The IFS “observation” on funding Scotland’s NHS ignores the key risk to the NHS within the UK

one_nhsBy Jim and Margaret Cuthbert

On 11th September, Paul Johnson and David Phillips of the Institute for Fiscal Studies produced an “observation”, (their description), on the question of the funding of the NHS in Scotland. This was widely hailed in the media as an authoritative “report”, casting serious doubt on the claim that the future of the NHS in Scotland was at risk in the event of a “no” vote. It also added apparent credence to Gordon Brown’s “I’m going to nail the lie” speech on the NHS.

Remarkably, however, as we will see, the IFS observation makes no reference whatsoever to the central danger to the NHS in Scotland under continuation of the union: namely, that privatisation of health provision in England, would, via the Barnett formula, impose such severe financial constraints on the Scottish budget that a future Scottish government would be forced down a privatisation road. Since they do not deal with this central issue, the IFS document is actually completely irrelevant to the current debate. However, because of the uncritical coverage it received in the media, its flaws have to be exposed and its argument rebutted.

We need to clear up first of all different possible meanings of the word “privatisation”: confusion on this topic has bedevilled the debate. One form of privatisation is where provision of various aspects of health care moves over from the public sector to the private sector: but the funding of that provision is still via the public sector: i.e, the taxpayer still pays through the medium of public expenditure. But there is another form of privatisation: this occurs when, instead of being funded from public expenditure, the provision of health care is paid for directly by the individuals concerned, (either straight out of their pockets, or via insurance).

The key point is that, depending on which of these variants takes place in England, the budgetary effects in Scotland are quite different. If only the first variant of privatisation takes place in England, then this in itself will not adversely affect the size of the English health budget: so there will be no adverse Barnett consequentials for the Scottish government’s budget. However, if the second variant takes place in England, then this will potentially mean a marked reduction in the English public expenditure health budget. Through the Barnett formula, this would lead to a proportionate reduction in the budget of the Scottish government. Given that health accounts for over a third of the Scottish government’s budget, it is unlikely that the Scottish government could raise taxes to compensate for the losses it would suffer if there was widespread privatisation of the second type in England. It’s only option would be to institute NHS privatisation in Scotland.

It has been argued by some that, since what is happening in England just now is privatisation of the first type, then there is indeed no threat to Scotland’s NHS. But this is to ignore the wider context of the recent changes to health provision instituted under the Conservative/LibDem coalition’s Health and Social Care Act of 2012, (which applied only to England). It is extremely significant that this Act abolished the duty of the English Health Secretary to provide universal health care: (See Pollock and Price, reference below). Once this crucial step has been taken, then the following rolling process is virtually inevitable. Faced with queues and unsatisfactory service in the NHS, (inevitable in a climate of austerity, and with the increasing demands of an ageing population), people who can afford it will turn to purchase health care directly from the private sector health infrastructure which type 1 privatisation has nurtured: as the private health sector expands into  new areas of provision, the NHS, which no longer has to provide a universal service, will not keep up in the range and quality of its provision: which means that more people will turn to purchasing health care direct: and so on. In other words, type 1 privatisation, (which is already happening in England), plus abolition of the duty of universal public provision, (which has also happened in England), will lead inevitably to widespread type 2 privatisation. And that, as we have seen, has inevitable consequences for Scotland: this will involve a private service for those who can pay, and a Cinderella service for everyone else.

It is ironic, given Gordon Brown’s impassioned entry into the current debate, that another form of type 1 privatisation that he did so much to champion and expand, as Chancellor and Prime Minister, is facilitating the above process. This was the Private Finance Initiative. Although PFI was introduced by John Major, it was only under Gordon Brown that it took wings. Unfortunately, the excess costs, and reduced capacity, associated with PFI are now putting severe strain on the NHS, with the resulting pressures having an effect in degrading service provision.

Going back to the IFS note, what is incredible is that it completely fails to discuss the privatisation issue – even though this is the core issue as regards the risks to Scotland’s NHS. This means that the IFS note is actually irrelevant to this specific debate.

