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Reducing social democracy’s last redoubt: the privatisation and marketisation of the NHS in England

Par Colin Leys : Professor - Goldsmiths College
Publié par Clifford Armion le 18/01/2010

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Since 1980 the NHS has been converted from a planned, integrated service, to a set of quasi-businesses operating in a health care market, in which an increasingly significant role is being played by for-profit corporations. This policy was initiated by the Conservatives under Margaret Thatcher and John Major but continued and driven much further by the Labour governments of Tony Blair and Gordon Brown. The paper outlines the sequence of initiatives through which the transformation has been accomplished and assesses what has driven the change, and why it has been so relatively easy to accomplish.

The history of the NHS since 1980: an outline

The National Health Service in 1978 (before Thatcher) was an integrated public service. Its main characteristics were: It was overwhelmingly funded out of general taxation - fees were charged only for prescription drugs, routine eye care and dentistry. All medical care was covered (except hospice care) - comprehensive care. The NHS was centrally managed and planned through regional offices. All hospital staff were salaried; hospitals ere managed by their senior clinical staff . Primary care was provided by self-employed General Practitioners under contract with the NHS. Community care (post-natal care, speech therapy, etc) was provided by salaried staff. Administration costs accounted for 5-6% of the total NHS budget.

The two decades 1980-2000 saw the NHS transformed on the principles of the so-called 'New Public Management', and the formation of an 'internal market' inside the NHS. In the 1980s hospital management was transferred from clinicians to professional  managers and non-clinical support services were outsourced to the private sector. In the 1990s a 'purchaser-provider split' was set up within the NHS. Part of the NHS was charged with purchasing' medical services from those charged with providing them ('providers'). Hospitals  become proto-businesses ('trusts'). 'Capital charges' were introduced - hospitals had to pay the Treasury 6% a year of the value of their capital assets. The 'Private Finance Initiative' (PFI)  introduced by New Labour after 1997 meant that virtually all new or refurbished NHS premises are now leased from private owners. In general, meeting financial targets began to take increasing precedence over meeting healthcare needs. Comprehensiveness was also reduced: long term residential and domiciliary care was removed from the NHS and made fee-paying and largely privatized.

2000-2010 saw the NHS in England move from an 'internal' market to a full market in clinical care (in 1999 Scotland and Wales acquired devolved powers over health and have gradually reversed the marketisation of the NHS in these countries; the NHS in Northern Ireland remains largely unmarketised). The Department of Health was persuaded that competition with private providers (or at least 'contestability') is the only way to make the NHS efficient and contain costs. Hospital income was now based on payment for every individual completed treatment ('Payment By Results') and all NHS trusts were set to become (in principle by 2010) foundation trusts', with freedom to engage in joint ventures with private companies, and accountable only to an independent regulator, which is concerned only with their financial viability.

But the Department of Health faced a fundamental problem in creating a healthcare market: the weakness of the UK's private healthcare sector - a lack of private competitors to produce the alleged beneficial effects of competition. The UK private healthcare industry has always been small and high-cost, relying entirely on NHS hospital specialists working part-time for private patients. A new kind of high-volume low-cost private provider was needed to compete with NHS trusts. The costs and risks (financial and political) of handing over NHS hospitals to private companies were seen as too high. This left three areas where private competition could be envisaged: 1) routine low-risk elective surgery; 2) hospital outpatient (ambulatory) clinics; 3) primary and community care.

Option 1: Routine low-risk elective surgery - 'Independent Sector (i.e. private) Treatment Centres'. About 38 ISTCs were opened in England (one in Scotland), concentrating mainly on cataract removal and hip and knee replacements. ISTCs were represented as a way to help reduce waiting times for elective care by bringing in additional capacity. But 25% of their staff were actually drawn from NHS hospitals and this proportion rose over time. They were given extremely favourable contract terms: ISTCs asssumed no financial or clinical risk and were extremely high-cost. The real aim was a) to break the previous taboo on privatising NHS clinical care; and b) to jolt the existing UK private health industry into changing from a high-cost to a low-cost / high-turnover business model.

