Monthly Archives: July 2014

The psychology of tax and spend

Richard Cookson, 18 July 2014

Following my recent foray into “The Moral Maze”, I was invited to join a live public “phone in” debate about the NHS on the BBC Radio 4 programme, “You and Yours”, on 15 July 2014. This was a slightly less fulfilling experience, for two reasons. First, it meant being stuck in a cupboard in BBC Newcastle, without meeting any of the programme makers or participants. Second, the promised opportunity to make some final remarks never materialised. This was frustrating, as I wanted to challenge the naive “tax and spend” approach to the NHS advocated by some of the other participants in the programme. This blog is a slightly longer version of what I would have said.

It is sometimes claimed that the financial problems of the NHS can be solved simply by raising taxes and spending more on the NHS. No rationing. No charging. No market reform. Indeed, no reform at all. Just spend more on the NHS, and let doctors and nurses get on with it. That claim is naive. Raising taxes and spending more on the NHS may help in the short term – but it will not be enough to preserve the NHS in the long term.

Like all supporters of the NHS, I want to preserve a high quality “Volkswagen” NHS for everyone, rather than see us gradually shifting towards a private “Rolls-Royce” service for the rich and a “Donkey Cart” NHS for the poor. In the long run, this will require increases in taxes and spending on the NHS. But a strategy of “tax and spend” alone is doomed to fail.  As the economy grows and we get richer, we will want to spend an ever higher proportion of our national income on health care. Just possibly, we may also be willing to pay a higher proportion of our income in taxes. But only up to a point. There is a political limit to the “tax” part of “tax and spend”.

That clash between health economics and tax politics is the fundamental strategic problem the NHS must address if it is to survive. Something else is needed, as well as tax and spend – either rationing, or charging, or reform, or a combination. Sometimes you can have your cake and eat it. Sometimes you can’t. In this case, you can’t.

Why do some of my fellow NHS supporters resist that uncomfortable logic, and cling to naive “tax and spend” advocacy? I can think of three possible motivations. In his classic 1974 book, “Who Shall Live?”, Victor Fuchs memorably dubbed the first two as the romantic and the monotechnic points of view, respectively. The romantic point of view denies that public spending decisions have opportunity costs in terms of alternative beneficial uses of scarce resources. The romantic believes that resources can be found for their own favoured cause without impinging on other people’s favoured causes – for example, by making “efficiency savings”, by diverting resources from disfavoured causes (such as defence spending) or by clamping down on the high pay and tax avoidance behaviour of the super rich. Fuchs criticises this viewpoint, writing that: “Because some of the barriers to greater output and want satisfaction are clearly man-made, the romantic is misled into confusing the real world with the Garden of Eden.” He goes on: “Confronted with an obvious imbalance between people’s desires and the available resources, the romantic-authoritarian response may be to categorize some desires as ‘unnecessary’ or ‘inappropriate’, thus protecting the illusion that no scarcity exists”.

By contrast, the monotechnic point of view fails to recognise the legitimate plurality of individual and social objectives. The monotechnic fixates on a single objective and is unconcerned if allocating additional resources to this objective imposes opportunity costs in terms of other objectives. According to Fuchs, the monotechnic view is “frequently found among physicians, engineers, and others trained in the application of a particular technology”. He goes on to write: “The desire of the engineer to build the best bridge or the physician to practice in the best-equipped hospital is understandable. But to extent that the monotechnic person fails to recognize the claims of competing wants or the divergence of his priorities from those of other people, his advice is likely to be a poor guide to social policy”.

The third possible motivation for naive “tax and spend” advocacy, of course, is straightforward political lobbying. NHS staff may know perfectly well that tax and spend alone cannot solve the problems of the NHS. But they may nevertheless wish to lobby for additional NHS spending, in the same way that teachers may wish to fight their corner for additional public spending on education, soldiers for defence spending, BBC Radio 4 staff for BBC Radio 4 spending.

Luckily, academics like myself would never stoop to special interest lobbying of his kind. That’s why more research is needed, and taxes should be raised in order to spend more money on academic research.



Bean counting and the NHS

Richard Cookson, 11 July 2014

I was recently questioned about the future of the NHS, during a live debate on the BBC Radio 4 programme “the moral maze”, on 9 July 2014.  One of the panelists took me to task for being a “bean counter”.  I got side-tracked by this somewhat less-than-flattering characterisation of my professional role as a health economist, and so only managed to get across three of the six points I had planned to make.  For what they are worth, this blog sets out all six points.  And, as an added bonus, it then concludes by explaining why I am proud to be a “bean counter”.

This blog sets out personal ethical views on a number of controversial matters of social value judgement.  That is what the BBC programme makers asked me to do, and I hope my professional colleagues will not “tut tut” too loudly when they see me doing it.  Professional economists are supposed to help decision makers and stakeholders think through the implications of a range of alternative value judgements, rather than to impose their own particular personal or professional value judgements.   However, this blog merely voices my own value judgements – it does not impose them on anyone.

