Aufheben's analysis of the long-term project to turn the NHS into a private sector, market-oriented healthcare industry.

INTRODUCTION

The establishment of the National Health Service (NHS) has been considered the greatest achievement in social policy of the twentieth century in the UK. It was undoubtedly the jewel in the crown of the post-war class settlement in Britain. Yet now, with the renewed neoliberal offensive, which has followed the onset of economic crisis, the NHS in England faces perhaps its most serious threat in its sixty three year history. The NHS was founded on the socialist, if not communist principle of distribution: that is that health services should be provided on the basis of clinical need not the ability to pay. This was certainly a vital gain for the working class. It has not only liberated working class families from many of the money worries associated with illness, but, by reducing the financial barriers to the access to health care, it has made a major contribution to the improvement of the health and wellbeing of the working class as a whole.

Of course, the NHS has had to exist within a capitalist society that has given rise to many contradictions and ambiguities from a communist point of view. The distribution of health services may be based on clinical need not the ability to pay, but this ‘clinical need’ is necessarily defined, not by the users of the health service, but rather restrictively by an elite medical establishment. As a result the NHS can be seen to be little more than a sickness services that is only allowed to treat the illness not the causes of diseases generated by capitalism, and whose prime aim is to get people back to work.

Furthermore, although the NHS may be based on a communist principle of distribution, it necessarily produces health services on the basis of alienated wage labour. The work organisation of the NHS still bears the imprint of the military origins of modern health care. And to the extent that NHS workers care about what they do then this sense of ‘vocation’ has all too often been used as an excuse for low pay.

Yet for all the criticisms that can be made of the NHS, the de-commodification of health care must still be regarded as a major gain. Although after more than sixty years it is easy to take it for granted, we only have to look across the Atlantic to see what life would be like without the NHS or a similar health care system.

The establishment of a universal and comprehensive health service, free at the point of use and delivered as a nationally integrated public service, has been a boon not only for the working class, but for the vast majority of the British people, it has also been remarkably cheap to run for the British state and capital. Although the NHS has delivered health services comparable to anywhere else in the advanced capitalist world it has done so at far less cost and far more efficiently.

This is clearly the case if we compare the British and US health care systems. In the US the state spends more per head of population on Medicare, Medicaid, public hospitals and other remedial public health care schemes and services required to patch up the US health care system, which is based on private insurance and private health care provision, than the British government spends on the entire NHS. The total spending as a proportion of GDP on health care in the US, both private and public, is more than twice that of the UK.

The ‘Bismarkian’ health service systems prevalent in much of continental Europe, which are based on social insurance schemes and mixed public and private provision of health care, are certainly more cost efficient than the US system and like the NHS provide health care free at the point of use. Yet the NHS has proved more efficient than these health care systems.

The funding through general taxation and provision through a nationally integrated public service has provided the most equitable, efficient and cost effective way of delivering a modern health care system. Yet over the last twenty years we have seen a continual drive not only in the UK but on the continent as well to move towards a US-style market-based health care system.

This raises a number of interesting general questions:

• Why has the NHS proved so cost effective?

• What is driving this tendency towards an evidently more costly form of health care system? After all have not higher health costs for workers in the US made American capital less competitive?

• To what sense was the NHS a gain of the working class and what will be the consequence of its demise? What is the significance of this move towards a US health care system for the working class?

We shall consider such interesting questions in more detail in part II of this article, which we hope to publish in the next issue. But more immediate and politically urgent is the need to address the issue of the current attempts to dismember the NHS put forward by the Andrew Lansley which at the time of writing are going through parliament.

Lansley’s reforms are certainly not the first time that the NHS has been seen to be under threat over the last thirty years of the ascendancy of ideological neoliberalism. As we shall see, following the cuts in health spending that followed the sterling crisis in 1976, it was feared that the election of Thatcher would mark the end of the NHS, fears that persisted throughout much of the 1980s and 1990s. More recently New Labour’s reforms designed to ‘modernise’ the NHS launched in 1999 and accelerated in 2004 threatened to bring about a decisive shift towards a ‘market in health care’. Indeed the invaluable work of Allyson Pollock, Colin Leys and John Lister, amongst others, showed how the various reforms being put forward by New Labour under the guise of ‘saving the NHS’ risked reducing the NHS to a mere kite mark denoting the quality of competing health care providers in a competitive market.

Yet despite the dire warnings that the NHS would soon be a thing of the past, the NHS so far has remained more or less intact. If we are to understand the significance of Lansley’s proposals then it is necessary to place it in its historical context. It is necessary to consider not only how the drive to reform and dismantle the NHS has developed but also the formidable obstacles and contradictions it has encountered. We have to see how attempts to dismantle the NHS have so far failed before we can evaluate the prospects for Lansley’s proposed assault.

Thus in part I we shall seek to place Lansley’s proposed ‘reforms’ of the NHS in the historical context. We shall therefore give a detailed historical account and analysis of the attempts to drive the NHS to market over the past thirty years.

THE POST WAR CONSENSUS AND THE NHS

In 1948 the Conservative party had fully backed the vehement opposition of the British medical establishment to the Labour government’s proposals to set up the NHS. As a consequence, when the Tories won the 1951 general election it was widely feared that they would promptly put an end to ‘socialised medicine’ in Britain. However, in its three years of existence the NHS had not only proved highly popular, but, contrary to the predictions of many Conservative politicians, had also proved to be highly cost effective. As a result the Conservative governments of the 1950s came to accept, if rather begrudgingly at first, the NHS as an accomplished fact.

By the 1960s most Tories’ attitudes had begun to move from begrudging acceptance to enthusiastic support of the NHS. In 1961 the notorious right wing Tory, Enoch Powell, was appointed secretary of state for health and promptly demonstrated his commitment to the NHS by announcing an unprecedented hospital building programme. From then on all, but a dwindling band of diehards on the extreme right of the Conservative party, defended the NHS. For most Tories the NHS was now viewed as a cherished and peculiarly British institution, which stood alongside the Royal Family and the BBC. Thus, when it came to the issue of health, all the major political parties had become ‘socialist’.

With the economic and political crises of the 1970s this political consensus around the NHS began to be increasingly challenged from the fringes of both the left and the right of the political spectrum. For the old left the NHS fell far short of the vision of a socialist health service that had been originally put forward by the Socialist Medical Association in the 1930s, and which had inspired the creation of the NHS. First of all successive governments had underfunded the NHS. Second the compromises the post war Labour government had been obliged to make with the medical establishment in order to establish the NHS undermined its basic principles and distorted its priorities. Senior doctors and medical consultants had far too much power. Hospitals were run at the convenience of the hospital consultants, and as a result their private patients were given priority of treatment. Furthermore, dominance of the medical establishment meant that the more prestigious areas of medicine, such as heart surgery, were able to attract more resources leaving the less prestigious, such as mental health, underfunded.

In addition to these old left criticisms there emerged the more ‘radical’ criticisms of the new left. Taking the provision of free health care for granted, these new left criticisms focused on the very theory and practice of modern medicine itself that the NHS served to entrench. Thus for example, they pointed out the persistence of Victorian ‘classist’ and ‘sexist’ attitudes in medical theory and practice; the rigid gender division of labour between ‘hard’ intellectual roles performed by male doctors and the ‘soft’ caring roles performed by mainly female nurses. They contrasted the analytical illness-focused approach of conventional medical science available on the NHS to the holistic and hence more patient-focused approach of alternative and non-western medicine that was rigorously excluded from the NHS.

On the right, the small band of die hard Tories were now being bolstered by the pioneers of what was to become known as neoliberalism, which were now gaining a toehold in the economic departments of the universities and filling up the newly emergent right wing think tanks. For these free market ideologues the NHS was certainly an anathema, which defied all the principles and assumptions of the free market. Employing over one million people, the NHS was the largest employer in Europe, and second in the world only to the Chinese People’s Liberation Army. As such, for the free market ideologues it could only be characterised as a huge Stalinist bureaucratic monolith, which by definition must be inefficient. Armed with the theorems developed by the new sub-discipline of health economics, which purported to prove how the market in health care could be both equitable and efficient, they advocated sweeping away the NHS. Following Margaret Thatcher’s decisive victory in the 1979 general election these free market ideologues could hope to have their proposals put into practice.

THE NHS IN THATCHER’S HANDS

Thatcher though, however much she may have been sympathetic to the nostrums of the free market ideologues in ‘theory’, was above all a practical politician. It was clear that any move to radically reform the NHS, let alone any attempt to dismantle it, faced almost insurmountable problems.

First of all there was the prevailing opinion within the established health policy making circles, made up of senior civil servants, government advisors, senior NHS managers and prestigious independent ‘experts’ drawn from both the medical professions and academia, that the NHS not only provided health care comparable to any other health system in the world, but did so very cheaply. It certainly would not be easy to convince this weighty opinion, backed up as it was by substantial empirical evidence, of the veracity of the abstract theories of the upstart free market ideologues.

Second there was the formidable obstacle of the overwhelming support for the NHS on the part of the medical professions. The conservative medical establishment, which had vehemently opposed Bevan’s original proposals for establishing the NHS thirty years before, had now long passed into retirement. Most medical professionals had now spent their entire careers working within the NHS system. They had come to value the provision of universal health care as an integrated public service because it allowed them to practice their vocation as medical practitioners without heed to the financial means of their patients. They also had come to value the NHS for providing them with a comprehensive system of medical training and a guaranteed job and career structure for those who graduated on nationally agreed pay and conditions. Thus the vast majority of doctors, nurses and other medical professionals, and most importantly the highly influential organisations such as the BMA and Royal Colleges of surgeons, physicians and nurses which represented them, were stout and vocal supporters of the NHS and the principles on which it had been founded.

