Why is Labour privatising health? / FRFI 182 Dec 2004 / Jan 2005

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FRFI 182 December 2004 / January 2005

Labour policy towards the National Health Service has now become quite clear: it is to progressively privatise health care provision whilst funding it through taxation, or, more accurately, national insurance. As the privatised system gets more and more expensive, so eligibility for services will be undermined, and individuals expected to pay their own way. More and more tiers will appear in the system, with the working class and poor losing out along the way. Robert Clough reports.

Labour has promised significant increases in the level of spending on health. Between 1999/2000 and 2007/08, real NHS expenditure will rise from £40.3bn to £90.2bn, with annual increases ranging between 5.3 and 8.9%. NHS spending will rise from 6.6% of GDP in 2002/03 to 8.2% in 2007/08. As we shall see, these rises are essential if Labour is to ensure a viable future for privatised provision of health care, and at the same time meet the needs of the middle class and better-off sections of the working class who cannot afford private health insurance.

Why privatise?
A nationally-funded, nationalised health service is proven to be the most efficient model for delivering health services, even within capitalism. So why turn to a model which is going to be less efficient and more expensive? Because health workers in a nationalised system do not produce surplus value, the source of profit in a capitalist system. However, in conditions of deepening crisis, capital constantly has to seek out new opportunities for the production of surplus value. What was previously the most rational and cost-effective arrangement for organising health services now becomes a barrier to capitalism desperate for new sources of profit. With this comes the ideology that private sector provision is better than public, and the champions of that ideology – the new highly-paid NHS managers.

Nor can this be separated from the growth of inter-imperialist rivalries. As we pointed out more than three years ago, Labour ‘is acting as the executive agent of the City and British monopolies which are seeking to force the sale of public utilities and services throughout the world in an attempt to find new sources of profits.’ (FRFI 161, June-July 2001). This, we argued, was why Labour was then pushing for the final agreement on Gats, the General Agreement on Trade in Services: ‘Gats requires the privatisation of all public services, excludes only those government services which are “not in competition with (private) service suppliers”. But of course thanks to Labour, nearly every public service in Britain now competes with private services’. As privatising water, electricity and gas created British multinationals able to compete on a world stage when countries were forced under neoliberalism to privatise these utilities, so privatising health care provision within Britain will foster conditions in which British companies are able to take advantage of the drive to privatise health care internationally.

However, all things being equal, a privatised system will always be more expensive than nationalised health provision, because:
• it has to produce a profit;
• it can only run if it has an adequate infrastructure to support the costing and billing of health care, and then processing payments as well;
• it is less able to manage the risk associated high-cost cases, a risk that can be spread across an entire nationalised system.

Labour is preparing the ground for this more expensive system by not only increasing the funding, but also by restricting eligibility for services, particularly for that section of the population which is of no further use to capital – the elderly.

The Tories start...

The break-up of the NHS into a plethora of competing hospitals and primary care institutions is not something that Labour could achieve overnight without serious destabilisation. In fact it is a process that started with ‘market-testing’ and the contracting out of ancillary services in the 1980s. The outcome was predictable: slashed wages and appalling conditions for the workers, and a sharp deterioration in the cleanliness of hospitals which has contributed to the rise of infection rates today, particularly of MRSA. The number of ancillary staff directly employed by the NHS fell from 260,000 in 1981 to 120,000 in 1994. At the same time the Tories took the first steps towards ending NHS provision in certain areas of care: optician services, dental care and long-term inpatient care for the frail elderly and those suffering from chronic illnesses (Allyson Pollack, NHS plc, pp38-39). Poor dental health and poverty are directly related: it was the demand for decent dental care and gynaecological services which led to early overspending when the NHS was set up in 1948. The Tory cap on dental spending meant that by 1999, patients were paying for more than half of dental treatment, and only a third of all dentists were providing NHS care.

