The remuneration of doctors and nurses should be decided by the market, not politicians

“Our brilliant, hardworking brewers and publicans have not seen a real-terms pay rise in years. This is a disgrace. We all rely on their tireless work, their skill and their dedication for our after-work pint. Where would we be without them? This government has taken our brewers and publicans for granted for too long, so my message to them is this: enough is enough!”

No politician has said this – but if we had a National Beer Service, they definitely would, at least if that meant that the incomes of brewers and publicans were set by politicians rather than by the market. Because this is what happens when pay issues are politicised. Staff may be ignored between elections, and then suddenly wooed and promoted to the role of “the backbone of the nation” at election time. The Labour Party’s promise to raise the pay of NHS staff by more than 3 per cent, at a cost of around £1bn, is a good example.

There is nothing wrong per se with this notion. Maybe the NHS workforce really is underpaid. By international standards, the remuneration of UK healthcare workers is not particularly high – although this varies hugely by profession.

Up-to-date figures are hard to come by, but OECD data from a few years ago suggest that British nurses earn about 5 per cent more than the national average wage, which is relatively low compared to other high-income countries. Nurses in the Netherlands, Germany, Japan, the United States and Australia earn more than 10 per cent above their respective national average.

British specialists and GPs with their own surgery, on the other hand, are among the best paid in the world, at least when their income is expressed as a multiple of the national average. However, if you are a salaried GP, you would be better off in most of our neighbour countries. So, all in all, no consistent picture emerges from such comparisons.

But regardless of whether you think that health workers’ pay is too low, too high, or about right, the issue’s politicisation cannot produce anything other than cheap populism. Bidding wars between politicians about who can shower a profession with more praise are cringeworthy.

Yes, of course, the work of health professionals is incredibly important. But that does not automatically mean that they should be paid more.

Most professions are important, at least to some of us, or otherwise they would not exist. Cleaners are also important. Farmers are important. Hairdressers are important. Policemen are important. Childminders are important. Brewers are important. The reason not all of these professions are especially well-paid is not that we fail to appreciate their importance. It is that there are plenty of people who want to do these jobs, and their wages are determined by supply and demand in the labour market.

The problem is that, in healthcare, this is only true to a very limited extent. It may be tempting to believe that as long as we have a National Health Service, rather than a market-based or a mixed system like most developed countries, key variables like the pay of healthcare professionals will always be a political issue. But that is not necessarily true: the NHS is no longer the monolith it once was.

The health reforms of the last Labour government have brought market mechanisms into it. NHS providers are now semi-autonomous actors, which are, to some extent, in competition with one another, and which are partly paid on the basis of activity. However, these market reforms have never really been extended to the “medical labour market”.

They should be. Decisions over pay, working hours and working conditions should be decentralised, and removed from politics altogether. They should be negotiated locally between individual Clinical Commissioning Groups, individual NHS trusts, and the representatives of various health professions. The Department of Health should not be involved.

It is not possible, in the current system, to get the politics out of it completely. At the very least, the government would set the overall level of healthcare spending, which would indirectly determine the scope for pay rises. But we would no longer hear arguments along the lines of “Vote Party X, and health profession Y will get a Z per cent pay rise”. The pay of NHS workers would then differ across the country, to the extent that labour market conditions, healthcare needs and other variables differ. Politicians would have fewer opportunities to virtue-signal, but we might get a medical labour market that actually manages to match supply with demand.


This article was first published in City AM.

Head of Political Economy

Dr Kristian Niemietz is the IEA's 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).

8 thoughts on “The remuneration of doctors and nurses should be decided by the market, not politicians”

  1. Posted 27/04/2017 at 13:41 | Permalink

    For there to be a market customers have to have a meaningful choice of supplier, and employees have to have a choice of several employers for choice to be meaningful. There is no real market because only a few “customers”can afford to choose the expensive private sector as an alternative to the NHS. There is little choice for employees either because the NHS is the one big employer with just a few jobs in the private sector.
    Labour was a useless failure. Why would anybody sensible expect Labour to be an effective privatiser creating real competition and value for money?

