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24 January 2000

Blair has made a historic pledge

By Donald Hirsch

Astute historians of social policy will mark down Sunday 16 January 2000 as the single most significant date of Tony Blair’s first administration.

This was the day that, in the wake of the New Statesman‘s interview with Lord Winston and various other revelations about NHS shortcomings, Tony Blair announced on the BBC’s Breakfast with Frost that UK health spending is nowhere near high enough and will rise to the European Union average by 2006.

The initial reaction was one of understandable scepticism. The government has made promises of new spending before and they have turned out to be old spending dressed up in new ways or spending that doesn’t take account of inflation.

But this really was different. The promise to raise spending to European norms is a new departure that will profoundly affect political discourse as well as Treasury decisions. And the repercussions will go well beyond the health sector.

First of all, it is a much bigger commitment than it might seem, different in kind from traditional increases expressed in billions. The UK spends about 6.8 per cent of GDP on health and Europe overall spends nearly 8 per cent. So a spending rise of nearly one-fifth relative to GDP would be needed to catch up. This compares to a rise of just one-twentieth from 1991 to 1997, the latest six-year period for which internationally comparable figures are available.

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But remember that the target is not just 20 per cent more in “real terms” (ie, inflation-adjusted), but relative to GDP. If national income grows by an average of 2.25 per cent a year, as the government “cautiously” assumes, that means it will grow by 13.5 per cent over six years. Health spending, then, will have to rise not by one-fifth but by one-third to reach the present EU average as a percentage of GDP.

Nor is that all. The 8 per cent target is itself a moving one. The table shows that, between 1980 and 1997, the UK upped its health spending by 1.2 per cent of GDP, but the French and Germans both grew by around 2 percentage points. It is true that, in the 1990s, some countries, such as Italy and Canada, managed to contain or reduce the percentage. But the upward pressures are becoming ever stronger, particularly across the Channel, where populations are ageing more rapidly than ours.

In the past, politicians have usually boasted about how much they are spending now compared with what was spent in the past. Blair’s big departure is to accept international norms, which can grow with rising demand. His willingness to accept European norms as desirable contrasts sharply with the UK’s position in the international debate over health care during the 1990s. In 1994, an OECD report held up the reformed NHS as providing value for money, and declared that it managed to spend “significantly less, for comparable health outcomes” compared with other countries. Today international experts, looking at UK cancer recovery rates and waiting-lists that are more on a par with eastern Europe than anything in the EU, are no longer so sure. One thesis gaining ground is that health output is broadly proportional to spending, regardless of efficiency differences that can help save money at the margins.

The wider implication of Blair’s statement is that for the first time he has acknowledged that the central problem underlying a major service is a resource shortage, rather than its failure to work smarter with the money it has got. If the NHS is spending a fifth less than it needs now and a third less than it will need to in six years, then no efficiency savings will compare to the impact of providing the missing billions.

Will this change in thinking be extended to other services? Probably not in education: it is not intuitively obvious that masses more classrooms or teachers, rather than better teaching practice, will make schools feel different. Extra doctors, nurses and beds, in contrast, seem likely to reduce the worst frustrations of the aptly-named NHS patient. This is no doubt why David Blunkett, the Education Secretary, is foremost among the ministers reported to be anxious about the fate of his own department’s spending. But in, say, transport, more investment would clearly make a huge difference and be of relatively little worry to Gordon Brown: doubling public spending on the railways would cost as much in a year as a fortnight’s NHS spending.

Don’t expect a fast return to tax and spend; it would scare too many horses, to say nothing of Alastair Campbell, who is already trying to qualify the Prime Minister’s words. But don’t underestimate the importance of what Blair said last Sunday: this was the week in which a 20-year-old spell, saying that money is in no case the real answer to improving our public services, was finally broken.

Donald Hirsch is a freelance consultant and former OECD official, writing from his sickbed laid low by flu