False Economies



How economists can shape the post-lockdown world

Myths about public health spending

  • The coronavirus outbreak in Britain has raised questions about the use of public health resources and about the costs and benefits of the ‘lockdown’. It has been argued that the government’s response to the epidemic was weakened by cuts to the public health budget. It is widely believed that spending on public health saves money in the long term by reducing future healthcare costs.

  • In 2018/19, Public Health England had a budget of £4 billion, of which £3.13 billion was given to local authorities as ring-fenced grants. Like-for like public health spending by local authorities fell by 17 per cent between 2014/15 and 2018/19, but this has little bearing on the government’s response to COVID-19 because the responsibility for dealing with such epidemics lies with Public Health England and the NHS.

  • There has been no cut in Public Health England’s budget for infectious disease prevention. On the contrary, between 2014/15 and 2018/19, PHE’s budget for ‘protection from infectious diseases’ rose from £52 million to £86.9 million.

  • Cutting the public health budget has been described as a ‘false economy’, with a study published in 2017 claiming that ‘most public health interventions are substantially cost saving’. The study reported that public health measures, on average, produce a return on investment of 14.3 (‘implying a cash return of 1430%’). This is a misrepresentation. Most public health interventions are cost-effective if a quality-adjusted year of life is valued at £20,000, but less than 20 per cent of interventions save money or produce a cash return.

  • More than a third of public health interventions would not be approved if they were NHS treatments because they are not cost-effective. Moreover, public health interventions provided by local authorities are less cost-effective, on average, than conventional healthcare.

  • If public health authorities are rational and led by the evidence, they will spend money on the most cost-effective interventions in the first instance and see diminishing marginal returns as spending is extended to less cost-effective measures. A point must eventually be reached when it becomes more efficient to spend on conventional healthcare.

  • Claims about cost-effectiveness are more tenuous when interventions deprive individuals of intangible benefits. If people understand the health risks of pleasurable activities, such as drinking and smoking, they will price in the intangible costs of poorer health. If the state uses coercion to make them abandon such activities, they will lose thousands of pounds’ worth of intangible benefits. Quantifying the social value of pleasure is as legitimate as calculating the social value of a life year, but only the latter is included in most public health cost-benefit analyses. If lost benefits were included, the overall cost-effectiveness of public health spending would be reduced.

  • It is not possible to tell from the available data whether England’s public health budget is too small, too large or about right, but many of the arguments made for increased spending on public health are based on a misunderstanding of economics.

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Head of Lifestyle Economics, IEA

Christopher Snowdon is the Head of Lifestyle Economics at the IEA. He is the author of The Art of Suppression, The Spirit Level Delusion and Velvet Glove; Iron Fist. His work focuses on pleasure, prohibition and dodgy statistics. He has authored a number of papers, including "Sock Puppets", "Euro Puppets", "The Proof of the Pudding", "The Crack Cocaine of Gambling" and "Free Market Solutions in Health".