The Downing Street Years (104 page)

The September 1990 discussion with Chris Patten and Michael Spicer was not an inspiring one. Michael was keen to concentrate on new measures to revive the private rented sector. I agreed with him on this, but I thought that in the short term it was more important to tackle the problems of public sector housing. Chris, I suspect, thought that the best way of doing this was simply to build more public sector houses. In any case, he seemed content to work within the present local authority dominated framework. After the meeting I had a discussion with my advisers and penned a personal minute to Chris Patten in which I noted my disappointment. I added:

I drew particular attention to the importance of extending home ownership through the ‘Right to Buy’, ‘Rents to Mortgages’ and home-steading — providing people with the money to renovate and then
become the owners of derelict properties. I reaffirmed that I wanted to get local authorities out of managing and owning housing. It was clear to me that we must now get back to the kind of fundamental policy thinking which Nick Ridley — now no longer a member of the Government — had once supplied. I said that I was going to call in outside experts and businessmen to talk through all these issues at a dinner which Chris would, of course, attend; but I had left No. 10 before the planned dinner could take place. The inertia of the DoE had won out in the end.

Housing, like Education, had been at the top of the list for reform in 1987. But I had reserved Health for detailed consideration later. I believed that the NHS was a service of which we could genuinely be proud. It delivered a high quality of care — especially when it came to acute illnesses — and at a reasonably modest unit cost, at least compared with some insurance-based systems. Yet there were large and on the face of it unjustifiable differences between performance in one area and another. Consequently, I was much more reluctant to envisage
fundamental
changes than I was in the nation’s schools. Although I wanted to see a flourishing private sector of health alongside the National Health Service, I always regarded the NHS and its basic principles as a fixed point in our policies. And so, whereas I felt under no obligation to defend the performance of our schools when criticism was made, I peppered my speeches and interviews with the figures for extra doctors, dentists and midwives, patients treated, operations performed and new hospitals built. I felt that on this record we ought to be able to stand our ground.

Some of the political difficulties we faced on the Health Service could be put down to exploitation of hard cases by Opposition politicians and the press. But there was, of course, more to it than that. There was bound to be a potentially limitless demand for health care (in the broadest sense) for as long as it was provided free at the point of delivery. The number of elderly people — the group who made greatest call on the NHS — was increasing and this added to the pressure. Advances in medicine opened up the possibility of- and demand for — new and often expensive forms of treatment.

In significant ways, the NHS lacked the right economic signals to
respond to these pressures. Dedicated its staff generally were; cost conscious they were not. Indeed, there was no reason why doctors, nurses or patients should be in a monolithic state-provided system. Moreover, although people who were seriously ill could usually rely on first-class treatment, in other ways there was too little sensitivity to the preferences and convenience of patients.

If one were to recreate the National Health Service, starting from fundamentals, one would have allowed for a bigger private sector — both at the level of general practitioners (GPs) and in the provision of hospitals; and one would have given much closer consideration to additional sources of finance for health, apart from general taxation. But we were not faced by an empty slate. The NHS was a huge organization which inspired at least as much affection as exasperation, whose emergency services reassured even those who hoped they would not have to use them, and whose basic structure was felt by most people to be sound. Any reforms must not undermine public confidence.

I had had several long-range discussions with Norman Fowler, then Secretary of State at the DHSS, in the summer and autumn of 1986 about the future of the National Health Service. It was a time of renewed interest in the economics of health care. Professor Alain Enthoven of Stanford University had been advancing ideas about creating an internal market in the NHS, whereby market disciplines would be applied even though a full-scale free market would not. Some of the think-tanks were refining these concepts. So there was much to talk about. Norman provided a paper which I discussed with him and others at the end of January 1987. The objective of reform, which we even now distinguished as central, was that we should work towards a new way of allocating money within the NHS, so that hospitals treating more patients received more income. There also needed to be a closer, clearer connection between the demand for health care, its cost and the method for paying for it. We discussed whether the NHS might be funded by a ‘health stamp’ rather than through general taxation. Yet these were very theoretical debates. I did not believe that we were yet in a position to advance significant proposals for the manifesto. I was not even sure that we would be able to do so at an early stage in the next Parliament. Even the possibility of a Royal Commission — not a device which I would generally have preferred but one which had been used by the previous Labour Government in considering the Health Service — held some attractions for me.

Norman Fowler was much better at publicly defending the NHS than he would have been at reforming it. But his successor, John
Moore, was very keen to have a fundamental review. John and I had our first general discussion on the subject at the end of July 1987. At this stage I still wanted him to concentrate on trying to ensure better value for money from the existing system. But as the year went on it became clear to me also that we needed to have a proper long-term review. During the winter of 1987–8 the press began serving up horror stories about the NHS on a daily basis. I asked for a note from the DHSS on where the extra money the Government had provided was actually going. Instead, I received a report on all of the extra pressures which the NHS was facing — not at all the same thing. I said that the DHSS must make a real effort to respond quickly to the attacks on our record and the performance of the NHS. After all, we had increased real spending on the NHS by 40 per cent in less than a decade.

But the pressure to provide more money for the Health Service was proving all but irresistible. Many of the District Health Authorities (DHAs)
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which ran the hospitals overspent in the first half of the year and then cut back by closing wards and postponing operations. They promptly blamed us, publicizing the sad cases of patients whose operations had been postponed, or, in the ghoulish phrase used among doctors, ‘shroud waving’. It seemed that the NHS had become a bottomless financial pit. If more money had to be provided, I was determined that there must at least be strings attached — and the best way those strings could be woven together was in the form of a full scale NHS review.

