Ten years of health reform: from market, to plan, to market again?

By Professor Kieran Walshe. Co-Director of the Centre for Public Policy and Management

Summer 2007

Who would have predicted when Labour swept to power in 1997, that 10 years later they would be engaged in radical pro-market reforms and privatisation in the NHS of a kind which make past Conservative efforts look timid by comparison?

Having entered government in declared opposition to the internal market, private financial involvement, GP fundholding, and so on, Labour has travelled a long but essentially circular path and now finds itself engaged in creating a National Health System in which government funds, regulates and oversees health services, but healthcare provision is increasingly in the hands of a diverse and plural group of organisations – like foundation NHS trusts, social enterprises, voluntary and charitable organisations, and for-profit companies. Patients will face not the monolithic monopoly of state provision which was the NHS, but a profusion of choice (sometimes empowering, but often also bewildering or confusing).

The ideological trajectory for Labour should be seen in an international, and especially a European context. These changes are not especially radical – they simply make our health service look more European in its adoption of a broader range of corporatist and social strategies for funding and delivering healthcare, in which central government coordinates, oversees and directs but does not attempt to own, run, manage and control the whole healthcare system.

Labour’s greatest achievement of the last decade is undoubtedly the brave and necessary decision to spend more money on the NHS. With great skill, they created a political climate in which the evidence-from the Wanless report – and the wider economics combined to allow them to put up National Insurance to pay for a better NHS, with more or less universal public and political support. By increasing the share of GDP that we devote to healthcare (from around 7% to around 9.5% – the average in Europe) they nailed two lies. One was that our NHS was cheap but efficient, and we got better value for money through our parsimony in the past. The truth was we had a cheap and nasty health service, in which endless economies left patients untreated and clinicians frustrated. The other was that we could not afford to pay more through general taxation, and the only way to increase spending on health services was through some kind of private supplementary insurance scheme. We are now spending more – and the rewards in reduced waiting lists, better services, and brand new buildings and facilities are at last evident to everyone. But the uncomfortable reality which is now dawning is that simply spending more is not enough – that even countries like France and Germany which still outspend us by a considerable margin face hard decisions about what treatments they can afford to fund, and how to control spending growth.

Labour’s greatest mistake of the last decade was to become embroiled in a dizzy succession of NHS reorganisations and restructurings, in which half-baked new ideas were heaped upon one another and baffled NHS managers were left to struggle to implement often mutually contradictory policy initiatives (on chronic disease management versus payment by results, for example; or on patient choice versus practice based commissioning). At times, Labour seemed to think that the more policies, initiatives and reforms it had, the better. It created new regional directorates of health and social care, and then abolished them within months. It set up 300 PCTs, then decided within two years that it only needed 100 of them. It abolished health authorities and created strategic health authorities, and then reorganised them. The hard lesson for Labour is that policy is all about implementation, implementation, implementation. Some of Labour’s best ideas – foundation trusts, and activity-based funding for example -have been profoundly damaged by incompetent, ill-thought and poorly managed implementation. The recent NHS financial crisis in late 2006 with the discovery of a £600 million overspend was more a result of policy incoherence and a failure at the centre to cost and manage major projects (like the consultant and GP contracts, Agenda for Change, and Connecting for Health) properly than it was of any weakness in NHS management at a local level – though, unsurprisingly, NHS managers found themselves taking much of the blame.

So – looking to the future – what should government of either persuasion do next with the NHS? There is a broad political consensus about the future direction of travel, and little to separate the two main parties in their thinking about health services in England. But securing the future of the current reforms requires two steps. First, we need to redesign the legislative and institutional relationship between the Department of Health and the NHS, in order to provide a sound footing for a more diverse, plural and locally controlled health service. NHS organisations need to become more governed and owned by the local communities which they serve, and this means constraining the opportunities and pressures for national government to intervene and to direct. Second, we need to revisit the way the NHS is funded, to explore how best to share the future costs between patients, the public, employers and others. Without prejudging the outcomes of such deliberations, they might produce a system of funding which was less wholly reliant on general taxes raised by central government, made more use of hypothecated or dedicated taxes to fund healthcare, and tackled the thorny issue of user fees or copayments.