The ISTCs were soon incorporated/transformed into an 'Extended Choice Network' (ECN) Some 135 private centres and hospitals are now accredited to treat NHS patients - most have limited facilities and specialties, and are not obliged to accept higher-risk cases. The ECN has been actively promoted through a policy of 'Patient Choice' - patients referred for elective surgery must be given the choice of at least one private provider - a policy which is expected to divert a growing share of NHS acute care to these providers. The effects on the NHS include the fact that NHS hospitals are left with all the higher-risk cases; some lose staff to nearby ISTCs or ECN providers;  many lose patient income and are financially destabilised, leading to reduced skill-mix (to save costs) and service cuts.

The future of many if not most ISTCs, as their initial contracts expire, is currently seen as doubtful, their real purposes having been achieved.

Option 2 - outsourcing outpatient work from hospitals to 'polyclinics'. In 2008 the government announced that up to 64 per cent of hospital outpatient work was to be moved to a new kind of local health centre or 'polyclinic'. The capital costs were to be provided by the private sector. Clinical services in the centres would be commissioned' from competing providers. By 2009 the obvious difficulties of rationally separating outpatient work from inpatient work were compounded by  the collapse of credit for private providers: very little movement has so far been achieved on this option.

Option 3: privatising primary care and community health services. Three main initiatives are being pursued.

  1. General practices in England are now put out to tender on 3-5 year contracts: groups of self-employed GPs have to bid against corporations such as UnitedHealth or Atos Origin, employing doctors on corporate terms, when contracts end.
  2. 149 'Walk-in clinics' (one for each NHS NHS administrative area in England) are being opened, also through competitive tenders, each to replace or absorb several existing  general practices. The initial policy envisages a further 600.
  3. All community health services in England (mental health, district nurses, speech therapy, etc) are to be outsourced: existing  NHS staff are being required to leave NHS employment and form 'social enterprises' to compete for their work against for-profit providers.

The official target that 15% of NHS spending should go to private providers was still quite far from being met at the end of 2009. A rough estimate looked like this:

NHS providers:

  • 178 NHS hospital trusts or foundation trusts managing 1200 hospitals
  • 8,250 General Practices
  • Community  health services -  60 mental health trusts, 12 ambulance trusts, district nurses, physiotherapy, etc

Commercial providers of NHS services:

  • 110 private hospitals or clinics and 125 day surgery units in the ENS (doing ?5 % of NHS  routine general surgery
  • 38 specialist surgery centres (ISTCs)  (doing ?5 per cent of all elective NHS surgery)
  • 100? General Practices and up to 35 walk-in clinics'(?5% of all GP services)
  • 20+ % of 'out of hours' GP  services
  • Diagnostic and imaging services (% unknown)

But the impact of even limited competition is already being felt in a loss of quality in secondary care, in many ways including the following:

  • Priority for financial targets leads to staff cuts, dilution of skill-mix, shorter consultations, faster throughput in hospitals (finance-driven earlier discharges, leading to rise in readmissions), etc
  • Costs of creating and operating a market consume some 10% of total NHS budget, reducing funds available for services
  • Increased cost of using private finance for capital projects reduces funds available for services
  • Competition from 'cream-skimming' by private providers raises NHS trusts' costs as remaining case mix is higher-risk
  • Loss of patient revenue to private providers destabilises hospital trust finances, leading to staffing and service cuts

 And primary and community care are being industrialized. 80% of costs are accounted for by salaries, and the scope for substituting capital for labour is limited. Primary and community health services can therefore only be made profitable by replacing expensive labour with cheaper labour and adopting standardised diagnosis and treatment protocols. In the new 'walk-in clinics ', and in general practices taken over by for-profit companies, the ratio of doctors to nurses falls sharply; nurses replace doctors, nursing assistants replace nurses, consultation times fall. To secure renewed contracts in competition with these, existing non-profit general practices must follow suit; similarly for the new 'social enterprises' providing community health services. In addition, forcing general practices to compete to renew their contracts is costly and destabilising, and when the contract changes hands, continuity of care is lost.