Third there was the problem of the unionised and increasingly militant hospital work force that could be expected to mobilize against any major reforms that would threaten the NHS and their position within it. The militant strongholds within the hospitals had been the porters, cleaners and other non-medical auxiliary workers. But the nurses’ strikes of 1974 and 1979 and the industrial action taken by junior doctors in 1975 had shown that what at the time could be seen as a general tendency towards the ‘proletarianisation’ of the lower ranks of the professions had in the NHS resulted in the spread of militancy to medical professionals and a growing solidarity between both medical and non-medical hospital workers.

Fourth there was the sheer popularity of both the NHS and for those who worked in it. Although NHS workers were often reluctant to take strike action that may endanger patient care, when they did take action they could usually count on popular support. Indeed, there were incidents that showed the potential for industrial disputes in the NHS to generalise across sectional and industrial barriers to outright rank and file class confrontation, e.g. in 1973 when uniformed nurses organised flying pickets of a Swansea coal mine and 1500 miners stopped work at the pit for twenty four hours, leading to delegates from all west Wales pits to call for a lodge conference to spread the action; or in the 1974 strike when nurses were able to bring out miners and engineers in sympathy strikes in Manchester and Wales.

Yet it was not just miners that were sympathetic to nurses and the NHS that they epitomised, but Thatcher’s ‘own people’. As the grocer’s daughter from Grantham no doubt knew more keenly than many of the toffs in her cabinet, the lower middle classes might defend the ‘right to go private’ in order to jump the waiting list for minor treatments, but when it came to serious ailments and major operations they were dependent on the NHS. They knew only too well that a more US-style health care system would leave them paying far more in private insurance than they would gain in any tax savings.

Finally, even if it had been possible to overcome the formidable opposition that would almost certainly have arisen against any attempt to dismantle Britain’s socialised health care system, there was the very real problem that there was no immediate alternative that could take the place of the NHS. Following the establishment of the NHS the private health care industry had been reduced to playing a rather marginal role, and had become largely parasitic on the NHS.

Shortly before the establishment of the NHS, seventeen of the main ‘non-profit’ provident associations that had up until then provided medical insurance had joined forces to form British United Provident Association (BUPA). As a result BUPA obtained a near monopoly in the provision of private medical insurance in the UK. By the late 1970s BUPA was providing 1.5 million medical insurance policies that covered around 6% of the British population. In the 1970s BUPA also began building and running their own network of private hospitals. But even these handful of hospitals mostly specialised in simple routine operations and treatments. Indeed, when any complications arose their private patients were, as they still are, usually rushed off to the nearest NHS hospital.

Private health care was largely delivered by senior medical consultants working out of NHS hospitals. The 1948 compromise between Bevan and the medical establishment had allowed senior consultants to continue to carry out private work in addition to working for the NHS. Most medical consultants were thereby able to supplement their wages paid by the NHS by charging fees to their private patients. But most of these private patients were treated in NHS hospitals using NHS facilities and nursing care.

Thus private health care was not only relatively small compared to the NHS, which provided health care to the vast majority of the British population - including many who had private medical insurance – but was also largely dependent on both NHS doctors and nurses and NHS hospital facilities.

With the NHS committed to giving equal access to the best medical treatment available regardless of ability to pay, the principal advantage of ‘going private’ was for the better off to jump the queue for treatment. Thus it was certainly in the interests of both BUPA and senior medical consultants that the NHS should be underfunded, since this would result in longer waiting lists thereby making ‘going private’ more attractive. But being so dependent on the NHS it was not in their interests to go as far as undermining the NHS. The ‘private health care industry’ was therefore neither willing nor able to replace the NHS.

In the face of such formidable problems Thatcher had little interest in ‘radically reforming’, let alone dismantling the NHS when she first came into office. If she was to ‘roll back the state’ Thatcher recognised that it was first necessary to break the power of organised labour. This was achieved only with the decisive defeat of the miners in her second term, after forcing up unemployment to levels not seen since the 1930s through the resolute implementation of monetarist economic policies, and the introduction of draconian anti-strike laws. Even then, it must be remembered, large parts of industry were in public ownership. Airlines, car manufacturers, steel plants, telecommunications, were prior candidates for privatisation. Then there were the great utilities of gas, water and electricity before she could get round to privatising public services like health and education that could only be considered in a programme for a distant third or fourth term that might never happen.

Thatcher, therefore, had far more pressing priorities than picking a fight over the NHS that she might well lose. Indeed, when in 1981 the policy wonks at the Conservative party Central Policy Review Staff produced a policy document proposing to dismantle the NHS, which was then leaked to the press, Thatcher promptly distanced herself from such proposals and at the Conservative party conference unambiguously declared that the NHS would be ‘safe in her hands’.

It is true that in her first term in office Thatcher raised prescription charges. But, as she could point out, prescription charges had originally been introduced by the Labour Party in 1951 and had been reintroduced following the sterling crisis in 1967 after which their value had been rapidly eroded by the high inflation rates of the 1970s. Thatcher could claim that by raising prescription charges she was merely restoring their value. Furthermore, by retaining the various exceptions, which exempted the old, the long term sick and those on means tested benefits from paying the increased charges, the impact of this measure was limited. Indeed, the increased charge did little to raise income for the NHS or deter demand for its services and was largely a political gesture.

More significantly, it is also true that in her first term Thatcher shifted the responsibilities of the NHS for the long term care of the elderly on to local authorities. This allowed for the subsequent introduction of ‘hotel charges’ for those who were deemed to have sufficient assets to pay - without being seen to impinge on the NHS principle that those in receipt of health care should not pay ‘hotel charges’ for their stay in hospital or other institution. This was to mean that the growing numbers of elderly who had become homeowners during their working lives were to find that they were required to sell their homes if they needed to enter old people’s care homes. As we shall see, it also, eventually paved the way for the privatisation of old people’s homes.

Yet beyond these changes Thatcher in her early years trod very warily with respect to the NHS. Indeed, in retrospect, it might be said that the NHS was treated relatively favourably under Thatcher. Nevertheless, the NHS was not to be entirely exempted from Thatcher’s over-riding imperative to curb the remorseless growth in public spending. For Thatcher, if the NHS was to remain - at least for the time being - a universal and comprehensive public service, free at the point of use, then it would have to become more efficient and cost effective.

As the Tories have subsequently been keen to point out, it is true, that, apart from the financial year 1983-4, spending on the NHS continued to grow substantially faster than the general rate of inflation. Indeed, both during Thatcher’s eleven years in office and under the subsequent Tory Government of John Major in the 1990s, there was a substantial increase in expenditure on the NHS in ‘real terms’. However, with the general rate of wages in the economy as a whole rising faster than the general rate of prices, and with little scope for increasing ‘productivity’, the NHS, like other labour intensive public services at this time, faced costs rising faster than the general rate of inflation. Furthermore, an aging population and advances in medical treatments meant that the NHS had had to meet an ever increasing demand if it was to provide a universal and comprehensive service. As a result expenditure on the NHS had to grow considerably faster than the general rate of inflation just to stand still.

In her first three years in power Thatcher had stuck more or less to the previous Labour government’s plans for increased spending on the NHS, which had aimed to restore some of the cuts that had been imposed under pressure from the IMF following the sterling crisis in 1976. However, the NHS was not to be entirely exempt from the general austerity measures aimed at curbing public spending that were first trailed in Geoffrey Howe’s notorious 1981 budget. As a consequence, between 1983 and 1988 spending on the NHS was reined back. Although spending for the most part still grew in real terms during this period, it was far from sufficient to keep pace with growing demand. There therefore arose an increasingly severe financial squeeze on the NHS.

It was secondary health care – that is mainly hospitals - that was to bear the brunt of the drive to curb rising costs. Hospital boards were stuffed with businessmen who were expected to provide a more ‘cost focused’ oversight on the running of hospitals. Hospital managers were given cash limited budgets and were expected to make year on year ‘efficiency savings’. At the same time, like elsewhere in the public sector, the government drove a hard bargain in the national pay negotiations for hospital staff.

However, with the day-to-day running of hospitals still largely in the hands of senior medical consultants and senior nurses, the scope for managers to increase efficiency through changing long established working practices was limited. Better use of resources could bring some savings, but by far the biggest item of cost was the wage bill. But with wage levels set nationally the only way for hospital managers to trim the wage bill was to reduce staffing levels. Chronic staff shortages began to lead to the closure of wards and in some cases entire hospitals. Hospital workers, particularly nurses, were obliged to work harder to make up for the lack of staff and waiting lists began to seriously lengthen.

All this was then compounded as the recession of the early 1980s gave way to the mid-1980s boom. Up until the 1970s nursing had been one of the few careers open to women. This was now rapidly changing. As unemployment fell, the low pay of nurses combined with their deteriorating working conditions meant that it was increasingly difficult to recruit young nurses or retain old ones even when where there was money available to pay them. Managers had to resort to more expensive agency nurses that cut further into their restricted budgets. By 1988 this squeeze on the NHS budget had reached crisis point.

