Funding the NHS and other public services.

The first and easiest thing to say, as I did in my election address, is that UKIP is the only party able to fund adequately the NHS and other public services on account of the money we will save by coming out of the European Union, by transferring overseas aid to the charitable sector, by imposing a turnover tax on global companies and a number of other measures. Nigel Farage has committed £3bn of this to the NHS, which leaves plenty for other things, including tax cuts. He has also reiterated that we want a publicly owned, publicly funded and in-house managed NHS. I fully endorse both of those statements.

However I want to take a longer term look at the options available with a view to attaining the highest standards of health care in this country, free at the point of delivery for all, whilst at the same time reducing the burden on the taxpayer. UKIP stands for small government and low taxation, so any improvements in management and funding efficiency are a step in the right direction. I shall address issues to do with the way we manage our public services in a future article. In this article I shall concentrate on funding.

The main efficiency problem with all our public services is that they are monopolies. No monopoly has any incentive to be efficient unless it is underfunded, in which case shortages develop. These can take the form of prolonged waiting times, hasty attention or, in our schools, large class sizes. You can only achieve both sufficiency and efficiency at the same time in an open competitive market. That is an economic truism. A quick look at supermarkets will illustrate what I mean. Whilst not everyone likes the impersonal nature of supermarkets, I don’t think many will dispute their high standards or value for money. When you go to a supermarket you don’t have to make an appointment, book or stand in a queue (except at the checkout perhaps); you can drive straight in and park, find what you want already waiting for you on the shelves, and on the odd occasion where this is not so you can drive a few miles down the road to another one where it will be.

It is important to understand that such a situation would drive a Treasury mandarin mad, because of course in the public sector he would regard it as over-provision and thus a waste of taxpayers’ money. Competition only really kicks in when supply exceeds demand, because that is when customers truly have a choice. It’s no good trying to reproduce this in the public sector because you could never produce a wide enough range of customer choice. In the private sector, when a new product market develops, such as for mobile phones for example, the first supplier into that market makes huge profits. However those profits attract other entrants until the level of supply rises to and overtakes the level of demand. From then on weaker suppliers are likely to find the going much tougher and may not survive.

Privatisation only works where whole new marketplaces are created, involving multiple suppliers and multiple customers all interacting with each other. That is what happened with the public utilities in the 1980’s with huge improvements in efficiency, as anyone who can remember previously having to wait weeks for a new phone line from the old GPO can confirm. Whereas if you try to outsource a service from a monopoly you will just end up with an outsourced monopoly, which will be as tempted to profiteer as any other monopoly. Just look at what happened to the court interpreters for example. The Ministry of Justice outsourced the provision of interpreters to a single private agency, presumably thinking that the cheap price they achieved was a reflection of their purchasing power. In practice the new agency simply reduced the fees it paid to the interpreters, until eventually the interpreters decided it was no longer worth the candle and simply stopped working. As a result the supply of interpreters dried up and the courts were left in chaos. Much the same sort of thing happened with security at the Olympic Games, where eventually the Army had to step in to fill the gap.

Outsourcing is used effectively in the private sector, as for example where a company outsources its IT department, but this only works because the person purchasing the service is also the person receiving it. They can then see immediately if quality of service is failing and react to it, ultimately if necessary by cancelling the contract for breach of its provisions. In the public sector this does not work because the person receiving the service, you and me, has no relationship with the person commissioning it. The feedback loop is entirely missing. Not only that, workers tend to have much greater loyalty and are much more likely to go the extra mile where they feel they are part of an organisation that people respect and need.

So where does this leave health, education, legal aid, care and support for the elderly, child care and a host of other such services? Are we doomed to having to put up with inefficient monopolies for ever?

I don’t think so. An open competitive market inevitably will produce higher standards and better value for money, and people are often prepared to pay for that. You only have to look at the survival of independent schools to see it. The question is can we likewise encourage the private sector to compete and grow alongside public services such as the NHS without directly impinging on them, but do so in a way where the private sector alternative is also free at the point of delivery?