Finally, it is worth noting that there are further errors in the IFS note, as well as the glaring omission of any discussion of the implications of privatisation.  Briefly,

a) If expenditure growth in England is high compared with the rate of relative population growth between England and Scotland, then there will be a “Barnett squeeze” on the Scottish budget. That is, levels of expenditure per head in Scotland will be pushed down through time relative to expenditure on devolved services per head in England. On the Treasury’s current assumptions on growth, conditions for such a squeeze will resume as from 2018. In their discussion of the funding of Scottish government under continued devolution, the IFS completely fail to consider the implications of this.

b) In discussing the possibility that a devolved Scottish government could use income tax to protect health spending, the IFS fail to take into account the technical flaws with the Calman income tax arrangements which will mean that a Scottish government will probably have to raise its income tax rate anyway just to protect its revenues. For example, because the Scottish rate of tax will be the same number of pence in the £ in each tax band, Scottish tax will represent a lower proportion of the higher rate tax bands than the lower rate tax bands. With fiscal drag, as a greater proportion of income tax through time tends to come from the higher tax bands, this means that a given Scottish rate of tax will yield a progressively lower percentage of the overall Scottish income tax take. In order just to maintain their position, therefore, it is likely that any Scottish government will have to periodically increase the Scottish rate of tax.

c) It is a weakness in the IFS paper that they did not express the expenditure figures on a per capita basis. This led some commentators to conclude that, since overall spending on health in Scotland had been dropping, whereas it had been increasing in England, the real threat to the Scottish NHS was Scottish government priorities. In fact, since expenditure per head in Scotland is still 6.4% higher than that in England, it is perfectly reasonable, particularly in a time of austerity, that their priorities might be different.
Reference: Pollock, A.M., and Price, D., “Duty to Care: In defence of universal health care”, Centre for Labour and Social Studies, May, 2013.



Categories: Austerity Britain

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7 replies

  1. Whatever view you take of funding our health care in Scotland,the fact that we do not control this funding is what is the most important issue.
    The TTIP agreement is also to some extent under the control of an unelected Tory government in London over which we can only have any influence by Scottish STATE representation within the EU.
    The No camp can huff and puff all they like about the details but the fundamentals remain the same.

  2. It is worth remembering, the Labour/Lib Dem Scottish Executive begin to follow an NHS privatisation path and exploring the possibility of tendering to contract out a health centre in Whitburn, West Lothian to a private healthcare company, and pursuing further privatisation in the Tayside Health Board area through contracting out hospital services through a private company. In 2005, the Scottish Regional Treatment Centre was developed at Stracathro. This was a joint venture between the NHS and the private sector and included £15 million funding from the Labour/Lib Dem Scottish Executive. The SRTC catered for NHS patients from Grampian, Tayside and Fife Health Boards. So, Labour and the Lib Dems were heading down this path to privatisation as was being pursued by the Labour government at Westminster through its programme of Foundation Hospitals etc This was only stopped by the election of the SNP to become the Scottish Government in 2007.

  3. It is undoubtedly the case that as health budgets are massively squeezed in England after the 2014 general election, many NHS hospitals there will increasingly turn to private provision, as they are doing at the moment in order to cover their costs. It is equally absolutely certain that this will have a knock-on effect through the Barnett formula to Scottish budgets.

    On 19 August, Guardian Society carried an article specifically concerning the growth of private medical treatment within NHS hospitals in England. The article said:

    “Some of Britain’s leading hospitals stand accused of exploiting the coalition’s controversial lifting of the cap on the number of private patients they can treat to increase their income as part of a “creeping privatisation” of the NHS.

    As new figures show that some hospitals have seen a big increase of up to 40% in their private income since the cap was lifted, Labour accused ministers of presiding over a scandal of declining standards for NHS patients while allowing paying patients to enjoy high standards of care.

    The determination of NHS trusts to make the most of the cap being lifted has been highlighted by the decision of the Royal Brompton Trust, a centre of expertise in treating heart and lung disease, to open a “private outpatient facility” in Harley Street, the world centre of private medical treatment. But less than a mile away from the Brompton Hospital, at the Chelsea and Westminster Hospital on the Fulham Road, west London, there is concern about the implementation of the lifting of the private patient cap. Its annual report lists it as one of the “principal risks and uncertainties facing the trust”.

    Hospitals were given the right to generate up to 49% of their income from private patients under the terms of the Health and Social Care Act, which was the former health secretary Andrew Lansley’s brainchild. Under the rules introduced by the last Labour government for foundation hospitals, the amount of private income was capped at the level reached in 2006. This averaged about 2% around the country but there were regional variations, with higher rates in London.