Point number one is that the NHS performs rather well compared with other health systems across the world.  It is relatively cheap, relatively good, and very fair.  The UK currently spends about 9% of national income on health care, just under the OECD average, compared with 18% in the US.  People in the UK are on average healthier than those in the US – even rich people with access to the best available health care in the US.  And the UK regularly comes top of Commonwealth Fund surveys of fairness in high income health systems.  The UK NHS is widely regarded as the fairest health system in the world, with the possible exception of Cuba.

Point number two is that financial strain on the NHS will get worse in decades to come – potentially much worse.  This is due to a fundamental clash between health economics and tax politics.   The tax politics is obvious.  Voters do not like high taxes, so there is a limit to how far taxes can be raised, even to pay for something as popular as health care.  The health economics is less obvious, but surprisingly simple when you think about it.  As countries get richer, they spend a higher percentage of national income on health care.  There is a simple reason for this.  As we get richer, which is more valuable – a third car, yet more electronic gadgets, or an extra year of life?  (I am here paraphrasing Hall and Jones in their 2007 paper in Quarterly Journal of Economics, which predicts that health spending in the US will rise to 30% of national income by 2050).  In the technical economic jargon, health care is a “superior” or “luxury” good.  Do not be misled by this jargon – it does not mean that health care is an unimportant frippery.  Quite the opposite.  Effective health care that extends life and improves quality of life is much more important than fripperies.  That is why rich people want to spend such a large share of their incomes on it.

Point three is that my own preferred solution to this problem – and here you will notice that personal ethical opinions are coming thick and fast – is gradually to ration NHS care more explicitly and extensively, within whatever budget the electorate are willing to vote for.  That would enable the preservation of a tax-funded national health service that continues to provide a fairly comprehensive package of cost-effective health services to all citizens, that is nearly free at the point of delivery.  (The NHS has never been 100% comprehensive or 100% free at the point of delivery).  The rationing should be done through a transparent deliberative process, and based on a range of ethical principles, including cost-effectiveness, need, and compassion.  Chief among these principles, however, should be cost-effectiveness – the principle that scarce NHS resources should be used to do as much good as possible in terms of extending people’s lives and improving their quality of life.

Point four is that more extensive rationing is a better and fairer solution to the problem of preserving the NHS than more extensive user charges.  User charges should not be imposed on cost-effective forms of health care, such as GP visits.  Charges for GP visits deter people – especially poorer people – from seeking preventive and diagnostic care.  Without effective prevention and diagnosis, health problems progress to become more harmful to the patient and more costly to the NHS.  If health care is cost-effective it should be provided free on the NHS; and otherwise not.  People can then pay for non-cost-effective care themselves, either out of pocket or via “top up” private health insurance.  The slogan “all necessary care should be free” should be re-interpreted as the slogan “all cost-effective care should be free”.

Point five is that fervent ideological debates about “competition” and “choice” and “markets” and “privatisation” are largely red herrings.  What matters is that the NHS provides a fairly comprehensive range of cost-effective care to all citizens, so that everyone receives the care they need at a cost they can afford.  Who owns or manages health care provider organisations does not matter directly in and of itself.  Ownership and management may matter indirectly, of course – but only insofar as they impact upon the cost, quality and social distribution of health care.  The direction and size of such impacts in different contexts is a factual matter, to be settled in the court of evidence and experience, rather than a matter for fervent ideological debate.

Point six is that a more extensively rationed NHS can still preserve the founding principles of the NHS.  On the delivery side, it can preserve the principle of “equality of access” to all necessary health care – where “necessary” means “cost-effective”.  And on the financing side, continued tax funding continues to preserves the principle of “solidarity”, that the strong should help the weak – the rich should help the poor, the young should help the old, and the healthy should help the sick.  Finally, the NHS also preserves the benefit of financial risk protection.  As was stated in the public information leaflet sent to all UK citizens at the founding of the NHS in 1948, one of the main benefits of the NHS is that “it will spare your family from money worries in time of ill health”.

In conclusion, the best way to preserve the NHS is to engage in more explicit and extensive rationing.  This in turn will require more of what my “moral maze” inquisitor called “bean counting”.  More evidence will be needed to inform a suitably transparent and deliberative rationing process.  In particular, more evidence will be needed about the impacts of different NHS services on cost, length and quality of life, patient experience, need, compassion and dignity, and other ethically important outcomes and processes.  This form of “bean counting” is not an ignoble exercise.  The “beans” in question here are people’s lives.  People’s lives matter, and if seeking to improve the length and quality of people’s lives makes me a “bean counter” then I am proud to be one.