The NHS is a microcosm of the British economy

 The NHS is a microcosm of the British economy

Mistakes in how the government has managed the NHS parallel the mistakes in managing the economy. Trying to hold down the government budget is constantly approached by making easy choices rather than the right choices. The same is true in the NHS where the capital budget is raided to cover operating deficits. Both are recipes for long term decline.

All governments would like to see a higher growth rate in the economy. The current one wants to increase incentives with tax cuts but need to pay for those giveaways with spending cuts. But, faced with those spending challenges, they often take the easy road to keep the budget in some sort of balance by cutting the very capital projects that might improve growth in the long term. 

The parallel with the NHS is interesting. Growth in spending seems relentless. That growth can be constrained only by improving productivity. But the choices made to keep the budget under some semblance of control hurt productivity, making tomorrow's problems worse. In this way the NHS is like a microcosm of the whole economy, at least in the ways both have been managed in the last decade or two.

The economy

The link is explained by the factors known to affect productivity in the economy and the NHS.

As Sunak explained in his spring statement while he was still chancellor (my highlighting)

"Over the last fifty years, innovation drove around half the UK’s productivity growth.

…our lower rate of innovation explains almost all our productivity gap with the United States.

Right now, we know that the amount businesses spend on R&D as a percentage of GDP is less than half the OECD average.

…

Weak private sector investment is a longstanding cause of our productivity gap internationally:

Capital investment by UK businesses is considerably lower than the OECD average of 14%.

And it accounts for fully half our productivity gap with France and Germany."

His analysis is mainstream economics. But it is worth asking what governments have actually done about either innovation or capital spending over the last decade or two because the same factors matter not just in the private sector but in the parts of the economy controlled by the government.

This chart on total government spending appeared recently in the FT: 

The point is that, when faced with alternative ways to control total government spending, Osbourne chose the easy path of cutting capital spending, not current spending. And that spending on national infrastructure is the sort of thing that leads to long term improvement in productivity (and there is a direct influence on the economics of private capital spending because the future returns on that will be higher if the national infrastructure is better).

But, politically, capital is easier to cut. Who notices the long term impact of projects that might not finish for years and might only show big benefits in decades? Everyone can see this year's budget deficit. The temptation is to take the easy option even though it is the worse option for productivity and growth in the long term. Yes, all politicians, if asked, would claim they want higher productivity and growth: but they are very reluctant to face worse headlines tomorrow about the budget deficit.

Given that UK productivity growth tanked during the Osbourne austerity period, you might think this lesson had been learned. But that is not what the mood music emerging from Whitehall suggests where, in response to the catastrophic reception of the Kwarteng mini-budget, departments are being asked to make sharp cuts with capital spending at the top of the list.

The NHS

How governments have managed the NHS is a microcosm of this same problem. And it has been catastrophic for the long term health of the system.

If tomorrow's NHS is to be less of a financial burden on future governments, it needs to be much more productive (however that is defined: quality and throughput both matter in healthcare). The same factors–innovation and capital–have big influences on future NHS productivity. But how has the budget been allocated in the last decade or two? 

We can compare the NHS to other health systems in how it allocates money to the things that should matter to future productivity. The easiest to measure is capital spending. And, mirroring the problem with spending in the economy as a whole, the big picture looks to be a catastrophe of poor short term choices (for a more detailed analysis see my longer rant here). In an analysis in 2019, the Health Foundation produced this chart:

And said:

"Capital spending is a critical input in health care, with new technology able to transform services and improve workforce productivity. 

The DHSC has proposed a more technology–and data–driven NHS. New technology and IT could improve patient services and increase productivity, but both currently make up a small proportion of capital spending."

 

So, not only does the NHS get starved of capital spending in general but the mix is very light on the things that would typically have the biggest impact on productivity.

The result of this is that the capital employed per worker (an interesting measure of the stock of things that partly determine productivity) is half that of most comparable systems. 

