerity at all). But he then argued that the reason why we have austerity is because of a neo-liberal conspiracy to shrink the state. Maybe some people want to do that, but this government are about as useful as a one-armed trapeze artist with an itchy bum and are not credible organisers of such a conspiracy. Assigning the blame to a deep rooted conspiracy lowers the credibility of the argument and absolves true believers from any further need to engage or analyse the difficult details of policy.

Many speakers, including Hawking, condemned any private sector involvement in the NHS as if undoing it would suddenly improve things. Nobody mentioned that the largest sector of the NHS run by the private sector (the GPs) has the highest patient satisfaction. Supposedly we must have public provision as we can’t trust the private sector’s motives. Somehow, though, the even more severe conflict of interest of working for the NHS while also running a competing profit making enterprise (as perhaps half of NHS consultants do) was raised once and then completely ignored.

Audience members heckled Nigel Edwards for pointing out that the “we must spend a higher % of GDP on health because our neighbours do” argument was undermined by the latest OECD statistics. There are good arguments for spending more but this isn’t one of them. Rather than recognise this, the audience and many commentators prefer to quote the old numbers because they bolster their argument in a way the better numbers don’t.

And a disturbing number of people advocated solutions to the current crisis that involve major legislative and organisational change. So reversing the current Lansley bill to make the Secretary of State directly responsible for the NHS and abolishing the purchaser provider split were widely supported. This is extraordinarily naive for two main reasons. Jeremy Hunt, despite not being directly responsible for NHS management according to the legislation, has been the most interfering SOS in recent history, directing individual hospitals to do what he wants in a way that would make even stalinist central managers like David Nicholson jealous. Secondly, the one thing we are certain of about major legislative and structural change is that it is extraordinarily disruptive and costly to the the NHS in the short term. We have had so many reorganisations in the last two decades that we still don’t know whether any of them have made any sustained difference to NHS performance. Despite this many are still arguing that we need another one.

Then there is the response to STPs. Simon Stevens (wisely I think) opted to try to do significant change in the NHS without new top-down structural change or legislation. But the panels and the audience broadly disliked the STP plans. Not because they are often poorly thought through or lack evidence that what they propose will work (though this is usually true) but because they are a trojan horse for American style Accountable Care Organisations which are a part of the conspiracy to privatise the system and put profits into the hands of american capitalist scumbags. Once you have a good conspiracy you don’t need to think any more about the actual content of STPs. Simon Stevens is clearly a trojan horse for United Health. Conveniently this absolves anyone from having to engage with the nasty operational details of STP plans (which would be well worth doing given how many consist of fairy-tale wish-fulfillment fantasies).

Many argued that the NHS was facing serious staff shortages. And this may well be true in many places. But Sarah Wollaston’s claim that this might be due as much to problems with retention as it was due to any lack of supply was ignored. The idea that weak operational management leading to high staff turnover might be the core problem didn’t seem to occur to anyone: it’s all about the supply of doctors and nurses and we can blame that on the government.

Again the debate ignored several relevant facts that would require actual analysis and thought. For example the biggest cause of increasing hospital deficits is the reliance of expensive agency staff to fill rotas. That’s not a staff shortage, that’s an inability to recruit or retain people on permanent contracts: a very different problem with the need for very different solutions. And it is hard to reconcile the belief that the major problems in A&E waiting times are primarily a staffing issue with the actual facts. Medical staffing in A&E has grown faster than demand for more than a decade while performance has declined. And it is hard to see how more A&E doctors can magically create more free beds (lack of free beds is the major cause of A&E delays not a lack of staff in the A&E). Anecdotes about the pressures and overwork facing front line staff point to a symptom of the problem not the cause of the problem.