The ending of long-term care for the elderly had an even more dramatic effect. Patients were shifted out of NHS beds into local authority or voluntary-sector homes. At the same time spending on social services was capped whilst new Department of Social Security rules only funded people staying in voluntary sector or for-profit homes. Local authorities had every incentive therefore to close their own homes or sell them off. In 1979, only 16% of residential care homes had been for-profit; by 2003, 69% of all beds were in the for-profit sector. At the same time, restrictions on the provision of domicilary services such as ‘meals on wheels’ meant that large numbers of elderly people could no longer support themselves at home. One estimate is that 27% more people had moved into care in 1991 than would have been the case if 1981 levels of domicilary provision had been sustained (Pollock, p168). Private provision of long-term care is now an industry worth nearly £7bn a year.

The next step was the Tories’ introduction of GP fund-holding and the internal market in 1991. Over the next six years, the NHS lurched from crisis to crisis as health authorities tried to manage the system by restricting access to care, and hospital trusts closed wards and theatres at year-end to control over-spending. Severe spending limits in the late 1990s exacerbated the problem; matters were made worse when Labour committed itself to keep to those limits for two years after winning the election in 1997. By the end of 1998, Labour had brought the NHS to its knees.

Labour accelerates...

Labour came to office pledging to keep within Tory spending limits, yet it accelerated the use of Private Funding Initiative (PFI) to pay for new hospital developments, and over the next seven years most of its principal policy initiatives were geared towards the establishment of an internal market for health care provision:

• The enormous extension of PFI. By 2001, there were already 67 hospital PFI schemes. Already the costs of funding the 30 to 60 years contracts had become apparent, requiring cuts of 25% of clinical staff and a 30% reduction in the number of beds. Much PFI hospital construction breaches rules on the minimum space between beds, thereby undermining efforts at controlling infection. PFI has now been extended into primary care through so-called LIFT schemes which aggregate community and GP premises into ‘bundles’ which then become substantial developments in their own right. There were 42 such schemes by 2003, with many more in the pipeline.
• The establishment of Primary Care Trusts (PCTs). These became purchasers of hospital care, and deliverers of primary care services as a new sort of internal market emerged.
• The renegotiation of the GP contract. GPs used to have a national contract with the Secretary of State. Now they contract with the local PCT. They are required to deliver a core range of services; other services are defined as ‘additional’ (such as out-of-hours) or ‘enhanced’. The upshot is that PCTs can now franchise these services, and so open up primary care services to commercial operation.
• The introduction of Payment by Results (PBR) for hospital services. Under this system, which will come into full effect in April 2005, a national tariff will be set for almost all non-emergency operations. This turns them into commodities which can be bought from anywhere – especially from the private sector.
• Foundation Trusts. The prime duty of Foundation hospitals will be to function ‘efficiently, effectively and economically’. They will have unlimited powers to enter into joint ventures with the private sector whether to raise money or provide clinical services; they can also set their own pay rates. They will essentially become commercial operations.
• Patient choice. New rules require each GP to offer private sector as well as NHS options for patients being referred for hospital care;
• The NHS Improvement Plan. This envisages that the private sector will be performing at least 10% of all elective operations by 2008; other publications envisage up to 15%. Already the so-called independent (ie, privately-run) treatment centres, 27 of which have been tendered, will have a budget of £2bn.

The utter cynicism of this policy was revealed when Labour rejected a Royal Commission’s recommendation that the state fund nursing care for those in residential homes. Blair dismissed the needs of this vulnerable section of the population, telling the House of Commons: ‘We have chosen not to introduce free personal care because it would cost about £1bn, and we believe the money would be better spent elsewhere.’

Labour’s policy then is quite clear: it is embarking on a massive privatisation exercise in response to the crisis of capitalist profitability. The increase in NHS funding has two purposes:
• To make sure that there is an adequate level of service to meet the needs of the middle class and the better-off sections of the working class;
• To pay the extra cost of a privatised system which will necessarily be more expensive than the nationalised one it replaces.

In the years to come, we will see more and more how the profitability requirements of the private sector will ride rough-shod over the needs of the working class.