And, according to the National Audit Office, even when the NHS gets allocated a capital budget, it frequently either underspends it or pilfers it in year to cover operating deficits. This is a perfect illustration of the political choice to take an easy path rather than the right one. And one that has, in effect, killed the hope that NHS productivity could improve enough to lower the financial burden on long term government spending. And this has been the chosen path for two decades. It is little wonder that the productivity of the NHS is falling and that the system is creaking under the strain. 

Some conservative commentators are now arguing that the government can no longer afford to keep spending more, as they need to do to stop the wheels from coming off the bus. But those commentators ignore a major  reason for the current need for more spending: the neglect of any attempt to spend the money on the long term things that would make the NHS much more productive and reduce the pressure to spend more to avoid imminent catastrophe. 

And the opposition don't help pull the debate back to solid ground by claiming everything is about staff shortages. There are two problems with this. One is that investment in better equipment and facilities could improve productivity so much the need for more staff could be reduced. The other is that the biggest reason staffing is a problem is not recruitment, it is retention and a large part of that is caused by the poor working environment some of which is caused by the lack of capital per worker. And the constant churn of staff, especially when experienced staff are replaced by cheaper but less capable staff, undermines team productivity and quality, exacerbating the need for yet more staff in some sort of anti-productivity death spiral.

So what?

And this brings us back to why the NHS is a microcosm of the economy as a whole. In order to attempt a rescue of government finances ravaged by the Kwarteng mini-budget, the key proposals to recover the government deficit currently being discussed are to cut things that are easy to cut quickly. Like capital spending. So, instead of spending on the long term things that enhance future productivity, they are likely to cut them further and in ways that damage the very growth they seek. They should have learned from the Osbourne era that that does not work. The easy path then–capital austerity–hurt the national growth rate and made it harder to fund the sorts of spending the government cannot cut if they don't want to lose their core voters (are they going to cut pensions when the most conservative block of voters are pensioners? I don't think so).

As Martin Wolf said in a recent column in the FT (my highlights):

The UK’s longer-term economic performance must indeed improve if the desires of its people for a better life are to be realised. If the government wants to do something useful about this, it might dust off the report of the London School of Economics’ Growth Commission of 2017. Better incentives are indeed a part of the answer, but only a part. This is why systematic tax reform would be desirable. There must also be difficult deregulation, notably of land use. The state must supply first-class public goods, in the understanding that these are a social benefit, not a cost. There must be fiscal and monetary stability. There must be far higher investment in physical and human capital, both public and private.

Neither the economy nor the NHS will be better tomorrow if the investment in the long term is cut. The persistent habit of picking easy cuts rather than the right cuts is a recipe for long term catastrophe (and possibly short term catastrophe too). 

Spending the money well (especially not neglecting long term investment) is the solution to the growth and productivity problem in the NHS and the wider economy. Spending it badly by making easy choices now is not.

PS that cartoon is modified from an original by the late great B Kliban. See some of his other quirky cartoons here: https://www.gocomics.com/kliban

The biggest problem holding back NHS performance is a lack of investment in capital, innovation and management not staff or beds

In debates about what the NHS should do to improve its performance it is common to see benchmarks of staffing or bed numbers versus comparable health systems. The argument is that the system needs more doctors/nurses/beds. This is not the biggest problem. The NHS has suffered far more from a failure to invest in capital, innovation or management. 

Charts like the one below dominate the debate about NHS funding:

The message is simple: the NHS is underfunded and needs to have more doctors (or nurses or more money, depending on which lobbyist is producing the charts).

The implication is that the very obvious performance problems of the system would be solved if only we matched the same level of doctors/nurses/funding as the peer group of other health systems.

There is some debate on the strict comparability of these metrics and that is rarely mentioned by the lobbyists. In fact I once saw Nigel Edwards heckled for pointing out that a major revision on OECD metrics of overall spend on the NHS and comparable systems made the NHS look middling rather than an outlier on the low side. People really want the explanation for poor NHS performance to be simple and, preferably, a conspiracy they can blame on the Conservatives. It is frequent to see phrases like "Tory staffing cuts".  And that is the end of the debate for many.