The crisis of 1988 and the emergence of the ‘internal market’

As early as 1983, following industrial action taken by ancillary hospital workers the previous year, Thatcher had introduced the process for the competitive tendering of hospital cleaning, laundry and other auxiliary services. Yet it had only been after the defeat of the miners in 1985 that the government began in earnest to press hospital managements to implement competitive tendering as a means of cutting costs. As a result 1987 had seen a number of strikes by hospital workers across the country. Then, at the beginning of 1988, thirty eight night shift nurses went on wildcat strike against understaffing and low pay in Manchester. Within weeks an avalanche of strikes, protests and demonstrations had swept across the country involving tens of thousands of every category of NHS staff, from doctors and nurses to clerical and ancillary workers. This wave of strikes and protests incited solidarity action from other workers. Car workers at Vauxhall car plant in Ellesmere Port, dockers at the Royal Dockyard at Rosyth and oil workers in Inverness among others came out on strike to support the national days of action that were called by the health unions.

This wave of wildcat strikes in the NHS became part of a much wider strike wave in the winter of 1988, which included car workers, seamen, miners and teachers. For a few weeks it seemed that the class demoralisation that had followed the defeat of the miners had come to an end.

Little more than six months before, Thatcher had triumphantly won her third election, and had appointed the hard line right winger John Moore as secretary of state for health to maintain the financial squeeze on the NHS. Now, in the face of mass opposition, Thatcher was forced on to the back foot. As means of buying time she was obliged to make an impromptu announcement of a review of the NHS.

For the neo-liberal right wing minority in the Tory party who were opposed to ‘socialised medicine’, it was now clear that simply slowly bleeding the NHS to death by squeezing its budget in the hope that more people would opt out and ‘go private’ had reached a dead end. John Moore and other right wingers in the cabinet urged that the time had come for more radical measures to finance the NHS such as greatly increased health charges, the introduction of a national health insurance scheme or tax breaks for those who opted for private health insurance and health care. These measures were soon ruled out. It was recognised that not only would they be far too costly but given the mass protests and strike action in defence of the NHS that had prompted the review they would be unfeasible without a major confrontation with the working class. Instead, John Moore was sacked and the NHS was to be given an unprecedented increase in its funding over the following four years. However, foreshadowing what was to occur ten years later, in return for this substantial and sustained increase in funding there were to be major reforms to the NHS.

Firstly the scope of NHS care was to be further reduced with the transfer of the responsibility for the long term care of the mentally ill to local authorities. This allowed for the closure and sell off of the large mental hospitals, along with their often spacious grounds, as mental patients were transferred to ‘care in the community’. At the same time, local authorities were obliged to contract out the long term care of the elderly to privately run nursing homes. This opened up a whole new market for private nursing care.

Secondly, the programme of tendering out ancillary services of hospital was to be continued but nurses’ pay was to be re-graded as part of a move to transform nursing into a ‘modern profession’. This facilitated what was to become a growing split within hospital workers between re-professionalised nurses and an increasingly casualised and temporary work force employed by private contractors.

Thirdly, and perhaps most importantly given subsequent NHS reforms that were to occur under New Labour, was the planned introduction of an ‘internal market’. The NHS was to be split between those parts that provided health services and those parts that were to purchase such services. The idea being that by introducing a ‘shadow market’ those responsible for running the NHS could be made to become far more cost conscious when taking decisions concerning the delivery and provision of health care.

Following their nationalisation in 1948, hospitals had been subject to directives from the rather distant Department of Health in Whitehall and the regional health authorities, and had been overseen by lay members appointed to the various health and hospital boards. But, as we have already mentioned, much of the day-to-day running of hospitals was determined by the senior medical consultants. As far as the senior consultants were concerned, hospital managers were largely seen as subordinates, who were responsible for undertaking the rather tiresome tasks of doing the necessary paper work and keeping the books. As a consequence, when decisions were to be made financial considerations were often a poor third after both the medical concerns and the convenience of the senior hospital doctors.

Furthermore the funding of hospitals had been through a block grant based on the historic running costs adjusted for any increase in services agreed with the Department of Health or the regional or local health authorities. This made it difficult for managers to asign the costs of providing particular operations or medical treatments and thereby draw proposals for cost savings.

With the introduction of the ‘internal market’ hospitals, and other ‘secondary health care providers’, in each town or district were to be grouped together into NHS Trusts. The consequent new layer of NHS Trust managers placed immediately above the long established hospital administrators served to strengthen the position of management over and against that of the medical professionals.

In addition the funding of the hospital trusts were to be based at least in part on treatments and operations they performed - that is on what they ‘sold’. By putting a costing on the provision of each particular health service and treatments it was hoped to make managers and medical staff more aware of the costs and efficiency of their delivery.

On the ‘purchase’ side, instead of the Department of Health paying hospitals directly, GPs and local health authorities were to be given funds to ‘buy’ health services. Local health authorities would buy collective services for their area, such as the provision of accident and emergency services; while GPs would ‘buy’ individual operations and treatments on behalf of their patients from the hospitals and other ‘secondary care providers’ and ‘pay’ for the drugs they prescribed. This, it was argued, would make GPs in particular far more conscious of the costs of health care. They would no longer be simply free to refer their patients for any treatment that they thought best but would have to have some regard to the cost.

However, the attempt to implement an ‘internal market’ into the NHS proved to be a failure both economically and politically. Whatever gains there may have been in terms of controlling costs by strengthening the hands of management and making GPs and hospital staff more cost conscious were more than outweighed by the costs incurred by the ‘internal market’ itself. Firstly, as we have seen, the introduction of the ‘internal market’ required a whole new layer of administrators to run the new hospital trusts. Secondly, far more importantly the purchaser-provider split involved substantial transaction costs as a vast array of health services had to be priced and invoiced. As a result administration costs more than doubled from less than 6% to 12% of NHS spending.

This was further compounded by the gradual introduction of GP fund holding. The government’s proposals to introduce GP fund holding, which was central to the introduction of the ‘internal market’, had met with fierce opposition on the part of the BMA and many GPs. The BMA rightly saw the proposals as compromising the relation between GPs and their patients, since they would no longer be able to make referrals entirely on the basis of clinical need. They also saw GP fund-holding as a means of shifting the responsibility of the government’s underfunding of the NHS on to the shoulders of GPs. To overcome the resistance of the BMA the government sought to appeal over its head to individual GPs. GPs were to be allowed to opt into the system. To entice GPs to come on board they were to be allowed to keep part of the unspent budget to ‘improve their practice’s facilities’, which could of course be easily siphoned off into the doctor’s bank account if they were so inclined. In addition to this bribe to GPs opting in, the government had to ensure that fund-holding GPs had sufficient funds to avoid the politically embarrassing event of them running out of money due to some unforeseen increase in demand for health care from their patients. Furthermore, there were the considerable administrative costs to the NHS of running a dual payment system – one for GPs that were fund-holders and one for those that were non-fund-holders – until all GPs could be persuaded to opt-in to the system.

As a result, the attempt to introduce GP fund-holding proved to be a highly expensive experiment. This was at a time when the NHS was once again being starved of cash as part of the severe austerity measures that were being imposed following Black Monday and the sterling crisis of 1992. Amidst growing waiting lists, the accusations that patients of GP fund-holders were being giving preferential treatment became a major political issue that was to contribute to Labour’s landslide election victory in 1997.

NHS under the Tories - concluded

As in the 1950s, there had been a rather begrudging acceptance of the NHS by the Tory governments under both Thatcher and Major. Funding of the NHS was kept tight for much of the eighteen years of Tory rule. With transfer of responsibility for the long term care of the mentally ill and the elderly transferred to local authorities the scope of the NHS was significantly reduced. The later Tory governments also oversaw the beginning of the decline of NHS dentistry, as parsimonious contracts prompted more dentists to opt out of the NHS and dental charges were increased. Yet during these years of Tory rule the founding principles of the NHS remained largely intact. Although ancillary hospital services were contracted out to private companies, the line was clearly drawn at medical services. The NHS remained predominantly a universal public service provided on the basis of clinical need not ability to pay and funded out of general taxation. Neither Thatcher nor John Major was prepared to make any unprecedented breaches to these founding principles.

As we shall now see, it was to be left to the Labour party – the ‘party of the NHS’ to cross these red lines.

NHS UNDER NEW LABOUR - THE FIRST PHASE OF ‘REFORMING THE NHS’

From muddling through to the ‘third way’

In 1997 the NHS was once again reaching a critical state. The tight controls over spending following Black Monday in 1992, exacerbated by the introduction of the ‘internal market’, had once again seen the NHS becoming increasingly understaffed and overstretched. Waiting lists were growing to the point where waiting times for non-emergency operations of months if not years had become the norm.

It was now becoming even more evident than in 1988 that the NHS was in a rapidly deteriorating condition that would have to be addressed sooner rather than later. The hospital building programme that had been originally launched by Enoch Powell in the early 1960s had been abruptly brought to a halt by the economic crisis of the late 1970s. As a result, as Britain approached the 21st century, there was still a large number of NHS hospitals that had been built before the first world war. Furthermore, cutting maintenance budgets had always been the first resort for hospital managers desperate to cut costs during the repeated periods of austerity over the previous twenty years. As a result many of Britain’s hospitals were not only outdated, expensive to run and unsuited to the needs of modern medicine, but also increasingly dilapidated.