The resulting decline in the quality of NHS care creates a demand for better care, which leads to pressure to introduce fees or 'co-payments' for such care, breaching the principle that all NHS care is free at the point of delivery, and given only in response to need, not ability to pay. Whether and how fast this occurs will depend on many factors, and above all the party in power: a significant wing of the Conservative Party has long called for fees to be introduced for consultations, for example. But three kinds of precedent already exist:

  • Fees for standard NHS care: fees are already charged for NHS dentistry, routine eye care, prescription drugs, while other services such as long-term care of the frail elderly and (in practice) continuing physiotherapy have been removed from NHS provision and must be paid for
  • Superior care: patients can now pay for life-extending cancer drugs not (or not yet) available from the NHS, or same-person midwife care,  if they can afford it
  • Personal budgets: patients with long-term conditions are to be given a lump sum to spend on their care. If it is used up before the end of the year, those with resources can pay for more care; those without will have to wait

The tendency is thus towards an emerging two-tier health service, perhaps with a significantly enlarged private sector too. Residual or 'basic' NHS care would remain free at the point of provision for those who cannot afford fees (25-30% of the population have household incomes below 60% of the median). Better quality NHS care of various kinds would be available in return for a range of fees or 'co-payments'. And an expanded system of private health care would be likely to emerge, partly supported by its contracts for the provision of NHS as described above, and perhaps also subsidised by restored income tax relief on premiums paid for private medical insurance.


In this part of the paper I try briefly to explain the drivers behind this radical transformation of the NHS, and above all why the Blair and Brown governments have gone well beyond the legacy they inherited from Thatcher, and why they have been able to do so relatively quickly and easily.

We need to begin by noting that initially, New Labour didn't decide to do this. From June 1997, when New Labour came to power, until October 1999, when Blair's first Secretary of State for Health, Frank Dobson, was induced to leave office to contest - unsuccessfully as it turned out - the first election of a Mayor for London, it more or less pursued in office the policy it had adopted before the election, to abolish the internal market. He went as far as he could in restoring the old integrated NHS. The purchaser-provider split remained, but annual contracts between purchasers and providers were replaced by 'agreements' covering three or even five years, and Dobson imposed tight restrictions on the use by NHS hospital trusts of private hospitals for treating patients at times of acute pressure on NHS beds.

But in 2000 everything changed. Dobson was replaced by Alan Milburn and in July 2000 a new NHS Plan was published which for the first time implied the creation of a full health care market. Dobson's Conservative predecessor Stephen Dorrell had envisaged this, but it was not government policy under John Major, and according to Dobson there was no one in the Department of Health while he was there who was pushing for it ((Interview, November 2009)). But by early 2000 at the latest someone in or close to the DH certainly had a clear conception of such a move: the steps that followed were not necessarily all planned in advance, in just that sequence, but there was a coherent logic to them that reflected a consistent response to forces that were driving in that direction.

The ultimate driver was, undoubtedly, Tony Blair himself. He consistently pressed for more involvement of the private sector in the provision of services to NHS patients and was instrumental in the 'Concordat' signed between Milburn and the Independent Healthcare Association in October 2000 which stated that using private sector providers should become a normal rather than an exceptional part of NHS policy ((Allyson Pollock, NHS plc: The privatisation of our health care, London; Verso, 2nd edition 2005, pp. 70-72.)). Blair was almost as concerned as Thatcher had been to attack what he saw as illegitimate 'provider interests', among which doctors and other NHS staff were seen as chief offenders. And while the power of the big public sector unions was reduced within the Labour Party by the changes made to the party constitution after 1994, the only effective way to reduce their economic power was to reduce the public sector itself. With pliant Secretaries of State, this could be achieved through marketisation. But key to accomplishing this were two other forces: the power of the global private healthcare industry, and the conversion of the state apparatus generally into an instrument of private capital.