Further, can we do this so that the patient or other user can make an affordable choice, available to all without exception, between the sectors without requiring bureaucratic approval? The pitfalls were clearly demonstrated in the case recently of little Aisha King and his brain tumour, where his parents could only find the treatment he needed in the private sector. Yet it took a huge amount of political pushing and shoving to get the NHS to pay for it.

I believe the answer to this is yes. I envisage the issue to everyone of a national credit card which can be used to pay for ‘public’ services from the private sector. The use of a credit card effectively makes the service free at the point of delivery. These services would be approved in principle, and suppliers would most likely most easily be accessible through a comparison website, which would check credentials and assess reputations on an ongoing basis. It would preferably act on a ‘blacklist’ basis so as to minimise barriers to entry, unlike the ‘whitelist’ approach, requiring expensive prequalification, favoured by New Labour and the European Union, which has quite the opposite effect and encourages profiteering.

So you slap all your purchases onto your credit card, without limit, and the government, as the credit card agency, pays them without question. However, come the end of the tax year, when hopefully you are back home fully recovered, the taxman will look at how much you have spent on your credit card, will do your tax assessment in the normal way, put the two together, apply a means test and then charge your affordable share of the cost back to you through the tax system, which for most people would mean an adjustment to their PAYE code. This is in fact just an adaptation of the old voucher system which has been mooted since the 1950’s, updated to use modern technology.

So everyone would pay something. Even people on benefits would pay a pound or two, because this is necessary to ensure a proper ‘value-for-money’ purchase decision. Benefits would be treated as income for the purposes of the means test and the charges deducted from future benefit payments as necessary. It is this decision which drives efficiency and quality, and prevents waste and over-usage. Past attempts at giving users choice have concentrated on quality only, which doesn’t work because you cannot all use the ‘best’ supplier! The system would not of course work for security and other establishment services as they have to be imposed rather than chosen.

Alongside this I envisage the setting up of a dedicated wealth fund for the NHS and wider health service, perhaps to the tune of £30bn or so and perhaps called the National Health Fund (NHF), by issuing 30 year gilt-edged securities, currently costing less than 3% pa. The more astute of you will have noticed the heavy working capital requirement of the credit card system, but in addition to that the NHS itself and many hospitals within it are desperately in need of recapitalisation, there are new medical schools and nursing colleges to build and PFI contracts to buy out. I envisage investing about half this sum with a range of City asset managers so that over 30 years it is likely to produce a surplus sufficient to repay the loan in full and all the interest thereon, leaving the other half to spend.

It may take some time for confidence and supply to build up, and the means-test rates could start quite high initially to ensure an orderly introduction. This would encourage users to take out insurance against the retrospective charges, which means both that insurers cannot interfere in the treatment and that the premiums themselves are in effect means-tested. By about year fifteen the charges should be producing additional income well in excess of £10bn a year. As users migrate voluntarily across from the NHS its budget could be reduced, and not all of that money need be transferred to the fund since the fund will be receiving the charges via HMRC as well. The excess can be used to fund other public services and reduce taxes.

I envisage that the NHF will be managed by the Department of Health subject to the restriction that any shortfall in the funds required for redemption must be made up progressively after year fifteen from the additional income. I also envisage that similar funds be set up for other public services such as education, care and support for the elderly, child care and legal aid. Once education is put onto the credit card system it would bring to an end finally the toxic social divide that still exists between state and independent schools. Although the most famous schools might decide not to accept the card, I am sure the majority of independent schools would do so as it would both secure the collection of fees and bring greater stability to the pupil population, since if a parent were to fall on hard times mid school career no one would know except the taxman. All parents no matter how poor could thence choose an independent school for their child if they so wished.

Those on the left may be worried that this will produce a two-tier system, or that the profit motive will undermine quality of service and accessibility. I believe these worries are unfounded. A two-tier system is only a problem where demand exceeds supply, whereas the whole point of this system is that we get away from shortages and restrictions on access, promoting a free choice for all between the two sectors. Furthermore there is a difference between profiting (good) and profiteering (bad). Profit can only be made in an open competitive market if you satisfy your customers. Why does it matter if a supplier makes a profit if they are providing better value for money? Whereas profiteering occurs where supply is restricted. Indeed the Treasury is profiteering all the time by cutting expenditure which in turn undermines quality of service. It is time to bring that to an end.


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