Labour's NHS trap

It all seemed so clear. The battle lines were drawn and the trenches dug. As Andy Burnham came on Newsnight on Thursday night to talk about the NHS, Labour had prepared a well rehearsed argument, something well liked by its faithful and seemingly cutting through to the public: ‘The Tories are privatising the NHS’.

The Labour leadership believed that this argument resonated with rank and file members and offered the simplicity of clear ideological division. Tories equal private, Labour equals public. In addition, the argument has ‘recognition value’ as marketing experts would say, harking back to a pre-Blair time when Labour was against privatisation of public services. It also linked in with other policies, such as public ownership of the railways, a potential battleground with the Greens challenging Labour from the left.

As Burnham started the interview, the position fell apart fairly quickly. Kirsten Wark’s point of attack was Labour’s own record of ‘outsourcing’ and the fact that, under the last Labour government, private business amounted to 4.4% of the total NHS budget. Now, it stood at just above 6%. Hardly the ruthless Tory privatisation wave Labour claimed, Wark argued. Yet it seems that it was current levels of outsourcing that broke Burnham’s argument. More likely, Labour appears to have misjudged the depth of knowledge (or lack thereof) about the NHS within the population. The main confusion at the heart of Labour’s argument about the privatisation of the NHS was that, from the perspective of ordinary people, it is little more than a deliberate obfuscation.

People encounter the NHS as patients. The patient doctor relationship determines the perceptions and views of people on the NHS. That relationship is governed by clinical guidelines designed by NICE and Labour’s privatisation argument somehow suggests that this could change.

Yet, the complexity of health care delivery through the NHS in the UK means that privatisation anxiety makes little sense. GPs in the UK are in fact private enterprises. Aneurin Bevan’s National Health Service Act in 1946 made them so. Yet, this is not what Labour trained its guns on. Its main artillery was pointed at the health economy around the patient doctor relationship. It claimed that, somehow, because of private involvement, doctors would have to take profit into consideration when making clinical decisions.

This is a difficult argument to sustain for two reasons. On one hand, doctors are bound to make decisions in line with clinical guidelines, and profit is ostensibly not part of the picture. Yet, on the other hand, efficiency (and consequently rationing) is and has always been part of the NHS. In fact, NICE guidelines take into account both the effectiveness and the efficiency (in terms of life years saved) of medication and interventions before approving it. So, in a sense, considerations of efficiency have always been with us. The notion of a fully resourced health care system is a utopian make belief. Doctor’s clinical decision making process will always need to navigate patients’ expectations, in other words: say ‘no’ at times.

The real issue is whether, within the health economy that is grouped around the clinical patient doctor relationship, competition would drive down costs or increase costs for the NHS, or the tax payer. This argument is worthwhile having and Lord Darzi has made an important contribution to this recently. Everything, from pharmaceuticals to protective gloves, is after all produced within the market economy of the UK and to advocate a unilateral withdrawal of the NHS from this health economy is like saying we should bake our own bread at home. It may be wholesome and nutritious but hardly ever enough to feed a large family.

So, Labour’s argument about privatisation offers a false dichotomy. When articulating an anxiety that profit considerations would encroach on the patient doctor relationship the argument is ostensibly false. Doctors are bound by clinical guidelines. If taken to refer to the health economy around medical care, the argument is little more than a common place. The NHS always operated as a public service within a market economy. An autarkic healthcare system, insulated from economic pressures, is a pipe dream.

Boxed into the argument about privatisation and sensing its failure, on Thursday, Burnham tried to move the discussion on to the issue of integrating health and social care. It is a valuable idea and one that has been around for decades. It cannot have escaped him though that the earliest protagonists of health care integration are Kaiser Permanente; you guessed it: a private US insurance company with nearly $50 billion in revenues and more than $1.6 billion in profit. Health care may just be a policy field that proves impervious to ideological battles. And that may be a good thing.

What's rail privatisation got to do with the NHS?

With the health and social care bill going through parliament, some commentators have likened the changes in the NHS with the privatisation of the railways under John Major in 1993. Besides the strange logic of this analogy, the argument put forward for the privatisation of the railways made much about railways competing for customers (or passengers) and this argument is now widely regarded as lost. So why can railways not compete against each other? And if this is so, is the privatisation of any public service bound to fail? 

The main case against railway competition rests on a specific understanding of the nature of the service offered and the way in which it is consumed. Railways require the use of tracks and hence, where they compete for passengers, they must use the same resource. Since they cannot use the same track simultaneously, competition can only occur where people are on non-essential journeys. This narrows the chances for genuine competition between railway operators significantly. No passenger commuting for work between Bristol and London can effectively delay her journey until the next train arrives which may be cheaper. 

But the issue on which competition between railways really falls down is price. Railways gain the approval to run trains on particular lines through franchises which are granted by the government. Nothing stops the government to grant two or more licenses for the same line in certain areas, say between Birmingham and London. Theoretically, train operators could compete for passengers by offering lower prices than any other providers for this section of the line. Why dont they? 