Even the revered Stephen Hawking broke his own rules not to selectively quote evidence. He was right to condemn Hunt for his selective use of data on 7-day mortality. But then he proceeded to recommend NHS policies based on a highly selective analysis of the international evidence. Private provision of services is evil (because the USA’s health system is evil). But many health systems in Europe seem to do well despite much of the provision being run by organisations other than central government. The NHS is being pushed towards private insurance and we must resist that trend. But, though I hate to agree with Hunt on anything, there is no evidence this is happening. Moreover, though private insurance for health funding is bound to be less efficient that funding from taxation (so there is no good reason to move the NHS to that model) there are plenty of systems in Europe where compulsory insurance works well and has none of the damaging effects it has in the perversely badly designed US “system.”

In short the event was not a debate but largely consisted of a bunch of people exploring shibboleths that helped them decide whether they were on the right side in the argument. The trouble with shibboleths is they are arbitrary and irrelevant and seem to form a shield that avoids any need to discuss matters of substance about what policies might actually improve the NHS. Which side you are on is all that matters: whether you have anything of substance to add is irrelevant.

The NHS needs a serious debate on how to improve.

For example, how big should the key organisation units be? Nigel Edwards pointed out that we do have evidence for this and that the best-performing systems have units that are 10 to 20 times smaller than the NHS. If the NHS is run centrally, any policy mistake will affect nearly 60m people. That means mistakes have really big consequences (it also means that there will be pressure never to admit they were mistakes greatly inhibiting the speed of learning). Imagine a system where the organisational units were maybe 2-4m people (we could call them SHAs as we haven’t used that unit name for a while or we could just call them STPs). The scale of mistakes could be limited and the effectiveness of different policies could be compared, greatly increasing the possibility of learning and improvement.

But the audience and panellists would mostly have preferred a centrally-controlled monolithic system where the SOS always magically knew the right policy for everything. The idea that variation and experimentation with policies could be used to greatly increase the amount of learning and therefore drive much faster improvement was condemned as an excuse for a “postcode lottery”. This convenient shibboleth avoided any need to engage with that important issue of how we structure of the system.

Or, consider the problem of variation in quality and efficiency across the NHS. The evidence we have suggest that there is far too much variation and that the system isn’t good at learning from it or improving. The cause of this variation isn’t top-down structures or Jeremy Hunt, it is bottom-up operational management. For example, some parts of the system are good a diagnosing and treating patients who need hip replacements and other parts are not. Most significant improvement in the NHS probably comes because people find better ways to organise and coordinate the work in some single operational area. Even some GPs, who are supposedly overwhelmed because of staff shortages and government indifference, have found that reorganising how they receive and manage patient demand can create a lower workload, faster patient access and much improved patient satisfaction. All without central government having to do anything.

But the idea that improvement are possible is essentially ignored in the current debate. Even the idea that there is too much variation across the NHS is regarded as part of the conspiracy to undermine the system rather than an important metric that can point to what needs to improve and how to improve it.

In short, the widespread belief that the current government is the source of all problems has become an excuse not to bother thinking about how the improve the NHS now. Worse, even if the current government is replaced at some point in the future, there will be no good ideas on how to make the NHS better and we will likely be faced with yet another round of disruption that will deliver no tangible improvement when the smoke has cleared.

I’m no fan of Jeremy Hunt who has been a bad SOS. But his opponents are are as bereft as he is of good ideas to make the NHS better. What a woeful place the debate on the future of the NHS has become.

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Labour created the NHS in 1948 – and in 1997 it expanded it. Now the challenge is to make the case for more investment in both health and social care, so that our NHS can underpin a growing economy.

‘I pushed a box of tissues across the table to the elderly man who cried as he told me that he feared he would die before he got the heart operation his doctors told him he needed.’

Jacqui Smith recalling a constituency surgery appointment soon after she was elected as MP for Redditch in 1997. NHS patients waited and suffered in 1997. There were more than 1 million people waiting for hospital treatment, and delays of up to 18 months before treatment were still common.

