by GK Strategy 30th March, 2015
3 min read

Austerity Cramps Labour’s Style on NHS

As Parliament dissolves, we can look back at five years of bitter debate over the future of UK healthcare. Dominated by the acrimonious Health and Social Care Act and claims and counter-claims over the extent of funding pressure, it is little wonder that the Labour Party in particular wants to put its alternative approach to the NHS front and centre during the election campaign proper.

Ed Miliband’s decision to announce a profit cap on outsourced healthcare contracts over a value of £500,000 can be seen in this light. It’s a clear attempt to give voters a more tangible idea of what Labour means when it talks about stemming NHS “privatisation”.

Recent polling by Lord Ashcroft suggests that almost four fifths of voters (79%) think the use of private companies is fine, provided that standards are maintained, the cost to the NHS is the same or lower, and services are free at the point of use. There is a hard-nosed minority – the other 21% – who believe that even if private provision would save money and improve treatment, they should be barred from entering the NHS market.

Given this data, Labour’s policy makes some sense. Miliband is targeting that big chunk of voters while banking on retaining substantial support from the strongly anti-private sector minority. It’s a classic example of a policy designed to push different buttons with different people. For the 79%, Labour hopes, a profit cap will look like a reasonable measure to deter wasteful outsourcing and prevent excess profits. For the 21%, it might look like a further nail in the coffin for private provision – a down-payment on a return to the post-war consensus.

As with many policies that are designed to send multiple messages, though, this one is unlikely to have as clear an impact on services as it has had in the media.

There are several practical problems with it. The first is an obvious lack of detail: no one quite knows which services the cap would cover. Labour has said it will affect “clinical services” but has not defined the scope of that term.

Another problem is that this kind of cap arguably penalises the most efficient providers of services. If we believe, as many people do, that a key measure of a business’s efficiency and quality is its profitability, then forcing an arbitrary limit upon the most successful is only likely to undermine the efficiency and quality of the NHS itself. Such a profit cap also makes innovation and risk less attractive, meaning that the reform and reconfiguration of NHS services championed even by the NHS itself will become harder to achieve.

The extent of “wriggle room” in the policy suggests that Labour itself has recognised some of these issues. It’s been reported that local commissioners would have the right to amend the cap to reflect circumstances in particular contracts. Along with the likelihood of continuing devolution of power to local health economies – even under Labour – this implies a lack of the kind of rigid central control that would be required in order to enforce such a cap across the whole of the NHS.

Providers should take heart from the fact that Labour has stopped short of making any promise to reduce or limit the role of private providers in the NHS. Senior politicians from all parties recognise they are essential to the system and are only likely to become more vital as demand for NHS services increases. Meanwhile, there will be more prosaic ways in which private providers can deal with the cap. This might involve creating subsidiary companies or joint ventures in order to meet the requirements of the cap.

Ultimately, the policy is another example of the narrow centre ground that now exists in UK politics. Hemmed in by a political consensus around austerity and devolution, Labour can neither undertake a full-scale re-organisation of the NHS to ensure integration, nor pump money in to make outsourcing magically unnecessary. As things stand, this isn’t so much a cap as a fig-leaf.

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