NHS Scotland has moved centre-stage in Scotland's referendum debate, with each side making claims about its fate. But is everyone missing the point about the underlying health funding crisis?
The NHS is the key battleground of the Scottish independence debate this week. Alex Salmond is claiming that the future of a publicly funded, publicly provided NHS in Scotland is being placed at risk from market-oriented reform in England. His opponents counter that under devolution, the structure and budget of the NHS are for Holyrood to decide. So who’s right?
Providing an adequate answer requires us to think not just about the NHS but about the wider healthcare system, public and private. (And yes, a private sector does exist in Scotland – over one in 10 Scottish residents have private health insurance coverage and this proportion has been growing in recent years.)
A good place to start is to identify what is actually taking place in England – to strip out the technical content of the reforms and wider systemic changes from the rhetoric of what has become a polarised and sometimes hysterical debate.
The central motif of the coalition’s reform programme is, like that of the Blair government, marketisation – i.e. a shift from bureaucratic planning and cost-based resource allocation to a model in which funding is allocated to healthcare providers according to their ability to attract patients within some sort of competitive market.
The reforms also involve a degree of privatisation – i.e. a change in the ownership of healthcare assets, as non-state actors of various types expand their production of healthcare. This is currently of some significance: about 5% of NHS expenditure in England is spent on healthcare services supplied by private companies and voluntary organisations. This is about twice the proportion in Scotland.
All of this is the subject of major policy debate in England itself, and may be reversed if there is a change of government next year. Regardless, none of this impacts on Scotland. That is obvious from recent history. Since 2003, the NHS in Scotland has gone in 180 degrees in the opposite direction, abolishing the split between purchasers and providers in the NHS and re-integrating primary care and other tiers of the healthcare system within regional health boards.
To look for elements of change that do affect Scotland we must look to changes in the distribution of expenditure in England between the public and private sectors.
This matters for Scotland because, under the Barnett formula, every £1 change in public spending per person on devolved expenditure in England triggers a £1 per person change in the Scottish budget. So if in England there is a contraction of statutory free coverage, or there is an expansion of private sector demand, or there is an introduction of fees for services, then these are things that will impact on the budget available to Scotland.
So, are such changes in prospect? The question is hard to answer conclusively at this point in time.
What we know is that there has been an effective real-terms freeze (or possibly a slight fall) in NHS England’s budget since 2010. The current planning framework assumes that health spending will fall, as a proportion of GDP, from a peak of 7.7% in 2010/11 to just 6% in 2020/21 – taking the share of national income allocated to health spending back to the level of 2003. If achieved, this will be a feat of cost containment without recent historical or international parallels.
In the context of a rising population and higher relative prices, this has and will continue to place the comprehensiveness of the healthcare ‘package’ that the NHS in England can offer under severe stress. And this budgetary pressure is transmitted to Scotland directly via constraints in the amount of funding provided to the Scottish government under the Barnett formula.
It’s interesting to step back and consider where we are, in NHS spending terms, compared to where we thought we’d be prior to the global financial crisis and the resulting recession.
The most comprehensive analysis of health service resource requirements ever undertaken is a 2002 report by Sir Derek Wanless on the future of the health service in England. This set the scene for the major increase in real-terms resources (averaging about 6.6% a year) that we see in the mid-to-late 2000s.
Wanless envisioned three potential scenarios for future funding requirements based on the level of public engagement with health. The most ‘pessimistic’ scenario anticipated that the population would fail to take ‘full and proper ownership’ of their health and the resultant resource requirements would be high. Conversely, the ‘intermediate’ and ‘optimistic’ scenarios envisioned far greater public engagement and correspondingly lower resource requirements.
All three scenarios prescribed much higher spending in the NHS over a 20-year period than we are likely to see. For 2013-14, the financial year just past, Wanless recommended spending between £2857 and £3043 per head of population. During that year actual spending in the health service in England was £2065 per head; and for NHS Scotland the figure was £2200.
So there was a spending shortfall per capita of between £792 and £978 in England and between £657 and £843 in Scotland. This shortfall has grown more pronounced in each of the past four years, and is likely to continue to grow over the rest of the decade.
So that’s the overall funding picture – and it’s extremely bleak to be sure.
What also matters is how the public responds to the increasing restrictions on the quality and quantity of NHS care – for example, as waiting times accumulate or the ‘package’ of treatments covered by the NHS is rationed more strictly. A number of NHS trusts in England clearly see this situation as an opportunity to expand their private and commercial income. Under the coalition’s 2012 Health and Social Care Act, foundation trusts can raise up to half of their income from private patients.
They are seeking to expand private sector supply to respond to what they assume will be an increase in privately financed demand in response to NHS constraints. If there is indeed a change in the propensity of people (especially more affluent people) in England to ‘go private’, this may in time erode popular support for the NHS and open the way to greater political acceptability of a privately financed healthcare system.
Such an outcome would be clearly impact on the allocation of resources to Scotland, under Barnett, and make the maintenance of a comprehensive health system free-at-the-point-of-demand much more difficult to sustain north of the border.
So the situation is this:
• across the UK the NHS faces a budgetary challenge of greater severity than at any time since the early 1950s;
• this will have an impact on its ability to provide a comprehensive service;
• the private sector in England sees great potential for this to boost demand for its services;
• if the private sector is correct, this may ultimately have major political and fiscal ramifications for the sustainability of the NHS across the UK as the dominant financiers and provider of healthcare services.
But at the centre of the problem is the funding challenge across the UK, not structural reforms in England – it is the shortage of finance for public sector healthcare, not the emphasis on markets. The funding problem is one that will remain for Scotland whatever constitutional settlement emerges in the wake of next month’s referendum.
Mark Hellowell is a lecturer in health policy at the University of Edinburgh. Cameron Kennedy is in the College of Medicine and Veterinary Medicine, University of Edinburgh