People working in today’s NHS say that they haven’t seen such tough times since before 1997. Times when NHS care was rationed by delays in treatment; when, if you could afford it, you paid to have your elderly relatives operated on in private hospitals and when satisfaction with NHS services was low. Today’s Conservative government is reminding us what happens when funding and focus shift from providing timely access to health care. The NHS of all our great national institutions is particularly relevant to this publication. Women are more likely than men to come into contact with it through their caring responsibilities and comprise
more than three-quarters of its workforce.

The last Labour government improved both the quantity and quality of NHS care. Before 1997, data about patient safety incidents in England was not comprehensive. There was little focus on learning from mistakes and too little research to ensure we delivered the best in our system. Access to health care and a healthy life depended too much on where people lived and how much they earned. Whilst some mental health care had modernised, there was no systematic understanding about new ways to treat the many people with mental health problems. Stigma and prejudice against those suffering mental ill-health went unchallenged.

How did a Labour government rescue and reinvigorate the NHS which had been one of our greatest previous achievements in government? As we will see, it needed a considerable increase in investment – in staff, buildings and care. However it also needed reform to drive accountability to patients and a reinvigorated local leadership in the NHS and communities.

Labour in government: access and accountability

Waiting times for hospital care were a key issue in our 1997 election campaign – one of the five pledges on the famous card. On the doorstep, we talked to people about how we could cut NHS waiting lists by 100,000. This was achieved by 2000 – and we then went far further.

There was huge progress in speeding up access to hospital treatment, including for diagnostic tests and surgery, and improved access to GPs and other forms of primary care. By 2010 most people waited no longer than 18 weeks for diagnostics and treatment – down from the 18 months when Labour came into government. There were half as many people on waiting lists and their waits were far shorter. The shift was in part brought about by substantial increases in the number of operations and diagnostic tests carried out. Between 1998/9 and 2007/8, the total number of procedures carried out in hospitals rose from 6.5 million to 8.6 million.

The focus wasn’t only on hospital care. The NHS Plan in 2000 set a target for 2000 more GPs over five years. This ambition was easily met, with numbers increasing by 3,500 in that time. There were also more contacts with other primary care staff like nurses and pharmacists. These services were delivered in newly opened and renovated GP surgeries and increasingly in GP-led health centres.

How spending on health has slowed down Average annual increase in government spending on health

 

The improvements could not have happened without the decision by a Labour government in the early 2000s to increase investment in healthcare to bring us up to the EU average. The difference between the record on health spending of the Labour government and the Conservative governments which went before and came after is stark, as shown in this diagram from the Institute for Fiscal Studies. The size of the respective columns translates into staff, equipment, buildings, access and quality – and the effects of the cuts post-2010 is the pain people are feeling now.

With more money came more accountability. The performance management of acute hospital services of the NHS was rigorous during the Labour years. Arguably stronger targets in community and mental health care could have improved access there too. Targets drive performance, but they are also an instrument of accountability. When Labour ministers translated the needs of people to be able to get their care quickly – regardless of their ability to pay – into targets for the system, they were enforcing the founding values of the NHS.

Too often the system of targets has been characterised by opponents inside and outside the NHS as being about bureaucratic interference with the professionals who know best. In fact, it was about accountability and delivering people’s priorities more effectively. Despite people’s fears at the time, more local accountability was also achieved through foundation trusts, accountable to members and with elected governors.

However there remains a problem at the local level where too often commissioning has neither properly engaged local people nor really driven providers to deliver the health services those people require. In too many cases, commissioning has tended just to administer national priorities through a burdensome local process or even acted as an additional regulator in the system.

The last few years have seen a weakening of the ‘freedoms’ of foundation trusts. Those providing NHS services are not looking outwards to the needs of their local communities and patients, but upwards with trepidation to central government diktats and a range of regulators.

Choice and involvement

Patient satisfaction as measured by the British Social Attitudes Survey was at its lowest point in 1997 and then grew throughout our period in government. Labour also introduced the biggest survey of patient experience in Europe.

From 2001 onwards, it also became a government priority to provide patients with choice over where they received non-urgent elective treatment.

