Making the NHS a bit more competitive and a bit less state-centric

During the US presidential election campaign, Mitt Romney was frequently scorned for his awkward stance on Obamacare. He lambasted Obamacare rhetorically, but it was well known that as Governor of Massachusetts, he had himself presided over the implementation of a strikingly similar reform package. During the campaign, he was at pains to explain what it was that made Obamacare so totally different from ‘Romneycare’.

Yet in the US debate, Romney was at least held to account for his contradictory positions. The same cannot be said for the UK, where the Labour Party gets away with a flip-flopping over NHS reform that makes Mitt Romney look like a role model of consistency.

The Labour Party has been opposed to the coalition’s plans to make the NHS a bit more competitive and a bit less state-centric, presenting itself as the party of old-school NHS purism: cooperation trumps competition; public trumps private; collective choice trumps individual choice. Fair enough – except that it was the Labour Party which put an end to that model while in government. The coalition’s plans were no more than a minor extension of Labour’s own reform programme. The Labour Party was thus retrospectively campaigning against their own policies, which is a bit as if a party that had once championed Academy status for schools was now opposed to free schools (OK, bad example).

Free-market critics of the NHS often describe it as a Soviet-style model of command and control. After the Labour reforms, that description is no longer accurate. If anything, a more apt comparison would be Yugoslavia during Marshall Tito’s ‘market socialism’.

When Labour came to power in 1997, they had no intention of embarking on a market-oriented health reform programme. During its first term, they even moved in the opposite direction: a reversal of the previous government’s timid ‘internal market’ reforms, quality control from the centre, and of course, more government spending.

The U-turn started during the second term, but then became quite comprehensive:

  • An internal commissioning system was introduced to split the funding from the provision of healthcare. Semi-independent Primary Care Trusts (PCTs) were set up to purchase healthcare services, ideally selectively, favouring better-performing over worse-performing providers. This did not have to be limited to within-NHS commissioning, rather, PCTs would be able to contract independent sector providers as well.

  • Well-performing hospitals were given the option to obtain ‘foundation trust’ status, which meant greater organisational independence, even if they were still part of the NHS.

  • Hospitals would now be paid according to what they actually did, rather than being assigned a budget based on historical spending patterns. Fixed payments for different procedures were introduced. Hospitals that managed to perform those procedures at a lower cost would be able to retain the difference (within limits), while hospitals which performed them at a higher cost had to pay the excess out of their own budgets.

  • Patients were given the right to choose between different providers at the point of referral.

Evidence on the outcomes is highly tentative. The above reforms were implemented with many ifs and buts, and a number of top-down reorganisations occurred alongside, making it harder to ascribe a specific outcome to a specific reform. But on balance, it looks as though British patients have benefited from the fact that their healthcare system is now less like the Soviet Union and more like Tito’s Yugoslavia. (Just imagine how much more could be achieved if it was more like Switzerland.) Too bad that the Labour Party, those radical market reformers, are now ashamed of one of their best legacies.

Head of Political Economy

Dr Kristian Niemietz is the IEA's Editorial Director, and Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).

2 thoughts on “Making the NHS a bit more competitive and a bit less state-centric”

  1. Posted 07/11/2013 at 15:40 | Permalink

    “But on balance, it looks as though British patients have benefited from the fact that their healthcare system is now less like the Soviet Union and more like Tito’s Yugoslavia.”

    British patients, or English? I think the NHS is differently run in Scotland and Wales (i.e. it’s more along the Soviet Union model) – and that might provide an opportunity to compare different models.

  2. Posted 07/11/2013 at 18:40 | Permalink

    English patients, I should have said. And yes, Wales & Scotland are used as comparators in the literature.

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