Dismantling the NHS Internal Market by stealth. Ninjas strike again

Croydon Health Services NHS is about to advertise for a new Chief Executive.

This isn’t unusual. It’s been a troubled Trust on and off for a while, formed from the merger of Mayday Healthcare NHS Trust with Croydon Community Health Services. It operates University Hospital Croydon along with lots of Community Services, and a Community Hospital.

The Trust has the second worst accident and emergency performance in London, it sees just 60 per cent of type-one patients within four hours, compared to the 95 per cent target. Both the Trust and the Clinical Commissioning Group have been in special measures over the last few years due to endemic financial problems.

What is unusual is that it is a joint appointment with the Clinical Commissioning Group. Which means that the CEO will have responsibility for the purchaser and provider bit of local health services. The 2 organisations already share a Chief Nurse and a Chief Pharmacist.

This is a quietly radical proposal which undermines the fundamental principles of the NHS internal market – the purchaser/provider split.

It also pretty clearly illustrates one of the attractions of getting rid of the internal market – you need a lot fewer senior managers.

I can’t help but note that if you took University Hospital Croydon out of the equation the rest of the role is:

Commissioner CEO + Community Hospitals + Community Services + Minor Injuries + Intermediate Care = my old job.

How much of this is Matt Hancock (Secretary of State for Health and Parkour Champion), and how much is Simon Stephens (NHS England CEO) is unsure – my guess is it Stephen not Matt.

Next time someone tells you that the NHS is being privatised by stealth, feel free to tell them they are wrong. There is a quiet and stealthy dismantling of the mechanisms of the internal market taking place, unpicking one of the final parts of Thatcher’s legacy. This is a dry run for the full scale repeal of the Health and Social Care Act 2012.

And this is the Secretary of State for Health demonstrating Parkour:

Public sector outsourcing dies a slow death, the nationalisation zombie rises from the dead.

The public sector outsourcing market died another death this week with the news that the UK’s Probation Services (or Offender Management as they are now called by wacky bureaucrats) will all come back in house:

https://www.theguardian.com/society/2019/may/16/part-privatisation-probation-sevices-to-be-reversed-offender-management-nationalised-chris-grayling

This isn’t entirely news as the problems with Criminal Justice outsourcing have been know about for several years:

https://www.theguardian.com/society/2013/dec/15/probation-reforms-put-public-at-higher-risk

https://www.theguardian.com/society/2019/may/03/chris-grayling-probation-changes-took-unacceptable-risks-with-public-money

On this occassion I make no apologies for quoting exclsively from the Guardian. It isn’t the great paper it once was, but it is still the best UK news source for public policy, particularly social policy. I’ve also covered the crisis in the UK public sector outsourcing industry for several years:

https://wordpress.com/block-editor/post/jon-chadwick.com/1138

https://wordpress.com/block-editor/post/jon-chadwick.com/1119

https://wordpress.com/block-editor/post/jon-chadwick.com/946

If you don’t want to read all of those links I can summarise for you:

Outsourcing Criminal Justice is an inherently stupid idea.

Outsourcing works well when you an transfer risk to the contractor in return for which they make profit, and where you can specify the outcomes you want without creating perverse incentives. You simply can’t do this with criminal justice in the way you can with processing applications, or dealing with telephone queries.

The Tories right now are doing a much better job of dismantling the UK outsourcing market than the Labour Party are, despite the launch this week of another set of jumbled proposals for the re-nationalisation of utilities.

https://www.ft.com/content/7db291fe-7665-11e9-bbad-7c18c0ea0201

I am pretty happy with the transfer of the utilities back into public ownership, along with big chunks of the Railways, with the proviso that I don’t like “all-in” or “all-out” models, I like a mixed economy with public and private competing, but with HMG maintain a market making stake.

I realise that I am conflating outsourcing with privatisation, but in this case the decisions to outsource/privatise vs in-house/nationalise are based on competing ideological views not on a well thought out set of ideas about the best way to deliver public services.

There are some really big things that Labour need to avoid when designing re-nationalisation proposals:

  1. Don’t use “leveraged buyout” style deals that load debt onto the newly re-nationalised industry. This will prevent them from future borrowing to fund capital investment (the lack of capital investment was always the problem historically with nationalised industries)
  2. Don’t try to hide the cost of these re-nationalisations using off balance sheet transactions. The public need to know clearly the cost of the re-nationalisations so they can judge if they are value for money
  3. Don’t recompense the former owners with Bonds that pay out an income. This is basically all of the problems of PFI without actually creating new assets

Labour’s original proposals had all of these problems:

A hopeless jumble.