The poor state of the NHS had begun once again to raise the issue within the ruling class of its future. The general retreat of working class militancy and solidarity that had occurred over the previous ten years meant that the prospect of a repeat of the widespread strikes and protest actions in defence of the NHS were now significantly less likely than in 1988, although they still could not be entirely ruled out. As the BMA’s opposition to the ‘internal market’ had recently shown, the medical professions and their organisations remained committed to the NHS and willing and able to take collective action to defend its basic principles. Furthermore, the NHS, despite its dire condition, remained a cherished and popular institution amongst the general public. Any attempt to overtly radically reform, let alone dismantle the NHS, was still likely to face formidable opposition.

It was true that the numbers of people covered by private medical insurance had more than doubled since Thatcher had first come into office, and there had been a significant growth in the number of private hospitals, but the UK health care industry still remained marginal and largely parasitic on the NHS. However, although the UK private health care industry remained limited and unable to provide a realistic alternative to the NHS, the 1990s witnessed the emergence of a global health care industry. Increasingly mainly American-based transnational health care corporations were now already beginning to eye up Europe, and particularly Britain as possible lucrative markets for expansion.

Fuelled by the growing concerns at the poor state of the NHS, the well- funded ideological outriders of this emergent global health care industry began to develop what was in effect a two-pronged attempt to take over the established policy-making circles. The first prong was to embolden the Conservative right to demand the outright privatisation of health care in Britain and the reduction of the NHS to being merely a second rate safety net service for the poor. In addition to the usual arguments concerning the inherent inefficiency of publicly provided services, they reinvigorated the old Conservative argument that the demand for health care was unlimited. Either demand had to be limited through price or it had to be rationed through waiting lists. Thus, however much money was poured into the NHS demand, unlimited by price, would inevitably grow leading to ever increasing waiting lists.

At the same time as urging the Tory right to assault the citadels of the policy-making establishment from the outside, these well-funded ideologues also posed as friends of the NHS from the inside. These Grima Wormtongues advised that, although it might be possible to stump up some money to allow the NHS to muddle through for the time being, the day was fast approaching when increasingly demanding middle class consumers would be persuaded to opt out of the NHS and ‘go private’. The middle classes would then become increasingly less willing to pay the taxes necessary to sustain the NHS. The NHS would then go in to terminal decline. If the NHS was to survive it would have to be radically reformed. Such advice chimed well with the ‘third way’ nostrums of Tony Blair and New Labour.

The state of the NHS became one of the key issues of the 1997 election campaign and the Labour party had made it clear that saving the NHS would be one its top priorities. As one of its five pledges, included on its key ‘pledge card’ issued during the election campaign, the Labour party undertook to: ‘cut NHS waiting lists by treating an extra 100,000 patients as a first step by releasing £100m saved from NHS red tape’.

However, on taking office it became clear that beyond this rather minimal pledge, the Labour government had little idea of what to do with the NHS apart from muddling through. Frank Dobson, the amiable old Labourite, who had to be found a place in government as a reward for aligning himself with New Labour, was appointed secretary of state for health as a reliable and reassuring pair of hands. Dobson promptly abolished GP fund-holding, but significantly retained the purchaser-provider split of the ‘internal market’ by merely transferring GP ‘funds’ back to the local health authorities.

Beyond this Dobson’s hands were tied through lack of funds. New Labour’s commitment made at the election not to raise income tax for the first term in office and to stick to the overall government spending that had pencilled in by the previous government for the first two years of the new term of office, meant that there was little money to go round. Any increase in spending on health had to come from other government departments. As a consequence, although spending on the NHS did increase in New Labour’s first two years, and a significant amount of funds were released by scrapping GP fund-holding, there was still barely sufficient extra money to prevent matters from becoming worse.

By the end of 1999 the largely self imposed squeeze on the government’s finances had begun to ease. Dobson was shunted off to fight the election for the mayor of London and was replaced by the once erstwhile far leftist and now zealous convert to New Labour – Alan Milburn. At the beginning of 2000 a particularly bad flu epidemic pushed the NHS into yet another ‘winter crisis’. The scandal of an acute shortage of hospital beds with people being treated on trolleys in corridors provided Tony Blair with an opportunity to make a dramatic and unexpected public announcement on TV. It soon became clear that this announcement was more than one of his usual PR exercises merely designed to defuse the immediate impact of bad publicity through a flurry of cosmetic policy initiatives. Indeed it amounted to a transformational shift in policy regarding the NHS. Blair announced that over the next ten years spending on the NHS would be raised to the average level of spending in the major European countries. This implied a commitment to provide a huge increase in spending on the NHS. Indeed, NHS spending would have to rise from less than 6% to more than 9% of GDP.

‘Saving the NHS’ or fattening it up for the market?

Whatever else may be said about Tony Blair he was certainly true to his word over increasing the funding of the NHS. The unprecedented period of uninterrupted economic growth, which saw steadily rising tax revenues, boosted by a 1p in the pound increase in the rate of national insurance, provided the funds for Blair to meet his target of raising NHS spending to levels comparable with other western European countries. As a result, by 2010 there were 79,000 more nurses and 27,000 more doctors working for the NHS than ten years before. The number of operations performed increased from 5.7 million in 1997 to 9.7 million. The NHS also underwent the biggest hospital building programme in its history. All this allowed for the reduction of maximum waiting times for non-emergency operations and treatments to fall from two years to little more than 12 weeks, and for most of the other key indicators of the performance of the NHS to rise to levels comparable to anywhere else in the world.

For senior NHS managers and planners, who had for years been restricted by the overriding imperative of keeping within tight annual budgets, the flood of extra funding opened up exciting opportunities for long overdue improvements in the way health services could be provided. For NHS staff, the extra funding also allowed for a series of generous pay settlements, particularly for those on higher grades, and a radical restructuring and harmonisation of pay scales across the NHS. The hiring of more nurses and nursing assistants greatly facilitated the acceleration of the transformation of nursing into a ‘modern profession’, which for years had up until then been held back by a lack of money. More nurses allowed nurses to specialise, and with more nursing assistants nurses could be divested of more menial tasks so they could undertake duties that had previously been the reserve of doctors. Within the new pay scales those who developed specialist skills could expect to be rewarded with a clearer and more rapid career progression.

Yet all this came at a price. The NHS was to become the practical proving ground of Blair’s, up until then rather vague, ‘third way’. Invoking the threat of the anti-NHS lobby, Blair insisted that if vast amounts of government money were going to be poured into the NHS then it would have to modernise in order to make it more attractive to the middle classes. Patients would have to be treated more like consumers and given more ‘choice’. The NHS would have to become far more ‘innovative’ and ‘flexible’ to meet the needs of the ‘modern 21st century consumer’. For Blair, if such modernisation of the NHS was to be achieved it would have to be prepared to harness the more ‘customer- orientated’ skills of the private sector, and the NHS itself would have to become far more business-like.

The long-standing demand from the left that the NHS should be fully funded would at last be granted; but this had to come with a more ‘market- orientated’ NHS and greater private sector involvement that had long been demanded by the right. The old Labour ‘shibboleth’ - that the private sector provision of health care was inimical to the basic principles of the NHS - would have to be discarded.

Following Blair’s announcement at the beginning of 2000, Milburn was set the task of drawing up the ‘vision statement’ for the transformation of the NHS that would begin in earnest after the general election of 2001. This was published as the NHS Plan later in the year.

New Labour’s first phase of market reforms 2000-2003

Milburn’s Health Plan talked much about harnessing the private sector in order to improve the NHS and the need to make health services more patient focused by providing patient choice. However, the overriding imperative in what we will term New Labour’s first phase of NHS reforms was the need to show tangible results. Blair had feared that by making a commitment to greatly increase the funding of the NHS he would soon find himself under attack from the Tory press for pouring ‘tax payers’ money down a bottomless pit’ if it did not produce demonstrable results quickly. As a result, as the flow of funds began to increase, there was a proliferation of targets issued to NHS managers to ensure resources were concentrated into areas that could produce improvements in the performance of the NHS that were both measurable and politically significant.

Yet this overriding need to produce tangible results also shaped both the introduction of reforms and private sector involvement in the NHS that were introduced in this period. Indeed, for all of Milburn’s talk of a modern more consumer-orientated NHS the need to build hospitals and reduce waiting lists became the primary justification for harnessing the private sector.

PFI – Bribing the City

Given the dilapidated condition of the NHS, there was nothing more tangible for the general public which demonstrated the government’s commitment to the improvement and modernisation of the health service, than the opening of a brand new hospital. Even before Blair’s announcement of extra funding for the NHS, the New Labour government had begun to involve private capital through the Private Financial Initiatives (PFIs) to build hospitals. With the surge in NHS funding PFIs became the principal way of funding what was to become an unprecedented hospital building programme.

PFI had originally been introduced under John Major’s government in 1992. Traditionally public construction projects such as the building of schools and hospitals had been financed directly by borrowing money from the financial markets by the selling of government bonds. The money raised would then be used to pay construction firms to carry out the building work. Under PFI, consortia – usually consisting of financial and construction companies would be set up in order to raise the necessary finance and to carry out the building work. The government would then rent the buildings for a contracted period of time – usually between twenty to thirty years. In most cases the consortia would also manage the buildings and ensure their maintenance during this contracted period. They would then receive a management fee in addition to the rent.