We introduced personal budgets and direct payments in social care. These have given thousands of older and disabled people, and their families, greater control over their care and support.

In 2009, we extended personal budgets in a pilot scheme for people with long-term conditions like stroke, diabetes and mental health problems. The evidence shows personal health budgets improve people’s quality of life, getting better results with the same amount of money. Where people had higher levels of need and larger personal budgets, their use of more expensive hospital services was actually reduced as they considered their options and made their choices.

Personal budgets can also be a powerful way of ensuring services are properly joined-up and keeping people well and living at home. Patients and families care more about getting the right help than which service or organisation provides it, and living day in, day out with a health condition means they often know best how to prevent it from getting worse.

Of course there are many situations where personal health budgets aren’t suitable. In an emergency, few people are in a position to make choices about their treatment.

However for the growing number of people with longterm health conditions, personal budgets – backed up with the right information, advice and support – can help make sure people’s views are taken into account much more than in the past. The shift in purchasing power from institution to individual works for everyone and provides choice for patients.

Choice has proved a controversial topic for some, but we would argue that the system does not yet deliver enough choice in a whole range of issues which affect the quality of care and patients’ experience. Surveys have revealed several weaknesses, including limited progress in delivering greater choice of treatments, especially for mental health patients, and those reaching the end of their lives.

Quality and safety

The focus put on patient safety and quality was an important step forward by the Labour government. Reporting incidents and learning from them is key for today’s successful health care providers even if there’s more to be done to ensure that the system focuses on accountability and learning rather than blame and fault. Initiatives such as the National Patient Safety Agency helped to highlight the need for clinical quality. The focus on getting rid of hospital-acquired infections marked an
end to the fatalistic view that there was not much that could be done, with instead an emphasis at national and trust level on safety.

More rigour was applied to establishing what worked best and should be delivered. With the National Institute for Clinical Excellence, the NHS made clear the criteria for the best medicines and treatments that people could expect across the system. After the NHS Plan in 2000, national service frameworks set out the types of treatment and care that the whole system should deliver. In mental health, for example, the development of new models of early intervention, crisis resolution, outreach and the introduction for the first time of talking therapies, transformed the quality of services.

Healthy lives

International comparisons of our health systems show the NHS performing extremely well on access and efficiency but less well on helping people to live healthy lives. It is a cliché, but nonetheless true, that we have developed an extremely successful national illness service, but have failed really to drive good health.

That’s not to say we didn’t make progress. Our teenage pregnancy strategy helped reduce conception rates among the under-18s to their lowest rates for more than 20 years. According to Cancer UK, Labour’s ban on smoking in public places helped an estimated 400,000 people quit the habit.

As with many public health developments, critics criticised the smoking ban for being part of a ‘nanny state’ and dubbed the women ministers who stewarded it through ‘nannies’. This is a gendered putdown to all those who considered that keeping people healthy was as important as trying to make them well again when they got ill. Perhaps it’s also why governments have made poor progress in reducing obesity or diseases related to alcohol. No targets were set and no serious government action was taken on these – and still hasn’t been.

The smoking ban was legislated and implemented by the Department of Health alone, but action on alcohol and obesity requires a cross-government approach. This has proved far more difficult to motivate and to lead inside government or outside.

Age discrimination was widespread in access to health services, especially to acute health care but this was only one aspect of health inequalities which Labour held to be completely unacceptable. Reducing health inequality became an explicit target for the first time and there was a focus on particularly deprived areas through initiatives such as health action zones.

Labour also took action to improve social care for older and disabled people. We pioneered new services to help older people stay living independently in their own homes, including through extra care housing and the Partnerships for Older People project. We championed more joined up NHS and social care services, introducing new care trusts for the first time. We introduced new rights for carers including the right to request flexible working, and improved information and advice for carers through the expert carers programme.