One of the debilitating elements in social-democratic thought has been the tendency to assume the possibility of a stable co-existence between the state and capital - the concept of a 'mixed economy', with public and private 'sectors' separated by boundaries set by the state. This recurs today in the field of health policy in statements to the effect that 'it doesn't matter who provides health care so long as it is free at the point of service', and 'Public-Private Partnerships'. All such discourses ignore the dynamic logic of capital; the fact that individual capitals, and capital acting in an organised political way, are constantly searching for new markets and new sources of profit, and that public services are now seen as a prime source of both. Moreover capital's political power, stemming from its market power, is cumulative over time: every advance makes further advances easier and more likely.

In the case of the NHS the impact of PFI is a clear case in point. Labour inherited the plan for PFI and it was a key component of the New Labour project to woo the City of London before the 1997 election. It had to be implemented; and NHS hospital building, which had been the victim of acute neglect by successive governments, was its first and biggest single field of application. With its implementation the balance of power between capital and the Department of Health dramatically altered. In Labour's first two years in office, from 1997 to 1999, relations between companies seeking to be involved, and both the DH and hospital trusts which were going to build or rebuild using the PFI, became close. Private management consultancies - KPMG, Deloitte Touche, etc - also became indispensable: in the late 1990s KPMG regarded the DH as the 'crown jewel' in its London portfolio of accounts. Huge commitments of public funds were now being entered into on the basis of data and analysis developed by the private sector. Civil servants got used to being collaborators with businessmen.

They also got used to 'creative accounting' of a kind that 50 years earlier would have meant their dismissal. As the costs of building with the PFI were much higher than doing it with government borrowing, the figures had to be manipulated to show that the extra cost was compensated for by value added by the private consortia - above all through the transfer of risk. This could be demonstrated only on the basis of very questionable assumptions about the public sector alternative - the so-called 'public service comparator' ((See e.g. Melanie McFadyean and David Rowland, PFI vs Democracy? School Governors and the Haringey Schools PFI Scheme, Menard Press, 2002.)). A new level of dishonest spin came to characterise DH documents and pronouncements. Ministers regularly lied and also increasingly withheld data from public scrutiny on the grounds that it was commercially confidential. A growing share of all spending ceased to be publicly accountable, and the policies involved thus ceased to be publicly assessable.

At bottom, the new dishonesty had a more general cause: there was little public enthusiasm for privatisation of public services. But it was a key element in the doctrine of the New Public Management (NPM) that this should happen, on a large scale. And the NPM was implicit in New Labour's deal with the capital markets - in what Blair described as the need to make Labour a - or the - party of business. As a result two entirely different discourses were developed by the state, one for its dealings with capital, and one for public consumption. This is very clear if you look at the house journals of the private health industry such as Health Investor. What ministers are reported there as saying to business conferences they do not say in parliament or on TV. If the government had invited MPs to vote on converting the NHS into a market it would have lost the support of at least half its MPs, and yet by 2000 this was the government's aim. The result was and is a public discourse riven with lies and inconsistency ((See for example Stewart Player and Colin Leys, Confuse and Conceal: The NHS and Independent Sector Treatment Centres, London: Verso 2008, passim; and more generally, Colin Leys, 'The Cynical State', in Telling the Truth: Socialist Register 2006, London: Merlin Press 2005, pp.1-27)).

The counterpart of this, which allowed it to happen and become normalised, was the conversion of the senior civil service into managers focussed on implementing government policy, rather than participants in policy development. This was begun by Thatcher in the mid 1980s. By the time New Labour took office many if not most senior civil servants were people who accepted this redefinition of their role. Consequently when Blair and Milburn decided to move to the creation of a full healthcare market, there were senior staff at the DH who were ready to promote it. The old function of senior civil servants, of upholding some general concept of the public interest and subjecting policies proposed by politicians to criticism in light of it, had gone.

More than that, the old barriers between the public and private sectors disappeared. On the one hand businessmen were appointed to key roles in government. In the DH a new Commercial Directorate was created, with a businessman at its head. In June 2006 it had 190 staff of whom 182 were seconded from the private sector. It was the driving agency within the DH. In 2008 it was dissolved. In its place on short-term contracts a Competition Panel was set up with power to supervise the process of tendering and awarding contracts for the provision of services, recruited largely from lawyers with commercial experience. Even Chris Ham, a professor of health policy and sometime director of strategy in the DH who had strongly endorsed the US model of healthcare represented  by the HMO Kaiser Permanente, said the panel's first statement of the principles it proposed to follow read as if they had been written 'by a neo-liberal economist on speed' (('Role of Competition Panel Under Review', Health Service Journal 21 May 2009.)).

