How the NHS hurts the poor

You must buy most things you want. But not healthcare. Healthcare is supplied at no charge by the state, funded from taxation. This is often claimed to help the poor. Spend more tax money on it, as suggested recently by the Institute for Fiscal Studies and promised by the Prime Minister, and the poor will benefit even more.

They wouldn’t.

To see why not, imagine a town with two residents and three things to consume: apples, oranges and pears, each costing £1. Jack earns £100, Jill earns £200, and each wants to eat an equal number of apples, oranges and pears. So Jack buys 33 apples and Jill buys 67.

Suppose they decide that apples should be “free at the point of use” and funded from taxation. How big should the collective apple pool be?

Since they value apples, oranges and pears equally, and the total spending available is £300, the apple pool should contain 100 apples: 50 for each resident.

If their contributions to the apple fund are proportionate to their incomes, Jack will pay £33 and Jill £67. So Jack is better off.  He now gets 50 apples and pays only £33. Mary is worse off. She spends £67 to get 50 apples.

But something has gone wrong for Jack. He values apples, oranges and pears the same. But this policy means he consumes 50 apples, 33 oranges and 33 pears. The policy has lifted his income from £100 to £117 but distorted his consumption. With this increased income, he would prefer to consume 39 of each fruit. He would be better off simply receiving £17 in cash from Jill.

Jill’s consumption is also initially distorted. She consumes 50 apples, 67 oranges and 67 pears. But she can fix this problem by buying more apples. After transferring £17 to Jack, her income is £183. So she will want to spend £61 on each fruit. She can achieve this by buying 11 apples in addition to her collective allocation of 50.

Total spending on apples thus increases from £100 to £111. Which reveals the real beneficiaries of the policy: namely, apple growers. The policy transfers wealth from the rich to the poor and simultaneously forces the poor to spend it on apples.

Substitute “healthcare” for “apples” and you can see the absurdity of the idea that the NHS is a friend of the poor. Indeed, matters are even worse, because the poor typically want to spend a smaller portion of their incomes on healthcare than the rich do.

The NHS forces people on low incomes to forgo things they would prefer to healthcare. It’s perverse that something so unfair should be a source of national pride.


Former Director of Research

Jamie Whyte is the former Research Director at the Institute of Economic Affairs. Prior to joining the IEA, Jamie was the leader of ACT New Zealand as well as the Head of Research and Publishing at Oliver Wyman Financial Services. He has previously worked as a management consultant for the Boston Consulting Group, as a philosophy lecturer at Cambridge University and as a foreign currency trader.

6 thoughts on “How the NHS hurts the poor”

  1. Posted 13/06/2018 at 12:34 | Permalink

    Totally right. But let’s simplify it – I went to live and work in the US and paid private health insurance at around $60 pm and $10 dental insurance. This was far far lower than NHI and my employer did not have to contribute. I ended up much better off. So I thought to myself, here I am on median income saving much more money by taking out private health insurance than paying NHI back in the UK.

    I also learned that in the US 5 million people are employed in private health insurance alone. The equivalent in the UK with a fifth of the population would therefore be 1 million PAYE tax receipts pouring into the Treasury. I also learned that after the 2008 crash the Private Health insurance industry was the ONLY one still growing in the US and still increasing its corporate tax contributions to the US Treasury.

    What if you made NHI voluntary but if one opts out they cannot use the NHS? Earners right down to average wage will opt out (they’ll be better off) and the NHS could be reduced in size but ALL its resources would be focused on the poorest who can’t afford health insurance = better service and zero waiting times. Plus you then not only have the NHS costing the Treasury a fraction of what it does now but the Treasury will be earning billions off corporate tax and PAYE from the million employed which can be used to finance the entirely of the remaining NHS.

    The result is that everyone receives better healthcare (whether private or not) and the NHS costs less than half what it does now and is arguably fully financed from the tax receipts of the private healthcare sector. Instead Britain is so hooked on socialised medicine that it is imprisoned and blinded by its current course which either results in collapse of the NHS, with no private healthcare infrastructure to fall back on, or else bankruptcy of the country.

  2. Posted 13/06/2018 at 17:32 | Permalink

    Nick, I don’t think it possible your employer didn’t contribute. See here, for example

    Cost $5,884 for a single person with employee contributing $999. This from 2013. This is £4,450 a person. With around 40 million adults in the UK and NHS spending 120 billion, this is around what comes out of my taxes – as reasonably well paid.

  3. Posted 14/06/2018 at 17:38 | Permalink

    ‘The policy transfers wealth from the rich to the poor and simultaneously forces the poor to spend it on apples.’

    So the poor aren’t worse off are they? The extra transferred to the poor may require it be spent on X, but that is still better than nothing.

    The alternative, because we are not talking about apples, is you force those who cannot afford the up front costs of healthcare or private insurance, to risk being unable to afford unavoidable treatment. Healthcare is a necessity, more so than any other service given its life affecting nature. It is forced upon us all, and often with little to chance for deliberation.

    You can hide behind ‘freedom of choice’ all you want, but the reality is those who cannot afford it will not get the choice of who provides their healthcare.

    You simply don’t want to pay your share.

  4. Posted 15/06/2018 at 12:35 | Permalink

    Bob, you say: “The extra transferred to the poor may require it to be spent on X, but that’s still better than nothing”. It is indeed better than nothing (although, someone else is made worse off). But it would be even better if the money were transferred in cash rather than a particular good, because then the recipient could choose how to spend it.

    As for me not wanting to pay my share … a) what is my share? and b) how do you know I don’t want to pay it. Where in my article did I give this fact away?

  5. Posted 17/06/2018 at 08:10 | Permalink

    Dr Whyte
    An interesting proposition based on an interesting idea: Is your imaginary town a model for any real world situation? It appears to suggest that Jack and Jill need to a) spend all their income and b) that their consumption is prescribed by how much they have to spend.

    How many of each item do Jack and Jill actually a) want to consume and b) need to consume to survive and thrive?

    I am a personal friend of Jack & Jill and they told me that Jill was saving some of her money and investing it in Jack’s banana plantation as she was fed up of oranges.

    Jack and Jill like the idea of society taking responsibility for the town’s basic needs. Jill likes the idea that Jack is subsidised to be fit and well to grow bananas and Jack is happy that he has some “spare” “apples” to feed to his otherwise malnourished son, Jimmy.

    Simple models can be illustrative but they can often be too simple.

  6. Posted 30/08/2018 at 22:59 | Permalink

    Seriously wondering if this piece by Jamie Whyte is a spoof or meant to be a serious contribution to the healthcare debate? And what it says about the IEA as a “think (?!) tank”. I would have thought it blindingly obvious how hopelessly simplistic the Janet/Jill (and…err Mary?) model is. Surely the fundamental point is no one plans to be ill (or have their house burn down or be burgled), so the “choices” proposition is mostly meaningless, apart from those rich enough to afford private healthcare/screening. The NHS is – surely very evidently- a state run health insurance/delivery service that additionally provides the huge advantage of – mostly – far better joined up care than provided in most private healthcare systems (ask my GP partner who occasionally deals with returners from the US/other non-socialised medical systems and having to sort out the often messed up care/medication they’ve previously been under). While very far from perfect the NHS is far more efficient and cost effective than the US privatised model: the USA spends 17.8% of GDP on healthcare compared with about 11.5% for 11 other high income countries including the UK, with US per capita spend about double of these other countries: and despite this with, overall, no better health outcomes, and disproportionate amounts going to administrative costs and the operating profits of the privatised system, that typically also include far higher medication/procedure (scans/surgery etc) costs.

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