Funding the National Health Service (NHS) – Mark G. Hayes

iFrom the perspective of Catholic Social Thought (CST), the National Health Service (NHS) does pretty well. As an exercise in solidarity promoting the common good, it  hard to gainsay; and, the Catholic Bishops want ‘a robust National Health Service on which we can all rely’. In terms of human dignity, David Cameron said at the pre-Election Question Time that he had experienced love in the NHS: a statement that not even the most cynical pundit has lampooned. As a current beneficiary of intense NHS care, I find myself in agreement with Cameron, even if its almost military procedures jar with our modern convenience culture. While all large institutions can be insensitive to individual needs, I have found its large-scale systems flexible and responsive and the commitment of individual staff to patient dignity highly visible even on a six-bed public ward.

On subsidiarity – the fourth pillar of Catholic Social Teaching, after human dignity, solidarity and the common good – the NHS is more open to challenge, although the case is by no means cut and dried either way. Subsidiarity means, on the one hand, allowing us as individuals to take responsibility for our own lives yet, on the other, empowering institutions at state and intermediate level to act for us where they are more effective. The NHS was born at a time of unprecedented confidence in the state and survived the turning of the tide of opinion against nationalisation. For most UK citizens, it is now self-evident that the state is the only body capable of providing universal health insurance. Philip Booth points out genuine alternatives and claims we die younger because of the NHS, although we spend less on the NHS than do the market-based systems with which he makes this comparison. Because the NHS was founded long before the 1967 Abortion Act, British Catholics, unlike Americans, have been spared the pain of seeing their Bishops argue publicly against it, even if Cardinal Griffin did secure exemption from nationalisation of the few Catholic hospitals in 1948.

After 7 May, the Government will face the issue of the long-term funding of the NHS. Frank Field and colleagues have argued that its survival depends on a new covenant with voters, a stronger connection between public services and how they are paid for. Paul Kirby pushes Field’s argument to its conclusion, that National Insurance (NI) should become National Health Insurance, since NI contributions raise about the same as the cost of the NHS. The case for this has become stronger since the last Government removed the last vestiges of the contributory principle in the case of Jobseeker’s Allowance and the State Pension. Indeed George Osborne was rumoured to be thinking of abolishing National Insurance as no more than another form of income tax. On the contrary, this established method of collecting revenue is an opportunity to fund the NHS in a contributory fashion, yet progressive in terms of income distribution and remaining free at the point of need. National Insurance for National Health is a big idea that might garner cross-party support over the next Parliament.

Indeed some link to funding the NHS always existed and Gordon Brown raised NI contributions by 1% in 2002 to pay for increased NHS spending – but handed over only half the money. One problem with ‘hypothecation’ is that you have to be serious, as India Keable-Elliott argues; there are also many technical issues that would need ironing out and no revenue system is ideal. Yet the single biggest obstacle is political – that the Treasury hates the idea because it transfers power: exactly what the principle of subsidiarity is all about. Frank Field envisages an NHS mutual with trustees independent of government and directly accountable to the public: rather like the BBC, where the licence fee is an example of both the strengths and the political vulnerability of hypothecation. Logically the NHS mutual would need power to set the rate of contributions, perhaps through something like Church of England Measures subject to the approval of Parliament.

The NHS is like a string quartet: there is limited scope for increases in productivity either in a performance of Mozart or in nursing care. This is true of all personal services and gives rise to what economists call the Baumol cost paradox, meaning that the price of services, private or public, rises in terms of manufactured goods. In other words, services cost an increasing share of income. The economics is clear: unless new technology increases productivity at a rate unprecedented for personal services, the NHS will continue to need an increasing share of our income because of entirely legitimate demands, for healthcare by us and for UK-competitive salaries by healthcare workers. The idea that the NHS needs ‘only’ an £8bn increase in its annual budget over the next 5 years assumes a very challenging £22bn of annual efficiency savings can be found.

So the fundamental problem is political: how can public consent be obtained to raise the revenue necessary to maintain a universal health service? Put another way, how can the pressures be resisted, to cut down the NHS to a safety net for the poor while those who can, take out private health insurance? The principle of subsidiarity suggests a solution may lie, not in yet another round of internal NHS reform, but in vesting the ownership of the NHS truly in the people rather than the state.

Mark Hayes holds the St Hilda Chair in Catholic Social Thought and Practice and lectures on macroeconomics in the University of Cambridge.  More information can be found on the contributors page or the Department website.