2018 07 Editorial – Funding the NHS

The NHS’s Magic Money Tree

The NHS was set up on 5 July 1948 under the Attlee Labour government, with Aneurin Bevan as Minister for Health. It was strongly opposed by most doctors at the time. The Conservative party voted against the National Health Service Bill 1946 on 21 occasions, including the 2nd and 3rd Readings. However, it is now firmly established as the archetypal British institution.

Historically, the Conservatives in government and opposition have paid mere lip service to what is widely regarded as the jewel in the crown of Britain’s public services. A ‘national treasure’ is how the NHS is perceived by the British public and echoed by politicians of the left and right. Former Conservative Chancellor of the Exchequer Nigel Lawson once said the NHS was ‘the closest thing the English people have to a religion.’ But the fine words of Conservative ministers have not, until now, been reflected in concrete action.

The announcement by Theresa May, in a speech at London’s Royal Free hospital on 18 June, that the NHS in England will receive an extra £20bn by 2023/24 came like a bolt out the blue. And was a promised timed for a year after the next general election is due, please note. It was just over a year ago during the 2017 general election that she told a nurse, angry at the cap on nurses’ wages, “There isn’t a magic money tree that we can shake that suddenly provides everything that people want”.  But with austerity still broadly in place, albeit with some relief for certain sections of workers, including some NHS staff, money has been found to increase NHS funding over the next five years, including the windfall by 2023/24. So what has happened?

With the government in trouble with its rebel Remainers and with progress on the Brexit talks stalled, Theresa May needed to offer a positive sign to her critics in the Conservative party. Consequently, on 17 June, Downing Street tweeted ‘Our long-term plan for the NHS. Funded by the Brexit dividend, with us as a country contributing a bit more.’

Theresa May claimed that once Britain leaves the EU there will be a surplus of money to spend on the NHS; the so-called Brexit dividend. But independent ‘Think Tanks’ like the Institute for Fiscal Studies, IFS, seriously question this. The IFS argue that “Brexit has reduced rather than increased the funds available for the NHS (and other public services) both in the short and long term.” And, in a pre-emptive tweet, Anita Charlesworth, director of research and economics at The Health Foundation, said, “In case talk of Brexit dividend comes up in discussion of NHS funding thought I’d retweet excellent @PJTheEconomist piece explaining in his wonderfully clear way why there is NO Brexit dividend. NHS needs extra funds but it’s taxes not Brexit that will have to pay for it.”

Britain leaves the EU at the end of March 2019, but there will be a transition period of at least two years during which it will continue to pay £9bn a year to Brussels. During the EU referendum the Leave campaign claimed, falsely, that the £350m a week contribution to the EU could be spent on the NHS. May’s boast of a Brexit dividend to help fund the £20bn, equivalent to a little under £400m a week, carries as much conviction as the message on the Leave campaign’s bus. To complicate matters further, Health Secretary Jeremy Hunt has said that the planned increase is conditional on the NHS showing it can make more efficiency savings. This seems to suggest that the disastrous reorganisation which took place under the Coalition government of 2010-2016 will have to be at least partially dismantled.

Assuming there will be no Brexit dividend there are only three ways in which extra funds for the NHS can be found: through further cuts in public spending, higher borrowing, or tax increases. All three present the government with a problem. Most departmental budgets have already been cut to the bone, leaving little room for further savings. Borrowing is at a record high and the government’s fiscal rules prevent it from taking on more debt. This leaves tax increases, an anathema to Conservative politicians unless they can be introduced under the radar screen in the form of so-called stealth taxes, such as National Insurance contributions. Or if planned increases in income tax allowances and reductions in Corporation tax are deferred.

Tax changes, whatever form they take, will mean the breaking of promises in the Conservative’s 2017 general election manifesto.

Since the inception of the NHS in 1948 the average growth in government funding has been 3.7%. This includes average growth of 5.9% under the 13 years of the Blair/Brown government. Over the last eight years of a predominately Conservative government average growth has been 3.3%, which the NHS needs just to stand still. The planned increase in spending in England alone will increase that by a mere 0.1% to 3.4%, lower than the historic average for the UK as a whole. The IFS have said that a 5% real-terms increase is needed to effect real change in the NHS. Furthermore, the planned increase leaves out funding for social care which the Local Government Association has said is essential if the NHS is to work effectively.

The government have recognised the vital link between health and social care. Jeremy Hunt is now the Secretary of State for Health and Social Care. What is missing is adequate funding of social care. An increasing ageing population has heaped pressure on the NHS. Many elderly people are cared for in hospital, when they could be looked after in the community by specialist nurses and even by their families. This would release beds for emergency patients. But extra funding, not forthcoming so far, is needed for this.

Jeremy Corbyn has raised funding of the NHS and social care repeatedly in the House of Commons at Prime Minister’s Questions, with Theresa May refusing to provide direct answers. Consequently, Labour was outflanked by her promise of a £20bn increase in NHS funds. Within hours of the announcement Labour quickly revised its plans for the NHS and claimed it would match the Conservative’s £20bn and add it to what it had already promised. Shadow Chancellor John McDonnell said a Labour government would increase spending by 5% a year. Labour has set out its costings for funding the spending increase, but nevertheless is under fire for its optimistic forecasts of revenue from savings and taxes.

Theresa May’s plans for extra funding for the NHS suggests she understands that the NHS is her party’s Achilles heel. In wrongfooting Labour, by pledging extra money for the NHS, she hopes that voters will believe her when she says, as she often does, that the NHS is safe in the hands of a Conservative government. In opposition Labour must continue to challenge this and set out a detailed plan, realistically funded, for the future of the NHS and social care.