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From: The Socialist issue 471, 25 January 2007: Striking to defend public services

Search site for keywords: Big-business - NHS

National Health Service in crisis

New Labour leads the big-business assault

The greatest gain of the working class in the last century is rapidly being destroyed by Labour's obsession with the capitalist market. Instead of cut-throat competition bringing efficiency and improvement, it is wrecking what is left of the NHS.
Health worker Jon Dale explains the truth behind the government's spin.

Demonstrations to save vital local health services have taken place from Cornwall to Cumbria - protests in 2006 were the most widespread since those against Thatcher's Poll Tax.

But Labour is spending more on the National Health Service than ever, increased from 34 billion in 1997-98 to 92 billion in 2007-08. So why are there cuts, closures and job losses? Health Secretary Patricia Hewitt blames bad managers. Government apologists blame doctors' pay rises. Commentators say modern treatments are extremely expensive and the NHS can't afford them all.

Labour won't admit this crisis is caused by turning the NHS into a commercial market, to ensure that big business receives a life-saving infusion of healthy profits.

Internal market

Before being elected in 1997, Labour's pledge was to abolish the Tory 'internal market'. This had been introduced in the early 1990s, an idea originally promoted by a US Defense Department economist. The NHS was split between 'purchasers' - health authorities, some GPs ("fundholders")- and 'providers' - hospitals, community services and GPs.

Labour soon reversed its pledge. Primary Care Trusts (PCTs) now control about 75% of the NHS budget in their area and 'commission' services from NHS hospital and community Trusts, Foundation hospitals, Independent Sector Treatment Centres, private hospitals, health care companies and the voluntary sector. The names may have changed but today's system is basically the same Tory internal market, accelerated so health care has fragmented into competing organisations.

Pre-1997, Britain's relatively small private hospital sector could not compete for the large-scale treatments provided by NHS hospitals. But fragmentation has now allowed private corporations to barge into this huge market.

Hospitals, GPs and community services used to work together. Referrals were made from one sector to another without any billing process taking place. Funds were allocated on the basis of plans and estimates of needs.

Successive governments cut funding far below what was really needed. Even after Labour's much-vaunted spending increases, by 2008 spending will have only reached the European average.

Planning was always far from perfect. There was no democratic control - just a few local councillors on health authorities. Even they have now been swept out, in the name of 'modernisation'.

In a 'market', every activity must be priced, invoiced and paid for. Hospitals must generate enough income to break even. Purchasing ('commissioning') authorities decide what treatments they will buy, where and how many. Both sides have directors, lawyers, accountants and highly-paid managers. These are now as much a part of the NHS as doctors, nurses and other health professionals. They will soon be joined by advertising and marketing managers.

Administration costs have increased from 5% of the NHS budget in the 1970s (the lowest proportion of any health service in the world) to 20% today - an extra 10 billion each year.

Once a price had been set on separate activities, the door was open for private corporations to enter. First they took over ancillary services - cleaning, catering, laundry, portering - undercutting existing NHS provision by cutting jobs and pay. This is partly why hospital infections are increasing.


The USA spends more on healthcare than any other country, but 30% goes on administration. That's the 'benefit' of the free market - free for big business to profiteer while millions of poor people are free to go without.

Several giant US health care corporations have convictions for fraud, charging the US government ($1.7 billion in one case) for services not given. With growing competition and falling profits at home, they are looking for new business abroad.

They have campaigned through the World Trade Organisation for privatisation of public services world-wide. Like vultures circling above a sick animal, they have the NHS in their sight.

One such corporation, United Health, tried to take over general practice in two small Derbyshire villages. They were tempted by future prospects of taking over PCT budgets - hundreds of millions of pounds in every county and city. Simon Stevens, before becoming its European President, was Blair's health policy adviser.


Labour has travelled far further down the privatisation road than the Tories ever managed. 5 billion a year of NHS money is now spent in the private sector, compared to 200 million before Labour came to power.

At a Downing Street meeting in May 2003, Tony Blair told private-sector health care executives "We are anxious to ensure that this is the start of opening up the whole of the NHS supply system so that we end up with a situation where the state is the enabler, it is the regulator but it is not always the provider." Those at the meeting were left with the impression that running Independent (i.e. private) Sector Treatment Centres (ISTCs) was a route into an expanding market for treating NHS patients.(guardian 14.5.03 - quoted in NHS plc, by Allyson Pollock)

In 2004 the Department of Health Commercial Directorate commissioned a study to establish what proportion of NHS supply was needed to create a self-sustaining market for the private sector. Health Secretary John Reid announced that 15% of all surgery would be in the private sector. A year later, his successor Patricia Hewitt said there would be no limit on the private sector share of NHS treatments.