But, even though the overall NHS budget saw unusually low growth in the decade after 2010, front line staffing increased significantly. The "tory cuts" in staffing led to ~30% more doctors and 15% more nurses:

I don't want to argue that the government is not to blame. I do want to argue that we are looking in completely the wrong place about where policy has been wrong.

There are far, far bigger problems than not having enough front line staff. And the real problems that front line staff experience are often consequences of those other failures. Worse, those other failures get almost no attention and the topics that do get attention distort the debate so much that the biggest and most important failures get essentially no critical attention.

Before I get to the other issues that I argue matter more than staffing, it is worth a quick review of why the staffing benchmarks are not that relevant to NHS performance.

One reason is a lack of strict comparability with the other countries in how they use staff. But a more interesting one is that the implied policy when it looks like the NHS is behind ("fix the staffing, fix the problem") very clearly doesn't work in specific cases. An example is A&E staffing. It has been repeatedly claimed in the last decade that the decline in A&E performance is a consequence of a lack of A&E staff. But the number of A&E doctors rose faster than demand every year since 2010 and the number now is >30% higher than it was in 2010. The number of A&E specialists grew faster than any other for most of the last decade. But performance has declined monotonically over that period. 

In this case it is easy to see why staffing was never the problem. Patients suffer long waits in A&E not because there are not enough A&E staff to treat them but because there are no free beds to move the patients to. This was known in the early 2000s when the 4hr target was set and has repeatedly been shown in detailed analysis of the causes of waits in the last decade (see, for example, this from Monitor). To put it simply, more A&E doctors can't magic up more free beds. They mostly can't even influence the number of free beds. So adding more staff doesn't fix the underlying problem. (I should add that the longer the A&E queue, the more staff are needed to handle it. So the apparent staff shortages are actually a symptom of a different problem elsewhere in the hospital, not the cause of the problem. Adding more doesn't fix the problem.)

So what other errors has the NHS made?

The NHS benchmarks that really matter

Let me tell you the answer before working through the details and arguments. 

The NHS might be slightly short of front line staff but it is catastrophically short of support staff like managers and has a long standing lack of investment in innovation and capital spending. If benchmarks versus comparable health systems are any guide, the NHS is a spectacular outlier in investment and management. 

The NHS is very undermanaged

When the Lansley Reforms were in draft form and proposed severe cuts in management numbers there were several analyses that criticized this goal. The King's Fund concluded as part of its commission on leadership and management that:

"If anything, our analysis seems to suggest that the NHS, particularly given the complexity of health care, is under–rather than over–managed."

And this was before the drastic cuts in the Lansley reforms were implemented (see the staffing chart above for their immediate impact). A more recent analysis (in a report by Ian Kirkpatrick and Becky Malby for the NHS Confederation) said:

"...it is hard to argue that the NHS is ‘overmanaged’. At approximately 2 per cent, managers are a very small proportion of the NHS workforce. By comparison, ‘managers, directors and senior officials’ in the UK as a whole make up 9.5 percent of the workforce." 

And, in another report in the series they argued this: 

"We found that even a small increase in the proportion of managers employed (from 2 to 3 per cent of the workforce in an average acute trust) had a marked impact.

Up to a certain point, larger management functions in trusts were associated with higher patient satisfaction scores, a 5 per cent rise in hospital efficiency and a 15 per cent reduction in infection rates. Further tests revealed that it was primarily higher levels of managers employed that drove these improvements and not the other way round."

Both NHS management numbers and total administration costs are far below international norms and have fallen sharply since 2010. Given the clear evidence from Kirkpatrick's work that more managers make hospitals function more effectively, cutting management looks like a bad error. Adding more managers has a lot of leverage over the performance of all the other staff but the NHS has chosen to cut their numbers instead.