There was another strong reason for favouring a review at this time. There was good evidence that public opinion accepted that the NHS’s problems went far deeper than a need for more cash. Many of our critics in the press admitted as much. If we acted quickly we could take the initiative, put reforms in place and see benefits flowing from them before the next election.

There was a setback, however, before the review had even been decided on. John Moore fell seriously ill with pneumonia in November, almost collapsing during a meeting at No. 10. With characteristic gallantry, John insisted on returning to work as soon as he could — in
my view too soon. Not fully recovered, he could never bring enough energy to bear on the complex and arduous process of reform and produced several below par performances in the Commons. The tragedy of this was that his ideas for reform were in general the right ones, and indeed he deserves much more of the credit for the final package than he has ever been given.

I made the final decision to go ahead with a Health review at the end of January 1988: we would set up a ministerial group, which I would chair. I made it clear from the start that medical care should continue to be readily available to all who needed it and free at the point of consumption. The review would seek to reform the administrative structure of the NHS so that the best of intentions could become the best of practice. With this in mind I set out four principles which should inform its work. First, there must be a high standard of medical care available to all, regardless of income. Second, the arrangements agreed must be such as to give the users of health services, whether in the private or the public sectors, the greatest possible choice. Third, any changes must be made in such a way that they led to genuine improvements in health care, not just to higher incomes for those working in the Health Service. Fourth, responsibility, whether for medical decisions or for budgets, should be exercised at the lowest appropriate level closest to the patient.

The ministerial group met first in February. John Moore and Tony Newton represented the DHSS with Nigel Lawson and John Major for the Treasury, working with officials and advisers. Twelve background papers were commissioned covering consultants’ contracts, financial information, efficiency audit, waiting times and the scope for increased charging. The Treasury representatives were especially keen on increasing and extending charges throughout the NHS. This would have discredited any other proposals for reform and ditched the review. I stamped firmly on it. Otherwise, the danger quickly appeared that we had too much information before us on secondary matters and too little about the principles of reform. Accordingly, I asked John Moore for a paper on the long-term options for the NHS for my next meeting. This duly arrived in mid-March and set out the very differing routes along which we might go.

For intellectual completeness all such reviews list virtually every conceivable bright idea for reform. This contained, if I recall aright, about eighteen. But the serious possibilities boiled down to two broad approaches in John Moore’s paper. On the one hand we could attempt to reform the way the NHS was financed, perhaps by wholly replacing the existing tax-based system with insurance or, less radically, by
providing tax incentives to individuals who wished to take out cover privately. There were several possible models. On the other hand, we could concentrate on reforming the structure of the NHS, leaving the existing system of finance more or less unchanged. Or we could seek to combine changes of both kinds.

I decided early in the review that the emphasis should be on changing the structure of the NHS rather than its finance. There was, admittedly, some attraction in the idea of funding the NHS by national insurance or an hypothecated tax, which would have brought home to people the true cost of health care and, under some models, allowed them to contract out of certain state services if they chose. In the early stages John Moore and the DHSS strongly favoured such a contracted out, hypothecated tax model for the not very mysterious reason that it would have guaranteed them a large, stable and increasing income for the DHSS. In effect, the DHSS would have contracted out of the annual public spending round. It was a real mystery, however, why the Treasury seemed to smile on such an approach in the early stages. If we rule out genuine disinterested intellectual curiosity, perhaps unfairly, the Treasury’s motive may have been to strike an alliance with the DHSS in order to get control of the review and curb any radicalism of which it disapproved. It could then abandon its apparent support for the hypothecated tax — which indeed is exactly what it did a month or two into the review. We decided during the summer that further work on the finance side should concentrate on the possibility of tax reliefs for private health insurance premiums paid by the elderly and incentives to boost company health insurance schemes.
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On the other side of the equation — reforming the structure of the NHS — two possibilities seemed to have most appeal. The first was the possible setting-up of ‘Local Health Funds’ (LHFs). These were essentially a variant on the American idea of Health Maintenance Organizations (HMOs). People would be free to decide to which LHF they subscribed. LHFs would offer comprehensive health care services for their subscribers — whether provided by the LHF itself, purchased from other LHFs, or purchased from independent suppliers. The advantage of this system — which was also claimed for the American HMOs — was that it had built-in incentives for efficiency and so for keeping down the costs which would otherwise escalate as they had
in some health insurance systems. What was not so clear was whether if they were public sector bodies there would be any obvious advantage over a reformed structure of the DHAs.

So I was impressed by a suggestion in John’s paper that we should make NHS hospitals self-governing and independent of DHA control. This was a proposal — somewhat more ambitious than that which we finally adopted — by which all hospitals would (perhaps with limited exceptions) be contracted out individually or in groups through charities, privatization or management buy-outs, or perhaps leased to operating companies formed by the staff. This would loosen the excessively rigid control of the hospital service from the centre and introduce greater diversity in the provision of health care. But, most important, it would create a clear distinction between buyers and providers. The DHAs would cease to be involved in the provision of health care and would become buyers, placing contracts with the most efficient hospitals to provide care for their patients.