Closing health inequalities remained unfinished business. While life expectancy is growing across the population, it was and is still growing fastest for the better off, so the gap is widening. The barriers still haven’t been properly broken down between the NHS and the other services that are needed to improve health standards in the most deprived communities. We need a wider approach that looks at economic and other social factors such as housing, and Labour was impatient in government to achieve this.

The future

But that was then. There were of course discordant voices.  Not all of our reforms were welcomed, or went far enough, or were fully implemented or sufficiently funded. However, the commitment of Labour in government was absolute, and the progress in those years was from a much-loved but battered health care system to one that was delivering to the higher expectations and standards of the 21st century.

The Tories’ onslaught on the NHS started immediately after the election. A divisive reorganisation, unprecedented in its scope and scale, drained an estimated £3bn away from frontline services, demoralised staff and diverted attention from the prime purpose of improving health outcomes. That was on top of the cuts in the growth in NHS spending shown above, so that budgets failed to keep pace with population increases, let alone rising costs or public expectations. There was an ideological onslaught on the notion of target-setting, seen as part of a Labour ‘legacy of bureaucracy’: until earlier this year when the King’s Fund warned that after seven years
of Tory and coalition government, a record 4 million people were waiting for operations. Two decades earlier Labour had committed to cut waiting lists – and delivered on that pledge.

In future, the biggest challenge for our health and care system is how we fund it. The NHS is partly the victim of its own success – people survive diseases which would have killed them in previous years, but they live longer with chronic diseases which need managing. We can do more for people when they are sick and they rightly expect that.

Labour must win the argument for more investment in both health and social care: these are not two separate services but are inextricably linked. We must also make the case that the NHS and social care don’t just consume resources – they are vital to underpinning a growing economy. Helping people to stay fit and healthy for longer as our population ages, and providing decent support for carers, many of whom work as well as care for their loved ones, is as essential for our economy as it is for patients, users and families.

We have a unique asset in the NHS. There are few health systems globally in which there is potential access to so much data about the causes and cures of ill health and so much opportunity for trial and research. This government has bungled the issue of how we use patient data. We have a real opportunity to drive research, life sciences investment and jobs using the model of the NHS. Most importantly, this also provides the opportunity to find the personalised, effective treatments and technologies to put the NHS at the forefront of health care in the years to come.

In both health and social care, we need to finish the job of shifting choice and power to people. Giving service users and their families far more say and control should be at the heart of Labour’s future approach to health and social care.

People’s health often improves when they feel they are in control. We believe everyone, regardless of income, should have the same advantages as wealthy people who are able to choose the kind of care and support they need.

The people who know best how to join up their services and support are users and their families, because they don’t see their needs through the prism of separate service silos. Developments in technology can help this to happen. Our best trusts already use technology to enable patients to access their care plans and records – and to share in decisionmaking. We are already developing apps to enable patients to organise their own follow-up treatment and ongoing care. This should be the norm for all who want it across health and care.

Users are often the strongest champions of prevention, because they are the ones who suffer the consequences if services fail to intervene early on.

And it is service users and their families who are frequently the toughest critics of inefficient services because they see the duplication and bureaucracy that wastes public money which would be better spent on improving their lives.

Making ‘people power’ a reality will require a profound change in the culture of our public services. It is not a £10 charge to see a GP which will ensure people take responsibility for their health, it’s real information, choice and power. In future, people can’t be seen either as passive recipients of services, or as purely consumers. Instead, they must become genuine partners in co-designing and co-creating their care and support.

For this to happen, neither the old state-driven nor predominantly market-based approaches to public service reform will work because both can end up disempowering people.

Instead the new state will understand that people are genuine citizens with whom power and responsibility must be individually and collectively shared.

We should look back to 1945 with pride at what we created in the NHS, and to 1997 when we built on that legacy. But we also need to be able to look forward with optimism about what is still to come for this unique Labour achievement.

This essay first appeared in This Woman Can. 

It was written jointly with Liz Kendall, but our software can only cope with one author.