It looks like the lateset set of proposals are a step forward, in that they are on balance sheet transactions, but still involve PFI style bonds, and still load debt onto the nationalised industry which will limit future investment.

The scale of the debt loaded onto the books of the newly nationalised will be reduced because Labour plan to pay less than the market value of the shares in the utilities to reflect investment, pensions deficits and historic profits. There is a precedent for that. In 2002 Railtrack got into financial difficulties and the Blair Government nationalised it, paying shareholders £2.50 a share – much less than the £9.50 that they claimed it was worth.

Railtrack haircut

The shareholders took the Government to court and the case dragged on for 4 years before the Government won.

The Utility companies are in much better shape than Railtrack was (it was insolvent and had £7bn in debts when the Government stepped in), and the fight from the Utilities is likely to be much stronger and a lot longer

Just as the Tories are killing off public sector outsourcing by putting ideological dogma above good policy making Labour are setting up re-nationalisation to fail by down exactly the same thing.

So far the Tories are making a great case for Nationalisation while Labour are making a great case for Privatisation. It’s almost as if they are both utterly and totally incompetent.

The economics of doing the right thing

One of the greatest ever papers published in a history journal was written by Jan Vansina for the Journal of African History

Vansina makes the very simple argument that the abolition of slavery increased labour costs. These increased labour costs in turn made it more attractive to invest in mechanisation and industrialisation. And the increased investment in mechanisation and industrialisation created faster economic growth.

The countries who abolished slavery earliest, including the UK, had the fastest economic growth over the C19th. The countries who abolished slavery last, such as Portugal (and those whose economies were the most reliant on slavery), had the slowest economic growth.

I always thought Vansina’s argument was a bit limited – slavery wasn’t really a feature of the economy of the British Isles, it was mainly confined to the Colonies in the Americas, while the investment in mechanisation and industrialisation was in the domestic economy not in the colonies.

But despite these limitations I still love Vansina’s thesis – it is elegant and illuminating

And Vansina’s argument does work. It even works if you apply it more broadly across the Americas: The Northern States which didn’t have slavery were more industrialised and had faster growing economies than the Southern States (this is one of the reasons why they won the Civil War). The USA was less reliant on slavery and faster industrialisation and growth than the South American states who had a greater reliance on slavery and plantation agriculture in general.

The reason why I went back to Vansina is because of a fantastic row which is taking place in the Economic History Review about the extent to which high wages in C17th and C18th England drove increased mechanisation and industrialisation. The debate is largely around whether Britain had higher wage costs than competitors like France. This is the hottest debate I can ever recall in an academic field that is dominated by graphs and tables.

Instinctually I believe the high wage argument. In the centuries before industrialisation the rich and powerful had consolidated land ownership, building the familiar pattern of stately homes and large estates. This left a surplus rural population who were driven off the land, by force if necessary. In Scotland we call this Highland Clearances, in Ireland the Plantation System, and in England the Enclosure of the Common Land. These surplus populations were transported, willingly or unwillingly: The English as criminals to Australia, the Irish as bonded labourers to America, the Scots to Canada.

The combination of an artificially restricted Labour Market and the suppression of the Slave Trade following the Somerset Judgement pushed up wages, in particular for skilled workers in the emerging urban areas. (I’m going to do a short follow up piece on Somerset v Stewart 98 ER 499)

My family were some of the people who benefited from this. They were weavers and textiles workers in Prestwich, then a village on the outskirts of Manchester, and they became more prosperous, some ending up as landlords and mill owners.

I think that there is a bit more behind the industrialisation of the UK, in particular the availability of capital. British capitalists had access to more capital than their competitors because they systematically took the capital of other countries to invest at home, in particular India. We weren’t the only country to expropriate other countries wealth, but we used that wealth to industrialise the nation rather than make gold statues for the Pope.

But above all it was the mix of the 2: high labour costs and easy availability of capital which encouraged mass industrialisation, which came to define the UK in the C18th and C19th.

Why is this important?

Very quietly the Government has been meeting with the TUC on a plan to increase the National Minimum Wage to £9.61, the highest in the world, and a massive step towards tackling in-work poverty. They are in competition with the Labour Party whose last manifesto included an commitment to a £10 an hour NMW. This is over and above the Government’s commitment to a National Living Wage.

For those interested in policy detail the NLW is defined a 60% of median earnings, and the NWW rates both the Government and Opposition are suggesting would represent over 66% of median earnings, which would push the NMW just above the OECD definition of low pay.

The National Minimum Wage has been such a huge success, so much so that both political parties are fighting for their own version of a National Living Wage that would end low pay. I would rate the NMW as one of the greatest achievements of post war Socialism, and one of the most successful Government policies of my life time.