Both manager numbers and total administrative costs are far more out of line with international norms than the number of doctors, nurses or beds. Although good comparable metrics are hard to find, the IFS claimed this in 2018:

The OECD has compiled data on administrative costs of different health care systems at the ‘macro’ level – which captures the amount spent on planning, funding and monitoring care, but not administrative costs within individual hospitals. 

They found that the NHS spends relatively little on overseeing and planning care, relative to other comparable systems. In 2014, the UK, Portugal and Ireland all devoted 1.5% or less of their government or compulsory health care expenditure to administration. This compares with an average of 3.1%, with 4.1% in France, and 7.9% in the United States.

Investment in innovation and capital is grotesquely low 

Another area where the NHS is an outlier is spending on capital and innovation. In fact it is an extreme outlier.

This is somewhat ironic given Rishi Sunak's recent spring statement where he diagnosed a major problem for the UK economic productivity as being largely caused by a lack of investment in innovation and capital. As he argued:

"Over the last fifty years, innovation drove around half the UK’s productivity growth.

…our lower rate of innovation explains almost all our productivity gap with the United States.

Right now, we know that the amount businesses spend on R&D as a percentage of GDP is less than half the OECD average.

…

Weak private sector investment is a longstanding cause of our productivity gap internationally:

Capital investment by UK businesses is considerably lower than the OECD average of 14%.

And it accounts for fully half our productivity gap with France and Germany."

The NHS is the largest part of the UK economy controlled by the government. So exactly how has the government sought to control its spending on the key factors that determine productivity in the rest of the economy? 

It won't surprise you to know that it is the opposite of the Sunak recipe for productivity in the private sector.

The Health Foundation did a (little read) briefing on this in 2019. It starts by pointing out the obvious:

"Capital spending is a critical input in health care, with new technology able to transform services and improve workforce productivity. 

The DHSC has proposed a more technology–and data–driven NHS. New technology and IT could improve patient services and increase productivity, but both currently make up a small proportion of capital spending."

So the DHSC has an ambition to exploit technology and IT (which needs investment). But the Health Foundation analysis of 20 years of NHS capital spending compared to peer health systems looks like this:

Only during the late Blair/Brown years did NHS capital spending come close to international norms and it is often the lowest or next to lowest in the whole dataset. The Health Foundation  argue:

"For the UK to move up to the average for OECD countries, capital spending would have to almost double as a share of total health spending"

The National Audit Office also reviewed capital spending in the NHS in 2020 and some of their analysis tells an even more sorry tale. 

They start by pointing out part of the current situation with buildings and other capital assets:

Parts of the NHS estate do not meet the demands of a modern health service. NHS hospitals include Victorian-era buildings, and 14% of the NHS estate predates the formation of the NHS (1948). 

…

The growth in backlog maintenance indicates that there is an increased risk of harm to patients … the backlog of maintenance work to restore buildings to an appropriate standard was around £6.5 billion … High-risk backlog maintenance currently stands at £1.1 billion, and grew by 139% between 2014-15 and 2018-19, indicating an increased risk of harm to patients.

It isn't just the lack of modern IT and diagnostic equipment that holds back the NHS. It needs more modern buildings to do a good job but frequently doesn't have them.  Worse, in some cases, maintenance problems in the existing buildings are so bad they risk immediate harm to patients.

Given this already disturbing background it might be a surprise when they point out that in many years of the last decade the already inadequate capital allocation to the NHS was underspent:

"Between 2010-11 and 2012-13, there was an average underspend of £677 million (12%) against the capital spending limit. In 2017-18, £360 million (6%) was unspent."

And their story gets worse:

"Since 2014-15 the Department has transferred £4.3 billion from capital to revenue spending"

So not only does the NHS start with an inadequate budget, which it underspends, it is then encouraged to pilfer the capital budget to cover operating costs. The reason this has been encouraged is because it is a convenient short term way to cover up operating deficits. These are embarrassing. And, obviously, avoiding embarrassment is more important than the roof of an operating theater falling in. Better still, while operating deficits are visible every year, most of the catastrophes from the maintenance backlog will appear slowly over a decade.