    Labour introduced ‘autonomous’ hospital PFIs. These hospitals cost 2-3 times as much per service and the very secret contracts are carefully written to ensure these cannot be closed down because of their built-in ever rising costs to the public purse. See “How PFI is crippling the NHS”
    In other words cheaper and more value for money hospitals now have to be closed down to feed the cuckoos in the nest.

  2. Posted 27/04/2017 at 21:39 | Permalink

    Tell us more about this “National Beer Service”. Will it be free at the point of use?

  3. Posted 28/04/2017 at 08:12 | Permalink

    Fredrik, yes, but there’ll be a waiting list. And there’ll be a points-based system to assess how much beer you need.

  4. Posted 28/04/2017 at 13:54 | Permalink

    Yes, I think you are right, shame though as the current tax regime on booze is somewhat regressive and the thought of people richer than me subsidizing my beer consumption was quite appealing for a moment there!

  5. Posted 29/04/2017 at 12:00 | Permalink

    Nah, it’ll never work. Far too much like common sense. Plus, sadly with my limited experience working for a CCG, considering the staggering level of financial dysentery that they suffered from – one would seriously hope that this lack of control is not replicated across all CCG’s – I would surmise that there would be an even greater lack of uniformity of service and indeed quality of service across the regions, as some that are better run provide better remuneration packages compared to others.

    The problem, as we all know deep down, is not one of money. It is one of leadership and it is one of lack of vision. Too many at CCG level do the bare minimum not to get fired, are clockwatching to reach pension age and have lost the concept of service, as to what they are really there for. All the money in the world will not solve it unless there is real leadership and real vision as to what the service is supposed to be about and driving towards achieving that. And, these monolithic organisations in the end all become self licking lollipops.

  6. Posted 29/04/2017 at 13:51 | Permalink

    At this very time, we have a situation with labour rates in the NHS are being price-controlled by ‘other means’ that will end in tears.
    Beginning April this year any ‘agency’ nurse, the ad hoc temporary staff that are brought in to supplement the trust’s own regular employees, are having their earnings taxed at source under one of Blair/Broun’s ‘innovations’, IR35.
    Now most employees don’t realise this but ‘basic’ rate tax isn’t actually 20%…and the nurses realised this when compared to their pre April earnings,a drop by 50% or thereabouts.

    Now, the reason for this previously fairly well renumerated ‘temp’ market is simply there are not enough nurses around to fill all the shifts within a normal working week.
    Which is why the rates moved up to the point that there were enough nurses to cover the shifts as a type of overtime.
    Classic supply and demand!
    Now what has happened is that many will simply not bother to turn up for , after tax, is about twice minimum wage, and many, many others who hail from other lands will move to where it pays better.

    The net result is even fewer nurses…

    And the remainder are now holding out for higher gross hourly rates to cover the increased business costs of higher taxation.

    The net result will be a combination of less service from the NHS and higher labour costs which will inflate the NHS call on government money..

    I have said before, it takes a special type of stupid to be a politician….

    PS Do I need to create a campaign to get G&Ts on the NBS?

  7. Posted 01/05/2017 at 20:28 | Permalink

    Kris- The factor you perhaps missed is the supply side. One of the problems in the UK is that the number of training places for medics/nurses is highly restricted -it does not respond to market demand – and such courses are highly over-subscribed. This is because governments control the NHS and subsidise the training it offers and thus they restrict the number of places in order to control the cost.
    As a consequence, we have the crazy situation where medical training courses can expand the number of places, but only for non-UK (and non-EU) applicants, who pay the full cost.

    There is little purpose in leaving pay to the market while at the same time leaving the supply levels to be controlled by the government.

  8. Posted 05/06/2017 at 10:11 | Permalink

    Marvelous, what a web site it is! This blog presents valuable facts to us, keep it up.

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