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.
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. 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. 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 process of reform. The tragedy of this was that his ideas for reform were in general the right ones, and 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, and 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. Fourth, responsibility, whether for medical decisions or for budgets, should be exercised at the lowest appropriate level closest to the patient.
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. 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 that the emphasis should be on changing the structure of the NHS rather than its finance.
On 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). 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 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 District Health Authorities (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 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 become buyers, placing contracts with the most efficient hospitals to provide care for their patients.
This buyer/provider distinction was designed to eliminate the worst features of the existing system: the absence of incentives to improve performance and indeed of simple information. There was at that time virtually no information about costs within the NHS. We had already begun to remedy this. But when I asked the DHSS at one review meeting how long it would be before we had a fully working information flow and was told six years, I exploded involuntarily: ‘Good heavens! We won the Second World War in six years!’
Within the NHS money was allocated from regions to districts and then to hospitals by complicated formulas based on theoretical measures of need. A hospital which treated more patients received no extra money for doing so; it would be likely to spend over budget and be forced to cut services. The financial mechanism for reimbursing DHAs when they treated patients from other areas was to adjust their future spending allocations several years after the event – a hopelessly unresponsive system. But with DHAs acting as buyers money could follow the patient and patients from one area treated in another would be paid for straight away. Hospitals treating more patients would generate a higher income and thus improve their services rather than having to cut back. The resulting competition between hospitals – both within the NHS and between the public and private sectors – would increase efficiency and benefit patients.
I held two seminars on the NHS at Chequers – one in March with doctors and the other in April with administrators – to brief myself more fully. Then in May we began our next round of discussions with papers from John Moore and Nigel Lawson.
Nigel took a critical view of John Moore’s ideas. By now, the Treasury had become thoroughly alarmed that opening up the existing NHS structure might lead to much higher public expenditure. Despite apparent Treasury interest earlier in the idea of an ‘internal market’, at the end of May Nigel sent me a paper questioning the whole direction of our thinking. John Major followed up with a proposal for a system of ‘top-slicing’ by which the existing system of allocating funds to health authorities would continue, but the extra element provided for growth in the health budget each year would be held back (‘top-sliced’) and allocated separately to hospitals which fulfilled performance targets set down from the centre.
In the face of these challenges John Moore did not defend his approach very robustly and I too began to doubt whether it had been properly thought through. We had a particularly difficult meeting on Wednesday 25 May. Meanwhile, the Treasury did not have it all their own way. I asked them for a paper on possible new tax incentives for the private sector – an idea which Nigel fiercely opposed.
Nigel’s objection to tax relief for private medical insurance was essentially twofold. First, tax reliefs in his view distorted the system and should be eroded and if possible removed. Second, he argued that tax relief for private health insurance would in many cases help those who could already afford private cover and so fail to deliver a net increase in private sector provision. In those cases where it did provide an incentive, it would increase the demand for health care, but without corresponding efforts to improve supply the result would just be higher prices. Neither of these objections was trivial – but both objections missed the point that unless we achieved a growth in private sector health care, all the extra demands would fail to be met by the NHS. In the long term it would be impossible to resist that pressure and public expenditure would have to rise much further than it otherwise wo
uld. I was not arguing for across the board tax relief for private health insurance premiums but rather for a targeted measure. If we could encourage people over sixty to maintain the health insurance which they had subscribed to before their retirement, that would reduce the demand on the NHS from the limited group which put most pressure on its services.
Nor, of course, were we neglecting the ‘supply side’. The whole approach we were taking in the review was designed to remove obstacles to supply. And in addition the review was considering a significant increase in the number of consultants’ posts, which would have an impact on the private sector as well as the NHS. We had further plans to tackle restrictive practices and other inefficiencies in the medical profession, directing the system of merit awards more to merit and less to retirement bonuses, and we planned the general introduction of ‘medical audit’.*
Nigel fought hard even against these limited tax reliefs but I got it through with John Moore’s help in the first part of July. In other areas I was less happy. The DHSS had been shaken by the Treasury’s criticisms and responded by seeking to obtain Treasury support for their proposals before they presented the review. This gave the Treasury an effective power of veto. Accordingly, the DHSS put forward, with Treasury agreement, a much more evolutionary approach. Though money following the patient and self-governing hospitals remained goals of policy, they were relegated to the indefinite future and ‘top-slicing’ took centre stage in the short term.
I had no objection, in principle, to an evolutionary approach to the introduction of self-governing hospitals. But I was suspicious of the distinction that was emerging between short- and long-term changes, generally worried about the slow pace of the review and thought we were losing our way.