Advocates of PFI argued that it had distinct advantages over the traditional means of carrying out public construction projects for the government. First of all, the financial risks, such as any cost overruns that often bedevil major construction works, would be transferred from the public authorities to the consortia undertaking the work. Secondly, because the projects would be put out to competitive tender, competition between the different consortia seeking to win each contract would drive down costs. Thirdly, costs would be further reduced by the inherently greater efficiency of the private sector in managing and carrying out major construction projects.

Forming a consortium and then submitting a complex bid, involving not only the construction of a school or hospital but also the subsequent leasing agreements - with all the expensive legal expertise this would entail – was necessarily a costly and lengthy process. But the costs of making a bid could only be recouped if the consortium actually won the contract. With a competitive tendering process often involving three, four or perhaps five consortia, the chances were that the time, money and effort required to make any one particular bid would be wasted.

The private sector was therefore reluctant to become involved in PFI schemes unless there was some guarantee that; firstly, there would be a steady stream of similar PFI projects, so if they missed out on one there would be another contract coming along soon, and secondly, that when they did win a contract they would be sure to make a killing so as to make up for the ones they had missed. However, following Black Monday there was simply not the money available to ensure a steady stream of public construction projects. Thus under John Major, PFI had failed to take off.

Haunted by the history of previous Labour governments being derailed by hostile financial markets, Gordon Brown had long been determined to placate the City from the very moment he assumed office as Chancellor of the Exchequer. As a consequence, his first act as Chancellor was to announce that he was handing over day to day control over monetary policy to the Bank of England. This was an act that had long been advocated by financiers and orthodox economists, but which had been strenuously resisted by previous Conservative chancellors, reluctant to give up control over politically sensitive interest rates. Brown then announced two golden rules that would govern his fiscal policy.

The first golden rule was based on the principle that the government should pay for current expenditure out of current tax revenues, not by borrowing money. Instead, government borrowing should be used to finance ‘capital’ expenditure; that is to pay for the construction of social and economic infrastructure such as roads, schools and hospitals. However, Brown was too much of a Keynesian to insist on a rigid adherence to a balanced budget, which would require sharp cuts in public expenditure if tax revenues fell due an economic downturn. Thus his first golden rule specified that the government should cover current spending by current tax revenues over the course of an economic cycle.

This golden rule certainly provided some reassurance for the financial markets concerning Brown’s commitment to pursue a prudent fiscal regime. However, it was recognised that there was ample room for him to fudge, since it depended crucially on what Brown would define as the duration of any particular ‘business cycle’. Furthermore, by itself this first golden rule provided no limits to what Brown might borrow in order to finance what he might deem ‘necessary public investment’. It therefore had to be supplemented a second and far more rigid golden rule. This second golden rule was a commitment that government debt should not exceed 40% of GDP.

Yet such efforts to placate the City conflicted with New Labour’s commitment to address the problem of the dilapidated state of much of Britain’s social and economic infrastructure following twenty years of chronic underinvestment. How could the government find the money to build new schools and hospitals when it was committed to reducing government debt? PFI provided a clever wheeze to resolve this dilemma. Because under PFI public works were financed by the private sector the money spent on them did not count as government debt. Indeed, since the government in effect ended up renting buildings from the private sector, PFI transferred the government’s ‘capital’ expenditure to the ‘current spending’ side of its ledger.

For the first two years there had still been little scope for setting up PFI projects since the New Labour government was committed to the previous government’s plans to reduce overall government expenditure. However, as the economy boomed and tax revenues rose it became possible to use PFI to ‘leverage up’ the increase in revenues to finance major construction programmes without breaching Brown’s second golden rule. Thus after 1999 PFIs had begun to take off. Following Blair’s decision to prioritise the NHS, PFIs became the principal means of financing the unprecedented hospital building programme.

However, it soon became clear that the arguments of the well-paid advocates of PFIs were seriously flawed. The argument was that there would be a cost saving in the long run if investment was made by private companies rather than government spending. But any investment would obviously incur interest rates, and even more obviously the government could always borrow at far lower interest rates than any company, since the risk of it defaulting on its debts was negligible. Any cost savings that would result from the supposedly greater efficiency of the private sector, due to competition or due to the transfer of risk, were dwarfed by the greater financial costs of raising money through PFI and the need to ensure the private consortia made ‘an adequate profit’. As has now become widely recognised, PFIs proved to be a very bad deal. With the government insisting that PFI was the only means of financing the construction of new hospitals, hospital trusts found themselves having to pay several times the cost of a new hospital over the course of the twenty or thirty year deal, at the end of which the buildings would belong to the private consortium.

Yet despite the fact that PFI proved to be a very expensive way of financing the hospital construction programme, it allowed Gordon Brown to appease the financial markets by sticking to the letter of his golden rules. The City of course was prepared to turn a blind eye to such creative accounting because many financial firms were able to make a killing out of it. PFI proved to be a handsome bribe to the City that allowed the New Labour government to show that it was rebuilding the NHS without upsetting the financiers.

PFI meant that the private sector was now far more closely involved in the management of the NHS through the ownership and maintenance of a substantial number of hospitals. Yet this involvement still stopped short of actually providing clinical care. It was the political imperative of reducing waiting times that provided the justification for crossing this all important ‘red line’.

Crossing the line

PFI schemes may have allowed New Labour to quickly deliver tangible and concrete results in the form of the brand new hospitals, but they did little to meet the equally politically important imperative to reduce waiting times for those needing NHS treatment. Most of the new hospitals simply replaced old hospitals. Because PFI was so expensive hospital trusts usually had to settle for new hospitals that had significantly fewer beds than the hospitals that they replaced. Thus, other things being equal, hospitals built through PFI schemes tended to reduce the capacity of the NHS.

For Alan Milburn the drive to reduce waiting lists could only be done by breaking the ‘taboo’ of private sector involvement in the provision of NHS-funded health care. In 2000, with great publicity, he signed a ‘concordat’ with the main private hospitals for the NHS to use their spare capacity. In accordance with this concordat, Primary Care Trusts (PCTs), which were now the NHS bodies responsible for ‘commissioning’ health care, would be permitted to buy hospital care for NHS patients from the private sector. In another highly publicised initiative Milburn granted permission for PCTs to send NHS patients abroad for treatment in order to reduce waiting times.

Yet despite all the fanfare about such initiatives their impact on reducing waiting lists was negligible. The number of patients treated in private hospitals or sent abroad for treatment never amounted to more than a few thousand. Far more significant for reducing waiting lists was the launch of the first wave of Independent Sector Treatment Centres (ISTCs).

It had long been recognised that one of the problems of reducing waiting times was that simple routine elective operations were often cancelled due to the need for hospital surgeons to operate on emergency cases. The obvious solution to this problem was to establish separate treatment centres that would specialise in routine elective surgery. For decades the development of this solution within the NHS had been held back by a lack of funds. Milburn saw this as an excellent opportunity both to involve the private sector in providing health care at the same time as rapidly reducing waiting times. Although the treatment centres would be built by the NHS they would be franchised to the private firms to run on five year contracts. As a result, in what was to be the first wave of ISTCs, 34 centres were built and franchised to some of the major transnational health corporations.

In the months running up to the 2001 election and immediately after it, Blair and Milburn made a point of stressing that the vast increase in funding for the NHS would have to be accompanied by the ‘reform’ and ‘modernisation’ of the NHS. Yet despite a flurry of initiatives and policy announcements such ‘modernisation’ and ‘reform’ did not seem to amount to much. By 2003, with Blair embroiled in waging war on Iraq, and Milburn facing increasing opposition from Gordon Brown and the more sceptical members of the cabinet, it appeared that the drive towards reforming the NHS by increasing private sector involvement in actual provision of health care had run out of steam. Indeed, in the financial year of 2003/4, when the first wave of ISTCs had begun to come on stream, the private sector provided merely 0.07% of NHS operations and medical treatments.

For many the increased involvement of the private sector in the NHS, whether in the form of PFI schemes or through the direct provision of health care, may have seemed a small price to pay to secure new modern hospitals and the substantial and unprecedented increase in funding of the NHS. After all, the NHS remained largely intact. Those on the left that continued to warn that the changes that had been pushed through, although small, were merely the thin edge of the wedge could be dismissed as nostalgic old socialist ideologues that were resistant to any change. Indeed, as it became clear that the transformation in the NHS was being brought about by increased funding rather than by private sector involvement, it could be hoped that Blair’s and Milburn’s insistence on ‘radically reforming’ the NHS would be forgotten as a passing fad. This seemed to be confirmed by Milburn’s unexpected resignation as secretary of state for health in the summer of 2003.

The main problem facing the NHS at this time, particularly for those working in it, seemed to be more the rapid profusion of often conflicting targets and the almost continual administrative reorganisations imposed by the the government, rather than ‘privatisation’.

Yet this view proved to be rather complacent. It underestimated the powerful interests both within and outside the government that were pressing for the prising open of the health service to health capital, the implications of organisational changes already set in train by Alan Milburn and the significance of the precedents that had been set with private sector involvement in the provision of health care within the NHS. Indeed, in what we shall term the second phase of New Labour’s reforms, there was to a renewed and far more vigorous impetus in pushing through not only greater private sector involvement but also the radical organisational changes in the NHS over the next few years.

