Against subsidised home rule: Why Scotland should pay for its own healthcare
More precisely, it is the English NHS that has taken a different path: Scotland’s NHS is the closest thing to a reform-counterfactual, providing an impression of what healthcare in England would be like today if the reforms of the 2000s had never happened. Purchaser-provider split, patient choice of provider, money following the patient, entry of independent sector providers – neither of these reforms has travelled north of the border. While England has allowed a modest dose of market forces into healthcare, Scotland has stayed true to the old model of state-directed medicine.
The results are underwhelming, and this is not for a lack of resources. On the contrary: in terms of staffing and funding levels, the Scottish health system is wallowing in luxury, at least relative to England. Annual per capita expenditure on health is more than £250 above English levels. Relative to the population size, the Scottish health system employs more GPs, more hospital doctors, more nurses, and more management staff than its English counterpart. Scots are admitted to a hospital more often, and once admitted, they stay in the hospital for longer. Yet waiting lists and ambulance response times are longer in Scotland, standardised mortality rates are higher than in any English region, and life expectancy is lower than in any English region. We free-market types tend to complain about the NHS being a socialist failure, but there’s socialism and there’s socialism. If the English NHS is the socialism of East Germany, then the Scottish NHS is the socialism of North Korea.
The disappointing outcomes of Scottish healthcare have led some to argue that greater autonomy is not the solution to Scotland’s problems. Since Scottish politicians have made a mess out of the limited autonomy they already have, the argument goes, we can extrapolate that they would make an even greater mess if given the complete autonomy of an independent Scotland.
But that is a misunderstanding of the argument for decentralisation. The argument is not that Scottish politicians are per se better suited to run Scottish affairs than English politicians (or, for that matter, Vietnamese politicians). Decentralism is not about tribalism or identity politics, it is about institutions and incentives.
And this is where the devolution of healthcare has gone wrong. What we see in Scottish healthcare is a case of autonomy without responsibility. Scottish politicians can shape their own healthcare policies, but the cost of those policies is still paid from a national tax pool. Scottish politicians are therefore not accountable to their own taxpayers. Under those conditions, they have no reason to tackle difficult decisions, and every reason to placate the pro-status-quo forces in the medical establishment. The British version of devolution is failing because it violates the principle of ‘institutional congruency’, the idea that those who make the decisions, those who are affected by those decisions, and those who pay for them, should be the same people.
There are two things that could be done to improve matters. Firstly, healthcare should be funded from an earmarked ‘healthcare tax’, comparable to contributions in social insurance systems. This does not mean creating additional tax bureaucracy (which is fat enough already): the healthcare tax could be carved out of the existing income tax, using the same tax base and thresholds, and administered with it through the PAYE system. But it should be listed separately on every paycheck, so that every taxpayer knows exactly how much they are paying for healthcare.
Secondly, where healthcare is devolved, its financing should be devolved as well. Scotland would have its own healthcare tax, every penny of which would remain in Scotland. Sure, this would require negotiating some formula for adjustment payments, for cases in which Scottish patients receive treatment in England or vice versa. But once up and running, this arrangement would improve transparency and accountability. If it was implemented today, the Scottish healthcare tax rate would have to be significantly higher than its English counterpart, a situation which would probably not persist for long. Scottish voters would soon begin to ask uncomfortable questions. They would want to know why they pay the highest tax rate for the worst healthcare services. Politicians in Edinburgh would have to respond, and people in Scotland might soon be able to replace their horse-drawn carts with shiny new Trabants.