Despite this The Office of Budget Responsibility have estimated that even the Conservative Parties less ambitious target would cost 140,000 jobs.

This isn’t the first time that the OBR have forecast lob losses like this. The introduction of the more limited definition of the National Living Wage in 2015 was forecast to cost more the 40,000 jobs, and yet it is really hard to spot these job losses anywhere in the economy.

Measuring the rate of job losses due to increases in the NMW/NLW is tough for 2 reasons. Firstly because the unemployment statistics are pretty badly cooked these days, to disguise high levels of underemployment and poverty in the working population. Increasing the NMW to £10 an hour isn’t going to end in work poverty for people aren’t working enough hours to make a difference .

But secondly because employers have been shifting insecure low wages jobs to self-employed in order to avoid the NMW. Uber and Deliveroo have both recently lost court cases forcing them to recognise the employment rights of their workers, but bogus self employment is an increasing feature of the UK economy, albeit one slightly declining at the moment.

Despite my scepticism it is clear that something good is happening in the UK Labour Market, and employment is at high levels despite the Government fiddling the numbers. Treating workers well, giving them better pay and conditions encourages more people into the Labour force, which in turn gives more choice to employers. Businesses with a ready pool of motivated workers find it easier to expand and grow, and the economy grows with them.

Wage increases are still low, which has perturbed economists, and is linked to low levels of capital investment. If increased levels of wages lead to high levels of capital investment and higher economic growth then logically an economy like the UK with low wage growth should have low levels of capital investment and low growth. This would explain why low interest rates haven’t led to higher levels of investment or growth.

But there is one final factor in wage growth that struck me when looking at the proposed rises in the NMW/NWL. As the NMW gets higher it draws more and more workers in. And the workers who have a differential above the NMW are effected too.

A £9.60 NMW means that a quarter of the UK workforce will have their wages set by the Government. When you add to that more highly paid employees whose wages are set by the Government in the public sector we have reached a situation where HMG sets the wage rates for more than half of Britain’s workers, even allowing that some Public Sector workers will be on the NMW.

A generation ago this would have seemed like a crazy socialist scheme, and yet we have a supposedly right wing Tory Government endorsing a plan to have the Government set wages for most British workers. The National Minimum Wage really was one of the most transformative ideas in modern British politics.

We have a highly regulated labour market with the Government set the wages and conditions for the majority of workers and close to full employment. Truly this is a Socialist Utopia!

If the Government really wants to tackle low pay it doesn’t have to look very far for solutions. It can simply mandate changes to pay.

As a final comment we have been conditioned to believe that the right thing ethically and the right thing economically are always in conflict, and that Government attempts to deliver a fairer society always have negative economic consequences.

The OBR can be forgiven for making the assumption that fairer wages lead to job losses because the are obliged to use an macro-economic model given to them by George Osborne, someone who has only been out of power for a few years, and yet whose ideas already seem paloe-economic.

But when it comes to Labour markets treating people better, paying them more and giving them more rights in the workplace is a good way to create a more flexible workforce, which is good for businesses. Higher wages leads to a faster growing economy.

Maybe it’s time to think differently about how we make the arguments for progressive politicies?

https://onlinelibrary.wiley.com/doi/10.1111/ehr.12850

https://www.theguardian.com/society/2019/may/05/hammond-increase-minimum-wage-low-pay

https://www.jstor.org/stable/179869?seq=1#page_scan_tab_contents

https://obr.uk/economy_categories/national-minimum-wage-and-national-living-wage/

I can’t get no satisfaction (ratings). Does public satisfaction with the NHS relate to how much the Government spends on it?

First of all an apology. There is a lot on at work, and a lot of stuff happening behind the scenes, and this has got in the way of blogging.

The data from the last set Social Attitudes Survey is out, and people aren’t happy with the NHS.

This might not come as a surprise to people because it is pretty well known that the last 8 years have been lean years for the NHS in terms of funding increases. In fact this has been the longest period of funding restraint in the Service’s history, so no surprise people aren’t happy

Lets have a look at a graph shall we?

There is a really stark difference between the 2 halves of the graph. The left hand side reflects the Conservative administrations of Margaret Thatcher and John Major, the right hand side of the graph the New Labour years, then the Coalition, and, finally, the Cameron and May Conservative years. People are much happier on the right hand side of the graph.

The really good scores are from the era was when I was a senior NHS manager. Definitely not a co-incidence

There are three things that really jump out at me.