In the first phase of New Labour’s reforms, the private sector involvement in the provision of NHS health care had been both driven and justified by the need to show rapid results. As such it had been based on the principle of ‘additionality’ – that it was confined to providing additional capacity to that of the NHS. Now, in the second phase, the driving principle for private sector involvement was to become ‘contestability’ – that is the private sector was to be brought in to compete with the public provision that threatened to transform the very nature of the NHS.

THE SECOND PHASE OF REFORMING THE NHS - 2004-2010

Towards a ‘managed market’ in health care

With the passing of the Health and Social Care Act in the autumn of 2003, which provided the legal basis for the introduction of ‘foundation status’ for Hospital Trusts, it became clear that Dr. John Reid, the new secretary of state for health and close ally of Tony Blair, had taken up the baton of radical reform from Alan Milburn. In 2004 there was a blizzard of announcements and policy initiatives that were to be continued and implemented under Patricia Hewitt – the subsequent secretary of state for health - following the general election in 2005. These initiatives put forward a wide range of reforms, each of which had its own distinct ostensible rationale – such as ‘patient choice’, ‘improved patient access to health care facilities’, the ‘introduction of competition’ or ‘improved efficiency’ – but which together could be seen as interconnected moves towards creating what has been described as a ‘managed market’ in health care.

The vision of a ‘managed market’ in health care – whose outlines with hindsight could now be clearly discerned in Milburn’s NHS Plan of 2000 – was to harness the forces of the market and competition in the delivery of health care services. The basic principle of the NHS, that there should be the provision of universal and comprehensive health care free at the point of use, would be preserved. But the delivery of health care as an integrated nationally- run public service was to be replaced by regionally based ‘mixed health economies’ made up of both publicly and privately owned ‘health care providers’.

As with the original plan for the ‘internal market’, GP fund-holding would be reintroduced under the New Labour label of ‘practice-based commissioning’. GPs would be given budgets with which they would be able to ‘commission’ or buy health care on behalf of their patients. However, unlike the arrangements of the old ‘internal market’, GPs would be able to buy health care from a wide range of approved health care providers, either inside or outside the NHS. Charities, co-operatives of former NHS staff, private companies as well as publicly owned NHS Trusts could all seek approval to compete to sell their health care services.

To prevent universal standards of health care being undermined through price competition, the Department of Health would draw up a comprehensive list of prices or ‘tariffs’ for each type of treatment available. Competition between providers would therefore be based on ‘quality of treatment’ not price, and each provider would be paid a set amount for the ‘episodes treatment’ they performed. Money would then ‘follow the patient’, allowing those providers offering a better service to customers to prosper.

By going beyond the ‘internal market’, and opening up the provision of health care to a broad range of providers, it was argued that the creation of a ‘mixed economy’ in health care provision would serve to increase ‘patient choice’ and allow for more ‘innovative’ and ‘patient focused’ ways to deliver health services. It was also argued that, unlike the old ‘internal market’, it would introduce real competition between providers, which would serve to increase efficiency, drive down costs and drive up the quality of treatment.

Yet it was acknowledged that simply letting loose market competition in the provision of health care could have serious disadvantages as well as advantages. The market-based delivery of health care had to be not only strictly regulated, but also managed and planned if it was to be harnessed to provide comprehensive health service available to all.

Each of the ten regional ‘health economies’ would therefore be managed by a Strategic Health Authority (SHA), which, as a state agency, would be directly responsible to the Department of Health. SHAs would be responsible for ensuring the planning and provision of universal and comprehensive health care in their regions by commissioning the building and maintenance of the necessary health care facilities and franchising them out to the various health care providers and overseeing health care providers and PCTs.

At a local level, PCTs would be retained. They would distribute funds to GPs in their area, and would oversee and provide general administrative support for the practice-based commissioning process. They would also be responsible for commissioning health services not covered by GP-commissioning and for ensuring the co-ordination of the delivery of health care with the social care provided by local councils.

At a national level, the secretary of state for health would not only hold the purse strings, but would also retain extensive powers to intervene in the operation of the regional health markets to ensure the provision of a comprehensive and universal health service. The secretary of state would also retain the power to appoint various semi-autonomous bodies made up of ‘experts’ to oversee the maintenance of national standards of health care, administration and medical and staff training.

Of course it was one thing to have a broad vision of replacing the NHS with a ‘managed market’, but it was quite another to realise this vision. If nothing else, the organisational and institutional changes necessary for the introduction of a ‘managed market’ were formidable tasks and could not be achieved overnight. The NHS as an integrated public service would have to be broken up into competing commercial organisations, market mechanisms would have to be put in place and there would have to be a huge increase in private sector involvement. All this would certainly require a prolonged period of transition.

Alan Milburn already had initiated many of the preparatory steps that were to provide the basis for the introduction of the ‘managed market’, but in order to not arouse unnecessary opposition from the trade unions and the medical professions he had trod warily and with much stealth. But it was becoming clear that if New Labour was to really transform the NHS into a ‘managed market’ the time was fast approaching where Blair and his allies would have to break cover.

Firstly, any radical changes were most likely to succeed if they could be wrapped as part of schemes to improve the delivery of health care. But most of such improvements cost money. By 2008, the target of raising NHS spending to 9% of GDP would have been achieved, after which there would be far less extra money to spend on funding the costs of further radical improvements and ‘market reforms’. Secondly, Blair’s pledge not to fight a fourth election meant that he would have to hand over the reins of power to Gordon Brown well before 2010. Although Brown was a co-architect of New Labour and the ‘third way’, and as such was far from looking unfavourably on the principle of ‘NHS reform’, it was not one of his top priorities. He could not be counted on to drive through the changes necessary to create a ‘managed market’ in health care, particularly as this was ‘Blair’s baby’. Thirdly, the establishment of a ‘managed market’ required large scale private sector involvement. Only the transnational corporations had the resources and capital to provide such private sector involvement on a large enough scale, but they needed a clear commitment from the New Labour government that they were serious about ‘reform’. They had to be assured that if they were to commit large amounts of capital the New Labour government would not get cold feet if the going got tough. They could not be expected to wait forever while New Labour said one thing covertly to them and another thing publicly to the trade unions, the medical professions and the general public.

Thus, after a brief pause following Milburn’s resignation, it was decided to go for it. Hence under Reid, and then Hewitt, the drive towards the introduction of a ‘managed market’ was openly accelerated. As a result, it soon became clear that New Labour’s aim was that by the following general election most of the elements necessary for the transition to a ‘managed market’ would be in place, and that the momentum of ‘reform’ would have become irreversible.

The transition to the ‘managed market’

The initial focus of the surge of reforms that followed the general election of 2005 was putting in place the three main pillars necessary for the creation of a ‘managed market’ in secondary health care. The first of these was the transformation of the existing NHS trusts that provided secondary and specialist health care into independent commercial enterprises. The second pillar was the transformation of patients into health ‘consumers’ guided by their GPs. The third pillar was the expansion of private sector involvement in the delivery of secondary health care in order to create a competitive market.

1] The transformation of NHS trusts

If NHS hospital trusts were to become ‘health care providers’ competing both with each other and with other non-publically owned ‘health care providers’, then it was necessary that they all became distinct commercial enterprises. First of all this meant that they had to be incorporated as distinct legal entities. Secondly they had to become financially independent, with no hidden government subsidies and with financial systems and controls that could cope with variations in income due to changes in market share.

In early 2002 Alan Milburn had announced his intention to allow better performing NHS hospital trusts to gain independence from the Department of Health by obtaining a new independent legal status as ‘Foundation Trusts’. At the time Milburn presented ‘Foundation Trust’ status as an option that would not only give hospital trusts greater freedom to run their own affairs, but would also increase local accountability since patients and local residents could be involved in the running of the trust. At the same time, it could also be seen as a means to raise standards. For managers of NHS hospital trusts beset by the proliferation of targets and directives issued by the Department of Health, the prospect of greater operational autonomy certainly offered a tempting incentive to achieve the required ‘star ratings’ that were needed before a trust could begin the process of becoming a ‘Foundation Trust’.

In 2002 Milburn had also introduced a new financial regime for NHS hospital trusts. First of all there was the introduction of what was termed ‘Resource Allocation Budgeting’ (RAB) - that was in fact to apply to all public services. This had two important implications for NHS hospital trusts. The first was that it prevented hospital trusts raiding their capital accounts – the money set aside to pay for maintenance, new buildings and equipment – to cover deficits on the their revenue account – the money that was required to pay day to day expenses like wages, medicines etc. This, it was argued, made the accounting of hospital trusts far more transparent.

Second, whereas previously if a hospital trust ran out of money it was able to go cap in hand to its Strategic Health Authorities (SHAs) and be given the money necessary to make up the short fall, under RAB any such payments would in effect be a loan that would have to be paid back at the end of the next financial year. This stipulation meant that NHS trusts had to be far more careful in their financial management. If they ran up a deficit in one year not only would they have to cut costs sufficiently to eliminate the deficit next year, but also to pay off the ‘debt’ they had incurred to the SHA. If they failed to do this they would face mounting 'debts’. The NHS hospital trusts would therefore be under pressure to at least break even on a year to year basis.