ISTCs are owned and run by private corporations, but wholly financed by the NHS. There are now 25 of them, providing non-emergency surgery and some diagnostic procedures.

The House of Commons Health Select Committee recently looked at their effect on cataract eye surgery, the commonest operation. There was no evidence ISTCs had significantly reduced waiting times. They had higher complication rates than NHS units, despite taking more straightforward cases. There were less training opportunities for junior doctors.

ISTCs' payment is guaranteed, whether they treat anyone or not. (The ISTC near Sheffield was paid 3 million last year for work it had not done.) Therefore PCTs encourage patients to go to them. Ashton, Leigh and Wigan PCT paid GPs 30 for every patient they referred to the Greater Manchester ISTC run by Netcare, a South African company.

Department of Health figures show these centres are 11.2% more expensive than the NHS equivalent cost. It does not reveal how it calculates this figure. As it wants to put ISTCs in the best light, the suspicion must be the real cost is even higher.

The private sector now has contracts to treat over 400,000 patients a year for five years, worth over 3 billion. NHS hospitals have lost this money but still have to employ staff, so they can go rapidly into the red. The Nuffield Orthopaedic Centre in Oxford has an international reputation but is losing 600 patients a year to Banbury ISTC, run by the Swedish company, Capio.

A projected 6.5 million deficit in 2008/9 means the Nuffield is likely to close. Money is following the patient - out of the NHS.

Over the New Year it was announced that all surgery follow-up appointments may be scrapped, with patients directed to their GP instead. This is supposed to save the NHS 1.9 billion a year. Not every patient needs to see their surgeon after minor surgery. But to stop follow-up after major operations means the patient can't find out what the surgeon actually did. Neither can they discuss their recovery or if further treatment is needed. The surgeon can't assess the operation's outcome.

However, it will suit ISTCs to pass responsibility to the GP. They take patients across very large areas and have surgeons who fly in for a week or two, before flying off again.

Just before Christmas, it was announced that ministers have awarded a five-year contract to manage the 60-bed Lymington New Forest Hospital in Hampshire to Partnership Health Group, a partly-owned subsidiary of Care UK. This is the first entire NHS hospital to be run by a private company, but clearly not the last.

Payment by results

In 2005 the government introduced Payment by Results. Hospitals are no longer assured of their budget, but are paid in arrears for the treatments they carry out. Each procedure carries a nationally set tariff.

The government now insists NHS trusts break even and make a 2.5% annual 'efficiency' saving. After years of chronic under-investment, or saddled with high PFI interest charges, many trusts have a deficit. This means they are hit with a double whammy. Their next budget is reduced by the 'overspend' - which they also have to repay. This is pushing trusts towards bankruptcy and is the immediate cause of the savage job cuts during 2006.

Pre-internal market, a deficit in one area could be made up for with a surplus somewhere else. Now each unit is in a desperate struggle for survival and co-operation is impossible.

Management consultants, costing 1 billion a year, are brought in to devise turnaround plans, usually involving job and service cuts. (Hewitt herself was Director of Research of Arthur Anderson - one of the largest consulting companies - before becoming an MP.)

No-one wants to be in hospital longer than they have to but patients are now on a fast-moving production line. Payment is made for their operation, not for them to spend any longer in bed than the agreed tariff. The sooner they are discharged the quicker the next patient can be admitted, bringing in more money.

This dizzying pace is another important reason for hospital infections like MRSA. There is no time to properly clean between patients. Health workers are also under great stress, pressured by managers to 'keep up production.' This is one of the reasons the compensation bill paid by the NHS for mistakes has grown to 2 billion (in 2005).

Information Technology

'Patient choice' is one of Health Secretary Patricia Hewitt's favourite phrases. It is used to justify the splintering of health care between public and private providers. By 2008, patients needing non-emergency treatment will be entitled to choose any hospital, NHS or private, that meets NHS standards. To create this 'choice', the private sector has had to be given special treatment.

But according to recent research, "Most severely ill patients face complex treatment options and prefer decisions to be made on their behalf by a well-informed and trusted health professional. Evidence that patients want the opportunity to select a distant hospital for non-urgent surgery is limited to situations where [they] face a long wait for a local hospital appointment and where there is a history of poor service." (Guardian 1.1.07) This research mysteriously disappeared from the Department of Health's website!