Firstly that while the Labour Party started spending serious amounts of money on the NHS from 2000 onwards (the publication of The New NHS: Modern and Dependable), the improvement in patient satisfaction is a few years later. Patient satisfaction is clearly a lagging indicator.

If you want to test that against against funding this is a neat graph from the Institute of Fiscal Studies which shows a similar pattern, although it covers a longer time period

Secondly satisfaction doesn’t correlate with the number of Doctors. Patients love Doctors, in fact they love all clinical staff, and I did wonder if there was a correlation between Doctors per head of Population and patient satisfaction (apologies to Nurses and AHPs for using Doctors/Population as a proxy for Clinical Staff)

I’m a bit confounded by that graph which came from the BMJ, which shows that increasing Doctors numbers doesn’t seem to have any relationship with patient satisfaction.

Finally the numbers for the Coalition and the Conservatives are much better than I expected. Given the awful levels of funding increases we saw under Cameron and May I would have expected . People were happier with the NHS when Cameron and Osborne were putting in less than 2% per a year, than they were when Thatcher was putting in 2.5%.

There are 2 possible explanations for this.

One is that the big cash increases that came during the New Labour years uplifted the baseline level of satisfaction and it will take a long time for this to decline. The other is that the NHS has done something, probably during the Blair years, that made it more customer friendly. This seems unlikely, but I do think that the spending increases in the Blair years renewed Britains love affair with the NHS

Lots of my Clinical friends will of course want to ask the obvious question?

“Why does this matter”

And in one sense it doesn’t matter. No patients got better because of a good survey result, no lives got saved.

This is of course true, but it’s worth dodging back in time to the Blair Government’s decision to put a huge amount of extra cash into the NHS.

At the time the Government was worried that support for public services was in decline. People were getting a poor service from the NHS, from schools, from public services in general, and once Labour had been in power a couple of years it wasn’t tenable to keep blaming the Tories.

Labour were scared that public support for universal public services like the NHS was in such steep decline that it would threaten their existence. The great threat to the existence of the NHS isn’t privatisation (as many on social media claim) it is lack of public support.

Labour wanted universal public services, but also wanted to maintain public support for more money

The solution was more cash + more choice + higher levels of satisfaction.

This was the classic Blairite triangulation and it was applied across public services. Taxpayers were asked to put record amounts of cash into public services like the NHS, in return for which they were offered greater choice about how they accessed those services, including the opportunity to access private Hospitals paid for by the NHS. The end result was meant to be better results – better mortality and morbidity but also better satisfaction ratings.

The same troika applied to other public services like Education too.

That’s why this matters. Because looking at the right hand side of the graph May is pushing some decent sized increases of cash through the service over the next few years, not quite Blair levels, but well above the Thatcher/Major/Cameron settlements. A lot more than Corbyn offered too.

Getting this extra cash took years of fighting with Treasury, not just by Hunt, but by Simon Stevens and lots of other senior NHS managers.

I don’t know what promises were made to Treasury in order to get hold of the cash, but they are likely to be pretty strict.

At the same time performance targets have been suspended for A&E performance because overall performance has declined sharply. The 4hr wait target hasn’t been hit for a few years now.

More money + declining satisfaction + worse performance is a tough mix for the Service to handle. I am not sure that Matt Hancock is the kind of Consigliere that May needs to finesse this kind of funding and performance squeeze.

The NHS should have had an idea of what it had to achieve for the new money when the NHS Long Term plan was launched earlier this year, however the plan requires legislation, and more detail, and these are now logjammed by Brexit.

The Long Term Plan website is still describing the Plan as proposals, and there has been a subsequent Implementation document, which sets out further work that is needed. This is classed as an engagement document, which I think means that it is for consultation, but that DH reserve the right to ignore the results of the consultation if they don’t like it. This jumble is a big difference from the Publication of the NHS Plan in 2000

The whole thing looks like a political storm brewing for the Service, with more money, a lack of clear direction, worsening satisfaction, declining performance and an angry Treasury.

Hopefully back to more regular blogging soon!

https://www.nuffieldtrust.org.uk/news-item/70-years-of-nhs-spending

http://www.bsa.natcen.ac.uk/latest-report/british-social-attitudes-32/health.aspx

https://www.ifs.org.uk/uploads/publications/budgets/gb2017/gb2017ch5.pdf

https://www.ohe.org/publications/ohe-guide-uk-health-and-health-care-statistics

https://www.bmj.com/content/357/bmj.j2940

https://www.kingsfund.org.uk/publications/how-nhs-performing-december-2018

https://www.longtermplan.nhs.uk/

https://www.longtermplan.nhs.uk/wp-content/uploads/2019/02/nhs-legislation-engagement-document.pdf