The second important element in the new financial regime was the shift away from cost to tariff-based payments to hospital trusts for the health services they provided. As we have seen, following the demise of GP fund-holding, the commissioning of health care had reverted back to the local District Health Authorities, which had subsequently been replaced by PCTs. As a result every year PCTs drew up service contracts with their local hospital trusts for the delivery of a specified amount of health services that were to be performed by the hospital trusts for all the patients referred to them by GPs in the PCT’s area.

The PCTs then paid the hospital trust the costs of performing the specified number of operations and treatments. Of course, with a ‘managed market’ system, it was envisaged that all ‘health providers’ were to be paid out of the funds held by the GP referring each patient. The amount paid by the GP would then be based on the nationally set tariff for each particular ‘episode of treatment’ that the ‘health provider’ performed for the patient.

However, Milburn had been reluctant to make the same mistake as had been made ten years before and rush in the logistically complex and politically sensitive system of ‘practice-based commissioning’ or GP fund-holding. Nevertheless hospital trusts had to be prepared to shift from payment according to costs incurred to payment according to the national tariff if they were to be ready to become ‘health providers’ competing in the managed market.

As a result, in late 2002 the Department of Health had set forth its proposals to replace the annual contracts between PCTs and hospital trusts with Service Level Agreements (SLAs). SLAs would be specified in far greater detail than the previous contracts and be based on the nationally set tariffs, rather than on the actual costs incurred by the hospital trust in performing the ‘episodes of treatment’.

The introduction of SLAs - combined with the introduction of the new financial regime and the pressure on trusts to break even year on year - was presented as a means to leveraging up the efficiency and cost effectiveness of hospital trusts. Now that their principal source of income was determined by the tariffs paid for the treatments they performed rather than the actual costs they incurred, ‘inefficient’ and therefore high cost hospitals would soon find themselves running up serious deficits. They would then be obliged to become more efficient in providing their health services in order to reduce the costs they incurred in performing operations and treatments to the levels indicated by the national tariffs set by the Department of Health.

Following the passing of the Health and Social Care Act of 2003 it was announced that all NHS Trusts were to be expected to achieve ‘Foundation Trust’ status by 2008. It now became evident that the new financial regime and the introduction of SLAs was not merely a means of leveraging up the cost effectiveness and efficiency in the NHS, but were vital steps towards placing hospital trusts on an independent financial footing that would be necessary if they were to become commercially independent Foundation Trusts.

Yet Patricia Hewitt faced a formidable problem if she was to hurry NHS trusts and PCTs to become ready for the market in little more than three years time. Nearly a third of all NHS hospital trusts were facing mounting debts and were far from being in a financially sustainable position to acquire Foundation status. Although the remaining two thirds of NHS hospital trusts were financially stable they lacked the financial controls and accounting procedures necessary to cope with variations in the demand for their services they would face in a competitive market as they won or lost market share.

But this was not all. If the basis for the ‘managed market’ was to be put in place in the next three years it was also necessary to push through ‘practiced-based commissioning’. This would require PCTs also to be in financial balance so that they could then devolve their commissioning budgets to GP practices without any debts. Yet PCTs had also been subject to RAB accounting and nearly a third of them were also facing mounting debt.

Faced with the constant stream of directives and performance targets issued by the Department of Health most NHS managers, whether in NHS trusts or in the PCTs, had tended to see financial issues as a low priority, particularly at a time when money was flooding into the NHS. As a result, as a means to force through the necessary changes that would be required both to transform hospital trusts into fully independent commercial enterprises and to force PCTs to devolve their budgets to GPs by the end of the decade, Hewitt precipitated an artificial financial crisis.

Under Milburn NHS trusts had come to expect that so long as they gave sufficiently convincing assurances that attempts were being made to reduce costs, any debts they had run up due to deficits incurred in previous years would be rolled over by their SHA. Debts to the SHA could be considered as merely nominal indicators highlighting where there may be a need for cost containment. As such they could be subordinated to other more pressing concerns and priorities.

Indeed, many hospital trusts could reasonably argue that they had higher than average costs, and hence mounting debts, not because they were particularly inefficient, but because of the legacy of the past. Some hospital trusts still had old Victorian buildings that were expensive to heat and maintain. These trusts also often had hospitals split between different sites that imposed further costs incurred in the transportation of patients and staff, as well as for communication. At the other extreme there were trusts that had brand new hospital buildings, which were concentrated on one site and efficient to heat and maintain, but which had been built using an expensive PFI scheme that saddled them with high annual payments.

In addition the government’s policy of shifting resources towards Labour’s heartlands in the old industrial cities of the north – which, it was argued not without considerable justification, had been severely neglected during eighteen years of Tory rule – meant that many PCTs in the south were left short of money. As a result many of these PCTs found they lacked the money to pay for a sufficient number of operations to enable hospitals to meet the government’s ambitious targets for reducing waiting lists. This meant that either the PCT spent more money than it had, or the NHS hospital trusts had to perform more operations than were specified – and hence paid for - in the SLAs drawn up with their local PCTs. Hence either the PCTs or NHS trusts or more usually both - ended up out pocket and ultimately in debt to the SHA.

In the financial year 2005-6 the total deficits of the third of PCTs and the third of NHS trusts that were in the red amounted to over £1.3 billion. Yet this was largely offset by surpluses made by the remaining PCTs and NHS trusts that were in the black. The overall overspending of NHS trusts and PCTs amounted to less than 0.7% of the NHS budget. This was hardly a serious problem for the NHS taken as a whole, but it was a problem if each individual trust had to be commercially viable.

At the beginning of 2005 Patricia Hewitt announced that by the end of the 2006-7 financial year the total overspend would have to be eliminated and all PCTs and NHS trusts would have to have reached the point where their monthly accounts were in balance. Furthermore, within three to five years all debts to the SHA were to be paid back in full, and all NHS trusts were to have financial controls and accounting procedures necessary for commercial viability in place. To this end, all those NHS trusts and PCTs that were in financial difficulties would be set tough financial targets by their SHA. To meet these targets NHS trusts would be expected to set up ‘turnaround teams’, which would include both senior managers and management consultants drafted in from one of the four major auditing companies to provide financial expertise, in order to identify where cost savings could be made and to drive them through.

At the same time, those PCTs that were in surplus were ‘top sliced’, that is they had to hand back a proportion of their surplus to the Department of Health, and SHAs were ordered to set aside a proportion of their budget as a contingency reserve, thereby further squeezing the amount of money they could dole out to PCTs and NHS trusts. This requirement that SHAs set aside a contingency reserve meant that no sooner than they had issued tough financial targets to their indebted NHS Trusts and PCTs than they had to issue more stringent targets. The financial crisis for these NHS trusts and PCTs was thereby intensified.

By the autumn it became clear that many NHS hospital trusts would not be able to meet their financial targets by the end of the year. The only way they could possibly meet their targets would be through large scale redundancies but this would require 90 days consultation with the trade unions concerned. By the time the redundancies could be made the money saved by a reduced wage bill before the end of the financial year would be more than offset by the redundancy payments that would have to be paid out. Then, at the beginning of 2007 Hewitt relented. The money saved up through ‘top slicing’ surplus PCTs and the contingency reserves of the SHAs were released. The indebted PCTs and NHS trusts were brought back from the brink.

However, precipitating a financial crisis not only served as a means to force through changes necessary to make NHS trusts commercially viable, it also served as a means to hasten the introduction of ‘practice-based commissioning’. Facing the prospect of having to push through large scale redundancies NHS hospital trusts could be expected to press PCTs for payment for all the operations they had actually performed, rather than those specified in SLAs. They would themselves be led to demand ‘payment by results’. But PCTs, themselves strapped for cash, had little control over the numbers of patients referred to the hospital trusts for treatment by GPs. Their obvious way out would be to devolve the responsibility for ‘buying’ operations and specialist medical treatment from NHS trusts down to GPs. PCTs would therefore be led to push through ‘practice-based commissioning’ under pressure from NHS trusts.

2] ‘Choose and Book’ and the transformation of patients into health consumers

A ‘managed market’ needed patients to act like health consumers. To encourage and to facilitate this transformation of patients into consumers, the government introduced what became known as the ‘Choose and Book’ system of referrals.

Up until the introduction of the ‘internal market’ in the 1990s, GPs had, in principle, been able to refer patients anywhere in the NHS. In practice the vast majority of referrals for specialist treatment were to the local hospital. This was because the GPs usually knew the consultants personally and because the patient wanted to be treated near to where they, and their friends and relatives, lived. But for the market ideologues this meant that the local hospital trusts had in effect a ‘local monopoly’ in the provision of secondary health care. If the ‘managed market’ was to work, patients had to be made to act as consumers. They had to be given a choice of where they would be treated, whether they liked it or not.

Thus in 2003 the IT companies Atos Health Care and Cerner signed a lucrative contract with the Department for Health to develop the ‘Choose and Book’ computer-based referral system. With ‘Choose and Book’ patients would be able to arrange with their GP when and where they could go for treatment and then book an appointment there and then. By 2005 the system was ready to be rolled out across the country’s GP surgeries. However, in order to encourage the development of the ‘managed market’, Patricia Hewitt stipulated that where possible there should be five options available to choose from, and at least one option should be for a non-NHS provider.