If patients are moving around between different health providers, their medical records become more difficult to manage. Paper files, stuffed with notes, investigation results and letters, can't easily (or cheaply) be passed between hospitals. Even within one hospital, records are often delayed between one department and another. General practice records are now computerised. There is a case for computerisation of hospital records.

'Connecting for Health' is the largest non-military IT programme in the world. It will connect 30,000 GPs with 300 hospitals and the ambulance service. The scheme is running two years late and its expected cost has doubled to 12 billion. Ex-Health Minister, Lord Warner, has said it could eventually cost 20 billion.

It would allow paramedics to access a casualty's records in their home, or at the roadside, with palm-held computers. Helpful though this could be, if the government really wanted to help sick people at home, they would raise pensions and improve social support for the elderly and disabled. Investing in public transport would cut traffic accidents.

'Connecting for Health' will help private health companies compete for GP and local hospital business. They can't do so effectively without patients' records. Most patients would still 'choose' the GPs and hospital that know their history.

There is also the important issue of patient confidentiality. A central register, accessible by hundreds of thousands of health workers, could be open to abuse.

The government intended all medical records to be automatically loaded onto the new system. After the Guardian newspaper published an opt-out form, 1,351 people completed it in one day, showing the potential for a big campaign. The government retreated, last month agreeing that patients would be able to veto their records being uploaded.


All new hospital building is now through the Private Finance Initiative, also known as Public Private Partnership. Instead of the government borrowing money at low interest, private corporations borrow at commercial (higher) rates. The corporation builds and owns the new hospital, then is paid by the NHS to use it, usually for 30 years, then still owns it after that.

A sample of eight PFI schemes showed the share of annual revenue spent on interest rose from an average 4.5% to 16% - like buying a house with a credit card instead of a mortgage!

Interest payments come out of running costs so beds and staff are cut (by an average of 25% and 15% respectively). Despite fewer beds, more patients must be drawn in so surrounding hospitals lose patients, making their future unviable.


Compared to the vast sums spent on increased administration, PFI, ISTCs, highly priced drugs and medical supplies, compensation and management consultants, the amount on pay rises is modest. Most health workers are still very low-paid, despite some receiving rises through Agenda for Change. Outsourcing has meant 20% pay and benefit cuts for many ancillary jobs.

The new GP contract negotiated by the government made extra payments for many activities that the Department of Health seemed not to realise that GPs were already doing, without being paid extra. This has resulted in 300 million more being spent on GPs' pay than planned for. Similarly, consultants were given a new contract which has cost 90 million more than expected, the amount of previously unpaid work being underestimated. The NHS ran on goodwill for many years, with most staff working unpaid at times to benefit patients.

There have been headlines about 250,000 a year GPs. (Their average is 106,000.) A useful spin-off for the government from such headlines is that they can undermine support for strong defenders of the NHS.

"My pay has gone up approximately 25% over the last two years. That extra money has been earned by hitting government targets. The targets were set by the government, not by us, and mostly have little to do with health care, but a lot to do with "process" and bogus but quantifiable 'healthcare achievements'.

We told the government at the outset that it was a waste of money, that the money could be better spent but, to them, 'control' was everything.

They removed our professional autonomy. They told us what to do, and promised us piece-rate financial rewards for doing it. So we have done it, and done it more efficiently than they thought possible." (A GP on http://www.observer.co.uk 31.12.06)

14% of the NHS budget is spent on medicines. The pharmaceutical companies producing them are the most profitable sector in the economy. They make an average 18% profit but do not reveal how much comes from the NHS. Increasingly they are linked at the top with Department of Health and Downing Street advisers.

Socialist programme

Last month the Serious Fraud Office dropped its investigation into British Aerospace arms deals with Saudi Arabia. The government decided it was against the "national interest" to unearth the reported bribes paid to win contracts.

If these are the morals of one large company, is there any reason not to expect that others are doing the same? Eventually we will learn the names of corrupt politicians and bureaucrats who have personally benefited from big business's assault on the NHS.

If allowed to continue unchecked, more sections of the service will be chopped away. A quarter of Accident and Emergency departments will close.

Comprehensive mental health, midwifery and child health services are threatened. General practice could follow the example of dentistry. Top-up charges in a two-tier system are coming into view.

A socialist programme would reverse these trends. All private sector health care would be nationalised and integrated with NHS services. PFI would be scrapped.

The big construction companies, pharmaceutical and medical supply industries nationalised, under democratic workers' control. Resources would be planned to meet health needs, not shareholders' profits.

A socialist programme for the NHS

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Article dated 25 January 2007

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