    New figures released under the Freedom of Information Act show that six trusts in London and the south-east have hugely increased their private patient income since the passage of the Health and Social Care Act in 2012.”

    This is yet another example of where the Labour Party is raising serious concerns in England, but is in absolute denial that there is any problem related to Scotland. Labour in Scotland simply cannot be trusted.

    • The Guardian doesn’t do anybody any favours when it refers to “some of Britain’s leading hospitals”, when it should say, “some of England’s leading hospitals”. Or maybe the Graun thinks England has all the UK’s leading hospitals within its borders?

      • In mid 2013 I started keeping a record of the number of stories where the Graun used either ‘Britain’, the ‘UK’ or ‘Great Britain’ to describe England.
        Stories relating to health, schools and education, local authorities, water (utilities), and justice were the main offenders.

        In 28 days I listed 43 stories, and the main offenders were Will Hutton and the Graun’s ‘Education Section’, with the main topic being ”GCSE and ‘A’ level results in the UK”, followed by the ”UK’s Free Schools and academies”.

        Nothing changed after dozens of formal complaints from several readers, and I can only assume the ‘G’ didn’t want to tell readers that Scotland was/is already very different – for obvious reasons.

  4. I’ve a lot of time for the IFS – it isn’t their fault that their reports are cherrypicked to death by unionists and the media, who then claim ‘support from the IFS’ for their scare stories.

    I haven’t read this ‘observation’ (too busy campaigning these days), but I have read all of the previous ‘Scotland and the UK’ ones. Invariably the authors remind us that some of their projections (the stuff unionists use) are based on OBR figures, and are what may happen if an Independent Scotland changes nothing and simply adopts the identical tax, finance, and economic policies and practices used by Westminster.

    There are always : ‘….however, independence would give Scotland an opportunity ……’ sections throughout (why oh why did the Scottish Government not respond by quoting these positive sections – and repeatedly remind the media where they come from ??), with some even saying that income taxes could actually decrease.

    I remember one BBC News24 interview with IFS Director Paul Johnson on the 8.30am ‘referendum’ section in mid-November 2013.
    Johnson – who was editor of Professor Sir James Mirlees two-volume ‘Tax Review’ – actually said ‘but an Independent Scotland could do things very differently …’ and he went on to explain what he meant.
    It was all positive for the embryonic Yes Scotland, although as I’ve said – those doom-laden OBR-based projections were there too.

    By 10am the positive sections had been very clumsily edited out, and by lunchtime the edit was almost seamless.

    That proved what the BBC was planning for the future. Unfortunately it’s much worse.

    Why doesn’t the IFS complain about this kind of editing and cherrypicking ?

    I suspect it’s funding, because the entire ‘Scotland and the UK’ research project – and the resulting papers – are funded by …. Vince Cable’s Westminster department – just like the work of Angus Armstrong and Monique Ebell at the NIESR.

    Perhaps the SG and the leaders of Yes Scotland and other groups should have done what I/we have been doing down in darkest Toryland.
    Whenever we have a Q&A at an event where Better Together has bothered to show up, and their speakers have said something like ‘all the experts agree with the Treasury…’, our response is ‘ we’ve looked for these experts, and can’t find any. Can you name one ?’ (they never can – so we give them the lengthy list of genuine experts who have said the Treasury is very wrong).

    And of course if they dare come out with ‘the IFS says…’ we always respond by telling them the other things the IFS says, but the media has suppressed.

    The SG and YS missed a trick, and it could cost us our independence.

  5. Very interesting post, Adam. The bottom line, as you know, is that the media, including the supposedly neutral BBC, will have the last word. Even if SG and Yes get favourable quotes out from IFS into the MSM they will quickly die a death. An individual SG or Yes spokesperson might get a quote out live on air but chances are it will quickly disappear into the ether. Also, with all the flak around them, and all the topics evolving, it must be difficult for these Yes representatives to remember every factual point. Thankfully we have the internet and good people like yourself. I can only hope the people of Scotland see through the duplicitous nature of the media, the disreputable BBC included, and with each lie broadcast these people will conclude that Westminster and the British establishment cannot be trusted. I believe it has gotten to the stage that most people have “switched off” from the media onslaught. Indeed the media is gradually killing itself with each hysterical falsehood it issues. Few in Scotland will mourn.

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