It might seem strange that the inadequate capital budget should ever be underspent. But the NAO explain that too by pointing out that the paperwork and bureaucracy of applying for capital is so baroque that many hospitals can't even get their cases for urgent maintenance past the system. And, even if they do, they might lose the allocation if they can't spend the money in-year as next year's allocation may be arbitrarily different. Short term changes to the budget every year make long term planning of capital spending impossible.

The buildings are inadequate for modern healthcare activities. There is a huge and rising backlog of maintenance to keep the show on the road that is limiting the capacity of the system to do more work. The system frequently steals from capital to employ more staff who will have to work in an environment where their work will be harder and less productive. The NHS is close to bottom on international rankings of the amount of high-tech equipment it needs to do the diagnostics necessary to tackle long elective queues. And there is little budget for investing in better IT to enable front line staff to work faster and more productively without the burden of coping with decade-old kit.

It is lucky that investing in capital or innovation doesn't matter for productivity. Oh, wait, that's exactly what the chancellor blamed for low productivity.

As an ironic coda to this section the following story appeared in the HSJ the day after his spring statement:

"Tech spend under pressure as NHSE told to ‘cut core funding’"

It hasn't taken long for the promises in the last spending review to invest more capital in the NHS to hit the buffers of old Treasury munchkin habits.

The government's goals for an improved, more productive NHS are directly undermined by its choices about how to allocate resources.

There are several important messages here.

Problem 1: the government itself has correctly argued that spending on capital and innovation are vital for driving up productivity. So much so that they are increasing the incentives to encourage more such spending in the private sector. But, when they control the budget, they do exactly the opposite. And, at the same time, continue to demand even higher productivity gains from the NHS. Whipping a dead horse doesn't cover it. It is more like whipping the reliquary containing the ashes of the horse cremated a decade ago after being euthanized for breaking a leg.

The second huge problem here is the lack of attention this analysis has had among commentators and the media. The news is full of stories about how the NHS is struggling because it has 10 or 20% fewer doctors than comparable systems. Lobbyists for nurses and doctors demand higher levels of staffing to fix the overwork, the current catastrophic waiting lists and A&E delays. But there is little mention of the fact that the NHS has perhaps half the capital employed per worker than almost any other health system. The NHS is a far more extreme outlier on this than it is on staffing. And the day to day work the front line staff have to do is much harder and less productive as a result.

The third problem is management. NHS management does make the news more often than capital spending, but almost always to disparage it. Stories often argue that we could cut management even further to put more resources to the front line. These stories usually fail to note that NHS management has already been sharply cut by the Lansley reforms and is currently another major outlier in comparisons between the NHS and other systems (I made the case about managers and their importance in the NHS here). Nor do they mention that very clear work shows that more managers make productivity and medical quality better. 

In short, there is a fundamental mismatch between the government goal for a more productive NHS and the way it provides the tools to the NHS to achieve that productivity. The government and NHSE are like an army who recognises the need for bullets but forgot to allocate a budget for the guns required to fire them. 

The perpetual failure to invest enough in capital, innovation or management is a far bigger problem for the NHS than any shortage of staff. It is about time the commentariat, the media and the government realized this. We won't fix the NHS until they do.

 

The debate on BREXIT illustrates how little evidence determines major public policy decisions

People don't decide their position on BREXIT by looking at the numbers: they choose their position and then seek numbers to justify it. Most of the numbers quoted on either side can't be trusted. This is corrupting public discourse by damaging the credibility of numbers that do tell a clear story.

The ferocity of debate in politics is often inversely proportional to the amount of actual hard evidence available on the topic. Whether the UK should stay in the EU is a typical example. Many decide they don't like the loss of freedom required when you are a member of the club and call for exit; others, like me, decide that the compromises required and the bureaucratic overhang of membership are worth it because the gains from collaboration are worth it. Some choices are more atavistic: many presume (probably incorrectly) that uncontrolled immigration is caused by EU membership (and they also believe the populist myth that immigrants are the cause of many other problems in society). Neither side reaches their conclusion because they have done some calculations: the conclusions come from deep emotional value choices not statistics. But the debate pretends otherwise and dredges up volumes of statistics to confirm the emotionally reached decision.