Conversely, it became almost a norm that ministers and senior civil servants leaving public service got lucrative jobs in the private health sector. This applied to two of the four Labour Secretaries of State for health who have left the government, Alan Milburn and Patricia Hewitt; to a junior health minister, Lord Warner; to Blair's senior health policy adviser, Simon Stevens; and most recently to the Director of Commissioning and System Management in the DH, Mark Britnell - all of whom played crucial roles in the marketisation programme. And this is to omit many less prominent officials. It is hardly too much to say that the marketisation of the NHS has been handed over to capital, leaving ministers and civil servants with the main task of handling public relations - of adapting public opinion to what are presented as the requirements of 'the market' - even though these are demands that they themselves have ensured will be made.

So much for some of the drivers behind New Labour's decision to convert the integrated NHS into a healthcare market, and the relative effectiveness of the measures it took to set the policy in train. But what accounts for the lack of effective opposition? How was it possible politically to dismember a public service which continues to be the most popular institution in Britain, and hand it over to the vagaries of market forces?

The obvious answer is that it was overdetermined. A short list of seven causes, any two or three of which would be sufficient, includes:

  1. The fact that it was the Labour Party which was carrying out the policy, and that the Conservatives fully supported it. This left opponents with no national political support
  2. The fact that the key trade unions are affiliated to the Labour Party. This neutralised their opposition and also meant that union funds were not available to serious opposition movements such as KONP.
  3. The failure of the media to report or to understand the government's strategy, combined with government duplicity and spin. The impact of market pressures in cutting editorial resources in the press and broadcasting compounds the effects of the fact that healthy policy is complex, unfolds gradually, and is rarely dramatic. A meeting held by KONP in the House of Commons in October 2009 attracted 4 MPs (of whom three were Independents). The result is that many doctors, not to mention most members of the public, do not fully grasp what is happening.
  4. The fact that the NHS Plan of the year 2000 was accompanied by a dramatic increase in spending, aimed at bringing the share of GDP spent on health up to the EU average by 2009, and that this was accompanied by targets, backed by financial incentives to hospital trusts, to bring down waiting times for hospital treatments. More hospital staff, new hospital buildings, and reduced waiting times made people readier to accept the role of competition, which was regularly represented as linked to these effects.
  5. The ambient ideology of consumerism. The drive to re-label patients as 'customers' has not got as far in the NHS as it has in other public services, but attitudes to the commodification of health care are affected by the commodification of so much else. For example a recent opinion survey by the BMA found that 85% of people now expect user fees to be introduced in the NHS ((Guardian 29 June 2009. The survey reported contradictory attitudes reflecting public ignorance and confusion and the impact of consumerist ideology. For example 'Nearly 60% said the private sector should be more involved in providing NHS services but almost half (47%) said there should be no further contracts for commercial companies.')). The solidaristic principle on which the NHS was based, in which the entire population constitutes the risk pool and all its members are entitled to care based solely on need, has been abandoned in one sector after another. Fewer and fewer people now have any idea of belonging to an 'us' that embraces the whole population.
  6. Youth culture. The enormous premium placed on youth in our celebrity-led consumer culture is a major disadvantage in relation to healthcare policy, since the main users of health services are new mothers and people over 65. Health policy makers are still mainly men in their forties and few of them, and few younger voters, experience ill health or imagine themselves as future retirees with health needs. Their interest in health care is in the treatment of accidents and relatively rare illnesses of the young, which are also the preferred themes in the way health is treated in the media.
  7. Last but not least, the incentive structure created by neoliberal policy for key elements in the public sphere. This applies to NHS managers, doctors, and technicians; to public health academics and health policy researchers; to health journalists, to the BBC; the senior staff of the BMA; to local worthies who serve on hospital trust management boards and PCT boards, etc. Academics who challenge government policies for lacking evidence will not get research funding from the DH, so astonishingly little seriously critical research on health policy is done. Chief executives of PCTs or Strategic Health Authorities who resist the closure of services that are valued by patients but not by corporations will not keep their jobs. NHS hospital managers who resist measures that prioritise a hospital's balance sheet over providing services to the local population will not be promoted; in the main hospital in Staffordshire this  led to between 400 and 1200 patients dying unnecessarily over a three year period ((See the Guardian 18 and 19 March 2009. A recent report even shows the mechanism operating within the armed forces. In 2006 systematic safety failures led to the explosion of a big military reconnaissance aircraft in Afghanistan, with a loss of 14 lives. Commenting on the report of the enquiry into this in 2009 a former senior RAF officer said: '... in the 1990s you had to be on top of airworthiness. By 2004 you had to be on top of your budget to get ahead.' (Guardian 28 October 2009))). The lack of effective opposition from within the NHS itself is clearly linked to this factor, and its absence enormously weakens opposition from outside the NHS, from the public at large.