3] The expansion of private sector provision of secondary health care

In order to create a competitive ‘managed market’ it was necessary to break up the monopoly position of the existing NHS hospital trusts. The quickest way of expanding the range of ‘health care providers’ necessary to create a competitive market - and provide the patient choice necessary for the ‘Choose and Book’ system to work - was to greatly extend the number of ISTCs, which had already proved to be attractive propositions to the transnational health corporations. As we have seen, the introduction of the first wave of ISTCs had been based on the principle of additionality. However, for the second wave, restrictions on the use of NHS staff and resources were removed. ISTCs were now to directly compete with NHS hospitals. As a consequence, whereas the first wave of ISTCs provided fast track routine operations in those types of surgery where there were bottlenecks in NHS provision, the new ISTCs were to provide a far wider range of both surgical operations and medical treatments.

Although a second and further wave of ISTCs provided an immediate way of introducing competition, there were longer term plans to unbundle secondary care services that would allow further opportunities for greater private sector involvement. These took the form of a drive towards the ‘reconfiguration’ of hospital services.

In 2005, under the rubric of ‘Best Care, Best Place’, consultations were launched by PCTs across the country to consider proposals to shift various hospital services into the ‘community’. There had for many years been a considerable weight of opinion within both health and social policy circles that far too many medical treatments were conducted in hospitals and that it would in many cases be far better to treat people closer to their own homes. This was particularly the case for old people who often found it distressing to go into a large and impersonal hospital that was often some distance away from their homes. Previously the relocation of services had been inhibited by the extra costs that that would involve. But with more money available it had now become possible.

By opening up alternatives to hospital-based health care, ‘Best Care, Best Place’ was broadly welcomed. However, at the same time it also opened up opportunities for non-public providers of health care. Indeed through the consultation process much was made of the possibility of charities and other non-profit organisations being offered the chance to bid for the provision of the new services.

In 2007 a further wave of consultations was launched under the rubric of ‘Fit for the Future’, which, as we shall see later, was to prove far more controversial than its forerunner ‘Best Care, Best Place’. It had long been argued that it would be far more economical and produce better health outcomes if some of the more specialised and complex hospital services were to be concentrated in a smaller number of hospitals. For some specialist services, it was argued, many district general hospitals did not have a large enough catchment area to provide a sufficient flow of patients necessary for medical teams to develop their specialist skills or to justify their costs. This was particularly the case with accident and emergency services. The introduction of modern well equipped ambulances, manned with highly trained paramedics, meant that the condition of patients could be stabilised at the scene of the emergency or accident. The time taken for the ambulance to reach an accident and emergency department was therefore far less critical than it had once been.

‘Fit for the Future’ consultations therefore proposed a major reconfiguration of hospital services. Firstly, it was proposed that a few highly specialised centres, providing a tertiary level of health care, would be established in each region. Secondly, in each area or county a significant number of district general hospitals were to be downgraded to the status of ‘Community Hospitals’, with their accident and emergency and other specialist departments transferred to neighbouring district general hospitals.

Whatever merits such proposals had in terms of improving the delivery of certain health services, they also provided an opportunity for greater private sector involvement. The newly created community hospital offered a far more attractive proposition for the transnational health corporations than the old- style district general hospitals with their public obligations to provide non-profitable services such as accident and emergency departments. ‘Fit for the Future’ could therefore be seen as a means of preparing the way for the eventual large scale privatisation of NHS hospitals.

The privatisation of primary care

With these moves towards the creation of a ‘managed market’ in the provision of secondary care up and running, the focus of NHS reform began to shift towards increasing private sector involvement in the provision of primary care. One of the problems that had beset the NHS throughout its existence had been that, because they had remained self-employed contractors to the NHS, GPs had retained considerable discretion as to where they located their practices. This had meant it had been often difficult to ensure an equitable distribution of primary care services and in many poorer areas there was a serious shortage of GP practices. Ostensibly to overcome this problem, the government announced that it was to invite health corporations to set up GP practices, and in May 2006 the first contract was signed for Care UK to set up a ‘walk-in centre’ in Dagenham. Yet as the government sought to encourage more GP practices to be set up or taken over it became increasingly clear that the professed aim of providing a more equitable provision of primary care came second to the drive to increase ‘competition’ and private sector involvement.

In December 2006 Professor Ara Darzi, a leading surgeon with extensive experience in health policy, was appointed to draw up proposals for the reconfiguration of health care provision in London. One of the central proposals of his report published six months later was the introduction of polyclinics. The idea of polyclinics in each neighbourhood, that would group together 30 or more GPs to provide a wide range of health care services, had been central to the vision of a national health service put forward by the Socialist Medical Association in the 1930s. However, it had been successfully blocked by GPs at the time of the founding of the NHS. Yet while the original vision had seen polytechnics as being publically owned and run, the New Labour government now saw them as a means to further privatise the provision of health care.

The idea of privately run polyclinics was then extended to the rest of the country. In 2008 Richard Branson announced that his new business Virgin Healthcare was planning a chain of ‘Virgin’ large health care clinics or polyclinics and launched his own consultation exercise inviting GPs to hear his proposals. Later that year it was announced that all PCTs would have to open one polyclinic in their area.

However, as we shall see, already by 2008 the drive towards creating a ‘managed market’ was rapidly running out of steam. Branson abandoned his plans for the establishment of a chain of health clinics and the proposals for polyclinics in London and elsewhere were substantially scaled back.

The failure of the transition to the ‘managed market’

In June 2007 Blair was obliged rather reluctantly to resign as prime minister. Gordon Brown promptly replaced Patricia Hewitt with the more pragmatic Alan Johnson as secretary of state for health. In the autumn, before Johnson even had time to settle in as secretary of state, came the onset of the economic crisis in the autumn of 2007 ‘Reform of the NHS’ rapidly slipped down the government’s agenda. Yet even before the departure of Blair and Hewitt the momentum towards a ‘managed market’ had begun to falter.

The transition towards a ‘managed market’ was never presented as a coherent worked out programme, which then sought to win general consent. Instead, as we have mentioned, ‘reform’ was to be driven through by an endless blizzard of apparently disconnected policy initiatives, each of which had its own distinct ostensible rationale aimed at ‘improving’ or ‘modernising’ the NHS.

This approach had certain advantages when it came to overcoming potential opposition. Firstly, the constant stream of initiatives coming from the Department of Health - some of which were simply abandoned or revised after a couple of months - served to overwhelm opponents of the privatisation and marketisation of the NHS. No sooner had opposition begun to mount against one policy initiative in one area then another one was announced elsewhere.

Secondly, because the ‘market’ and private sector involvement were presented as merely the most efficient means to achieve some particular objectives necessary to modernise and improve the NHS, any opponents to the changes could easily be marginalised as dyed-in-the-wool conservatives blocking necessary change. Furthermore, focusing on the often undeniable desirability of the ostensible objectives of the reform served to obscure the wood for the trees. The expansion of private sector involvement and the introduction of market mechanisms might well seem harmless means to achieve certain particular ends but this only served to obscure the broader implications that that these might have if they became the dominant means to meeting the ends of the NHS.

Thirdly and perhaps most importantly, there was the sheer momentum of the reforms. Permanent reform, driven through in an atmosphere of crisis, however apparently chaotic and incoherent to those obliged to carry it out, made any opposition appear as futile. Indeed, the main option increasingly taken by medical professionals and other NHS staff was to stoically attempt to work around the often contradictory dictats coming out from Whitehall.

Although the BMA, the Royal College of Nurses and the NHS trade unions were often highly critical of the expansion of the private sector involvement, the commercialisation of the operation of NHS trusts and the introduction of market mechanisms, they were reluctant to rock the boat. After all the government was still pouring in unprecedented sums of money into the NHS and they had been fully involved in negotiating the ‘Agenda for Change’ that introduced the radical and generous re-grading of the national pay, conditions and career structures for medical professionals and other NHS staff. Although there were a few sporadic strikes and protests these were soon closed down and any opposition rapidly demobilised by the professional organisations and trade union of the NHS in favour of politely lobbying the government.

Indeed, the main popular protests to emerge against New Labour’s changes were not against privatisation or marketisation at all. They arose against the proposals for the reconfiguration of hospitals put forward in the ‘Fit for the Future’ consultations. The prospect of their long cherished local hospital being downgraded, or even closed down entirely, was sufficient to bring tens of thousands of people out on to the streets across the market and commuter towns of south east England throughout 2007 and 2008. Eager to demonstrate that the Tory party had changed and was now fully behind the NHS, David Cameron, the new leader of the Conservative Party, encouraged local Tory politicians to throw their lot in with the campaigns to save the hospitals under threat.

Faced with such opposition the government was forced into a retreat on many of the ‘Fit for Future’ proposals. Yet, while it may have dampened New Labour’s enthusiasm for reform, such political and popular opposition cannot be credited with the ultimate failure of New Labour’s attempt to transform the NHS into a ‘managed market’. The process of ‘reform’ ran out steam not because of any concerted opposition but because of both the chaotic process of reform itself and the contradictions in the very vision of a ‘managed market’.

Almost every apparently disconnected proposal to ‘modernise’ or ‘improve’ was prefaced by the same mantra passed down from the secretary of state:

‘What mattered was that ‘the NHS remained a universal and comprehensive service provided free at the point of use. It did not matter who provided this service, whether it a public or a private organisation, or how it was provided. What was important was what worked best.’

This apparently pragmatic statement, however, was always based on the unquestionable ideological presumption that what worked best was the private sector. But this presumption was to prov