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 How We Can End the PFI Rip Off

Next time you have an appointment cancelled at hospital, or a headteacher tells you their school will be losing staff because of budget cuts, ask how much PFI debt they have – the answer may surprise you. My hospital trust, in north-east London, spends nearly £150m a year repaying its PFI debt – nearly half of which is on interest payments. If Theresa May is serious about taking on the unacceptable face of capitalism, she could save Britain a fortune if she goes after the legal loan sharks of the public sector.

New research from the Centre for Health and the Public Interest (CHPI) shows just how much these debts are hurting our NHS. Over the next five years, almost £1bn of taxpayer funds will go to PFI companies in the form of pre-tax profits. That’s 22% of the extra £4.5bn given to the Department of Health in the 2015 spending review, and money that would otherwise have been available for patient care.

The company that holds the contract for University College London hospital has made pre-tax profits of £190m over the past decade, out of the £725m the NHS has paid out. This alone could have built a whole new hospital as 80% of PFI hospitals cost less than this to construct. This is not just about poor financial control in the NHS – UK PFI debt now stands at over £300bn for projects with an original capital cost of £55bn.

Private finance initiatives are like hire-purchase agreements – superficially a cheap way to buy something, but the costs quickly add up, and before you know it the debt is crippling.

For decades, governments of both main parties have used them for the simple but ultimately short-sighted view that it keeps borrowing off the books – helping reduce the amount of debt the country appears to have, but at great longer-term expense. Its now painfully clear that the intended benefits of private sector skills to help manage projects have been subsumed in the one-sided nature of these contracts, to devastating effect on budgets.

No political party can claim the moral high ground. The Tories conveniently ignore the fact that these contracts started under the John Major government – and are expanding again under Theresa May, with the PF2 scheme. Labour veers between defensive rhetoric that PFI was the best way to fund the investment our public sector so desperately needed during its last government, and angrily demanding such contracts be cancelled outright, wilfully ignoring what damage this would do to any government’s ability to ever borrow again.

It’s time to grasp the nettle and get Britain a better line of credit. That requires both tough action on the existing contracts to protect taxpayers’ interests, and getting a better deal on future borrowing. Some have already bought out contracts – Northumbria council took out a loan to buy out Hexham hospital’s PFI, and in doing so saved £3.5m every year over the remaining 19-year term. But as the National Audit Office has shown, gains from renegotiating individual contracts are likely to be minimal – what is saved in costs is paid out in fees to arrange.

However, the CHPI research also shows up another interesting facet of PFI.  Just eight companies own or appear to have equity stakes in 92% of all the PFI companies in the NHS. Renegotiating not the individual deals done for hospitals or schools, but across the portfolios of the companies themselves could realise substantial gains. Innisfree, which manages my local hospital’s PFI and others across the country and has just 25 staff, stands to make £18bn alone over the coming years. If these companies are resistant to consolidating these loans into a more realistic cost, then it’s time to look again at their tax reliefs, or – given the evidence of excessive profits in this industry that shareholders have received – resurrect one of New Labour’s early hits with a windfall tax on the returns made.

Longer term, we need to ensure there is much more competition for the business of the state. Despite interest rates being low for over a decade, these loans have stayed stubbornly expensive. The lack of viable alternatives – whether public borrowing or bonds – gives these companies a captive market. If the government wants better rates, it needs to ensure there are more options to choose between, whether by allowing local authorities to issue bonds, or reforming Treasury rules that penalise public sector borrowing in the first place.

As our public services struggle under the pressure of PFI, Labour must lead this debate to show how we can not only learn from our past, but also provide answers for the future too. The government has already spent £100bn buying the debt of banks through quantitative easing. With Brexit expected not only to add £60bn to our country’s debt but also affect our access to European central bank funds, taking on our expensive creditors is a battle no prime minister can ignore in the fight to stop Britain going bust.

This article was originally published by the Guardian newspaper on Wednesday August 30th 2017.

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