There are lines where two independent rail companies do operate services, London Victoria to Gatwick Airport is one of them. Now franchises explicitly prohibit railways to cross-finance operating costs, so they cannot, say run a line between London and Birmingham on a profit and transfer the profits of this line to offer prices below operating costs on another line. This means that bidding wars (such as the Murdoch price wars in the British press in the 1990s) are ruled out. 

Yet the railway system is also set up in such a way that even genuine price competition between operators on the same lines do not translate into lower fares. The Gatwick line is a good example. Despite the choice passengers have between two different train companies, both only offer (roughly) similar prices for the same route and distance, which are incidentally higher than for other comparable routes. Why is that? 

The reason is that choice is a blunt instrument for price competition once you do not allow providers to cross finance losses. Both operators on the Gatwick route know that passengers have no other option than to take one or the other operator. Journeys to Gatwick Airport are ‘essential journeys’ given the lack of alternative transport options. This means that, once the lowest ceiling is set through the franchise and the ban on cross-financing, both operators can safely cash in on whoever needs to get from London to Gatwick Airport (and back). 

In other words, the chances are stacked against genuine choice due to the very nature of rail transport. And so railway competition as a means to drive fare prices down is unlikely to succeed. This does not however mean that privatisation is wrong or that it would not have an effect on the costs of running railways. What the privatisation of railways did achieve in the UK is that the railways are run far more efficiently now than they used to. So, privatisation does have a positive effect, just not the one politicians often want it to have, leading to lower fares through direct competition for business. 

It is interesting that in the public debate the two things are often mixed up. Privatisation is taken to have failed since competition between train operators cannot occur to lead to lower fare prices. Yet privatisation is not just about competition, often more importantly it is about driving out inefficiencies that creep into any publicly run organisation funded through a guarantee of government funding. 

This is where the case for railway privatisation is relevant to the NHS bill. While competition on price between providers is highly unlikely to have the desired effect (of cutting health costs), running a large organisation as an efficient business drives down costs where publicly funded organisations are more likely to waste money.

Incidentally, this is what Tony Blair’s government recognised by pushing most NHS Hospitals into independent trusts that had to stay within their budget. And this is behind the recent warning of the Welsh health minister that trusts in the Welsh NHS that rake up significant losses wont be bailed out. The question is what works: wagging the finger at large public organisations or introducing effective drivers for change. I’m all for the latter. 

The challenge of modern railways

Talking about the railways in the UK can get you into trouble. People are cross with the quality of the trains, overcrowding and, at times, livid with rage when the talk turns to fares. The public perception is that the privatization of the railways in 1993 was a shambles and resulted in a fragmented railway system, worse levels of service, and ever higher prices. It signified everything that was wrong with the privatization of public services under the Thatcher and Major governments. 

Often, this view goes hand in hand with nostalgic reminiscing about the glorious past of British Rail. Or. sometimes, people point to railways on the continent which seem to offer better service, for a fraction of the price of what people here pay in fares and subsidies. 

There is some truth in this picture. The railways in the UK are one of the most expensive in Europe for commuters who have to travel at peak times. The controversial fare policies of train companies mean that those who have no choice but to take the train to commute early in the day to work are most penalised. The fragmentation of the railways also prevent coherent local and regional transport policies. In the UK, it is virtually impossible to optimise transport systems across sectors, to integrate them effectively in regional hubs and design a consistent transport approach which would focus on reduction of bottlenecks in private and public transport networks. 

Yet, the ultimate failure of railway privatization may have to do with the promise politicians made when they embarked on this mad cap plan: that public subsidy to the railways would come down to, eventually, a level where private train companies would not require any public support. 

So where does this leave us today? Ed Miliband has said repeatedly that the train companies are ‘ripping ordinary people off’ by increasing fares above inflation. And Will Self has recently announced on Question Time (once again) that we should re-nationalise the railways. 

There is no doubt that the way in which the railways were privatized produced a fragmented rail system. There were good reason why the Major Government used the Railway Act to separate track and franchises for networks, the Swedish example of privatization along similar lines being one of them. However, the result in the UK was disastrous. This is less a judgement on privatization than on the type of privatization used. The German railways are fully privatized yet the holding company retains control over rolling stock, networks and tracks. 

But the nostalgia for a nationalized railway disregards the main fact of recent railway history: an unprecedented rise in the number of passenger journeys. In 1993 there were about 0.73 billion journey made in the UK. By last year, this figure had doubled to 1.4 billion journeys. 

This is a phenomenal rise which would prove difficult for any transport system. The newly privatized railways had to deal with a doubling of capacity within the last 18 years. Comparing the railways of the 1980s and early 1990s with the railways of 2011 simply tells us very little unless we acknowledge that today, railways are a profoundly different kind of fish to those of the past. Would the old British Rail have coped with these challenges? 

We wont know, but the fact is that privatization brought £2.3 billion in terms of investment to the table between 2006 and last year (Source at DfT website). This may be dwarfed by the figures of annual subsidy (in 2010 at the tune of £4.6 billion) but it is still something that we, the tax payer, would have had to come up with if the old British Rail was still around.