How far the economic crisis, and the crisis in neoliberalism, will alter the balance of forces sketched above remains to be seen. First, the credit crunch has already halted and even reversed some of the penetration of the NHS by capital. Some pending PFI projects are stalled and some investors in NHS clinical provision are thinking of pulling out. A good example is the largest investor in medical real estate and joint ventures with 'entrepreneurial' GPs, Assura Group:

Despite having won or reached preferred bidder stage for 68 tenders, including a string of GP-led health centres across the country, Assura revealed losses before interest and taxes in its medical division of £4.5m. City experts say Assura shareholders would rather the GP operations were sold off or shut as they are not expected to earn enough money to make a profit for a considerable period. Announcing its half yearly results, Assura warned that the current high volume of procurement for contracts, such as the Darzi rollout, was likely to slow after the general election and warned that the medical business would be loss making for some time and will consume further cash ((Pulse, 27 November 2009.)).

Second, the scale of the public spending cuts now being planned, to help close the budget deficit resulting from the crisis and the government's response to it, will affect the whole country rather than a few hospitals here and there: the total NHS budget of some £110 bn. per annum is now expected to be reduced by £8-10 bn over the three years 2011-14, at a time of steadily rising costs and patient need. The resulting loss of services will be on a scale that sparks strong popular resistance, and that cannot escape media attention. Third, the cuts will entail major redundancies in the medical workforce, which has hitherto not been mobilized to defend the NHS; a united front between the workforce ('provider interest') and patients ('users') against cuts and privatization will become a possibility again, as it was briefly in the late 1980s. Although the link between cuts and privatization is not self-evident, activists will be able to make that connection, and the unpopularity of the private sector in general, resulting from the crisis, will work against further privatization. Fourth, if Labour loses office in the general election of 2010 the glue that has bound the health service trade unions, and the remaining Labour left in and outside parliament, to the party, will be seriously weakened. To that extent the protection the privatisers have enjoyed due to party loyalty will be reduced.

Speaking generally, in a crisis many if not most pre-existing alignments and assumptions are apt to be challenged, and as the US case shows, health care can become a focal point for a wide range of strongly-felt political and social concerns. But the crisis will not lead to a reversal of marketisation, let alone to the development of a reinvigorated and democratized health service, without radical changes in political perspective and new organizational forms of political action.


Cette ressource a été publiée dans le cadre du colloque franco-britannique "The Thatcher Legacy 1979-2009", organisé par l'université de Lyon 2 et l'université de Sterling les 4 et 5 décembre 2009.


Pour citer cette ressource :

Colin Leys, "Reducing social democracy’s last redoubt: the privatisation and marketisation of the NHS in England", La Clé des Langues [en ligne], Lyon, ENS de LYON/DGESCO (ISSN 2107-7029), janvier 2010. Consulté le 23/05/2024. URL: https://cle.ens-lyon.fr/anglais/civilisation/domaine-britannique/l-heritage-thatcherien/reducing-social-democracy-s-last-redoubt-the-privatisation-and-marketisation-of-the-nhs-in-england