It's the Economy, Stupid by Vicky Pryce

Author:Vicky Pryce [Vicky Pryce, Andy Ross and Peter Urwin]
Language: eng
Format: epub
ISBN: 9781849548793
Publisher: Biteback Publishing
Published: 2015-01-15T00:00:00+00:00

Bad economics can be politically attractive

The political parties might try to woo the electorate, again, by extending the gimmick of ‘ring-fencing’ the NHS budget. That might be good politics, as it impresses a deceived public, but it is very bad economics for several reasons. Firstly, ring-fencing in cash, or even with the usual inflation measures, is largely meaningless. It is simply another popular myth that the coalition has ring-fenced the NHS in real terms. By historic standards, it has been and is being severely cut. Since 1950, health spending has grown at an average annual rate of 4 per cent; the current so-called ring-fencing will see an average rise of just 0.5 per cent. That is not nearly enough to keep up with the demands upon the NHS and to meet its own higher-than-inflation cost increases, so there has actually been an effective cut of about £16 billion. If the NHS receives similar flat real cash settlements in the next parliament, this real cut will increase to £34 billion, or 23 per cent over the first three years. So recent pledges of more for an NHS ring-fenced budget have been little more than catch-up and a political exploitation of the public’s lack of understanding of the relevant economics.

Secondly, as we have seen, our health depends on a lot more than just NHS medical treatments: to ring-fence just part of the spend that supports our health will take us further away from equalising marginal returns, and so make health and social care spending more inefficient, especially if the health bit is preserved at the expense of social care. In fact, the last Labour government did significantly increase spending on the NHS to bring it up to a European average, and NHS net expenditure (resource plus capital, minus depreciation) increased from £57 billion in 2002/03 to £105 billion in 2012/13, but any economist will tell you that the best place to look for waste is in the areas that were previously expanded most rapidly.

Equally, setting targets for waiting times is another populist gimmick that is usually bad economics. Labour did it and Jeremy Hunt, the current Health Minister, has recently announced £250 million to focus on ‘long-waiters’,14 even though it will mean the NHS will miss eighteen-week waiting-time targets over the coming months. In practice, such targets tend to distort what should be left to clinical decisions on priorities and they often create perverse incentives. For example, the easiest way for a GP to reduce the waiting time for appointments is to simply refuse to let anyone book an appointment more than a few days in advance! Hunt blamed the former Labour administration for imposing ‘perverse’ incentives, which he said had led hospitals to prioritise those who had not been waiting long over those who had; his arbitrary imposition of a limit will invariably create anomalies where the target overrides a clinical priority. Unacceptable waiting times are a symptom, not the disease.

The solutions to the funding gap are easiest for those who don’t much approve of the NHS in the first place.

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