The numbers thrown around in the debate are proxies for that emotional choice. Most people can't admit that they didn't reason their way to their choice and they seek what look like the rational arguments that got them there. But this process suffers from all of the cognitive biases that so beset much thinking (especially confirmation bias where people are more likely to believe numbers supporting the position they already hold). People seek the numbers that confirm their side of the debate.

Nothing illustrates this better than the meme of European bureaucracy. Even EU supporters often complain about bureaucracy and many even quoted this tweet as an example:

Luckily for rational thinkers the BBC's More or Less programme (see this BBC article) decided to test the assertion. Their conclusion: there are no EU regulations specifically about cabbage sales and the 26,911 number originated in a complaint in the post-war USA about government regulations (and was probably mythical even then). Amazingly the same number of words has been repeated by many other objectors to bureaucracy without ever being validated in even the most cursory way against real documents.

The meme of EU bureaucracy is so strong that even pro-EU campaigners didn't think to challenge the basic facts in the assertion.

My main point, though, is about the harder economic numbers bandied about by the two sides and the extent to which they corrupt public discourse when we are debating significant issues. Both sides in the debate, for example, agree that leaving the EU would be disruptive. I agree: that is one of the few things that is clear. But there is a lot of disagreement about how disruptive leaving would be and even more on the economic benefits of staying or leaving. The leave campaign tend to assume that new trade treaties would be easy to negotiate quickly (not that there is any evidence to support this) and they assume that the benefits of an independent UK would be large when freed from the dead hand of EU regulation. The stay camp assume that renegotiation is a long and costly process and that many current jobs in the UK that depend on EU trade would be lost.

Both sides quote specific estimates for the economic benefit of their position. This is where the problem comes. Although specific numbers are quoted, the estimates have no credibility. John Kay, the economist and FT columnist addressed some of the problems with these kinds of estimates in a column in 2011. His concerns, though originally made about the economic rationale for big government projects, apply equally to any analysis of the case for staying or leaving:

...Because so many inputs to the analysis are invented, they can be chosen with a view to the desired result...

...The only information exercises such as these convey is the limits of the imagination of the people who have undertaken them….

...Yet the mistaken belief persists that these procedures provide an objective basis for decision making...

...We do great damage by claiming to know things that are not known, by asserting certainty in the face of uncertainty and ambiguity, and by attaching a veneer of rationality to decisions that have in fact been made on other, rarely articulated, grounds. The paradoxical result is all too obvious. The public sector and large bureaucratic organisations appear as paragons of good decision making process and exemplars of bad decisions.

I would add an extra concern. The specific nature of the forecasts made by each side damage the credibility of almost any analysis intended to illuminate a major public decision. This is bad because, for example, when we have to decide how much to spend to mitigate global warming, the numbers we are shown will have no credibility and we will, most likely, make poor decisions as a result. Sometimes the numbers do point one way on a major decision. If we pollute public discourse with spurious, over-precise analysis, we will undermine our ability to make good decisions when the evidence is clear.

When deciding whether to stay in the EU or to invest in major infrastructure projects we can never have precise estimates of the costs and benefits. We should not deny the uncertainty by pretending that we do. We can't decide on whether to stay in the EU by purely objective analysis: the uncertainties are too large. We should admit that our choice is based on values not numbers. I believe that international cooperation is a better way to conduct our affairs than standing independent and alone, despite the cost in bureaucracy. I don't pretend I can prove it with economic models.

But, if you care about honesty in public debate, there is something you can do whatever position you hold on the EU. Donate to Full Fact's campaign to fact-check the debate. They don't care how you vote but they do care whether the debate is conducted honestly.