At the end of July 1988, I made the difficult decision to replace John Moore on the review. I took this opportunity to split the unwieldy DHSS into separate Health and Social Security departments, leaving John in charge of the latter and bringing in Ken Clarke as Health Secretary. As he was to demonstrate during the short period in which he was my Secretary of State for Education (when he publicly discounted my advocacy of education vouchers), Ken Clarke was a firm believer in state provision. But whatever the philosophical differences between us, Ken’s arrival at the Department of Health undoubtedly helped our deliberations. He was an extremely effective Health minister – tough in dealing with vested interests and trade unions, direct and persuasive in his exposition of government policy.
Ken Clarke now revived an idea which my Policy Unit had been urging: that GPs should be given budgets. In Ken’s version GPs would hold budgets to buy from hospitals ‘elective acute services’ – surgery for non-life-threatening conditions such as hip replacements and cataract operations. These were the services for which the patient had (in theory at least) some choice as to timing, location and consultant and for which GPs could advise between competing providers in the public and private sector. This approach had a number of advantages. It would bring the choice of services nearer to patients and make GPs more responsive to their wishes. It would maintain the traditional freedom of GPs to decide to which hospitals and consultants they wanted to refer their patients. It also improved the prospects for hospitals which had opted to leave DHA control and become self-governing: otherwise it was all too likely that if District Health Authorities were the only buyers they would discriminate against any of their own hospitals which opted out.
By the autumn of 1988 it was clear to me that the moves to self-governing hospitals and GPs’ budgets, the buyer/provider distinction with the DHA as buyer, and money following the patient were the pillars on which the NHS could be transformed in the future. They were the means to provide better and more cost-effective treatment.
A good deal of work had by now been done on the self-governing hospitals. I wanted to see the simplest possible procedure for hospitals to change their status and become independent – what I preferred to call ‘trust’ – hospitals. They should also own their assets, though I agreed with the Treasury that there should be some overall limits on borrowing. It was also important that the system should be got under way soon and that we had a significant number of trust hospitals by the time of the next election. At the end of January 1989 – after the twenty-fourth ministerial meeting I had chaired on the subject – the White Paper was finally published.
The White Paper proposals essentially simulated within the NHS as many as possible of the advantages which the private sector and market choice offered but without privatization, without large-scale extra charging and without going against those basic principles which I had set down just before Christmas 1987 as essential to a satisfactory result. But there was an outcry from the British Medical Association, health trade unions and the Opposition, based squarely on a deliberate and self-interested distortion of what we were doing. In the face of this Ken Clarke was the best possible advocate we would have. Not being a right-winger himself, he was unlikely to talk the kind of free market language which might alarm the general public and play into the hands of the trade unions. But he had the energy and enthusiasm to argue, explain and defend what we were doing night after night on television.
In their different ways, the White Paper reforms will lead to a fundamental change in the culture of the NHS to the benefit of patients, taxpayers and those who work in the service. By the time I left office the results were starting to come through.
* ‘Medical audit’ is a process by which the quality of medical care provided by individual doctors is assessed by their peers.
CHAPTER THIRTY-THREE
Not So Much a Programme, More a Way of Life
Family policy, science and the environment
THE SURGE OF PROSPERITY – most of it soundly based but some of it unsustainable – which occurred from 1986 to 1989 had one paradoxical effect: the Left turned their attention to non-economic issues. Was the price of capitalist prosperity too high? Was it not resulting in a gross and offensive materialism, traffic congestion and pollution? Were not the attitudes required to get on in Thatcher’s Britain causing the weak to be marginalized, homelessness to grow, communities to break down?
I found all this misguided and hypocritical. Socialism had failed. And it was the poorer, weaker members of society who had suffered worst as a result of that failure. More than that, socialism, in spite of the high-minded rhetoric in which its arguments were framed, had literally demoralized communities and families, offering dependency in place of independence as well as subjecting traditional values to sustained derision. It was a cynical ploy for the Left to start talking as if they were old-fashioned Tories, fighting to preserve decency amid social disintegration.
But nor could the arguments be ignored. Some Conservatives were always tempted to appease the Left’s social arguments on the grounds that we ourselves were very nearly as socialist in practice. These were the people who thought that the answer to every criticism was for the state to spend and intervene more. I could not accept this. There was a case for the state to intervene in specific instances – for example to protect children in real danger from malign parents. The state must uphold the law and ensure that criminals were punished – an area in which I was deeply uneasy, for our streets were becoming more, not less violent. But the root cause of our contemporary social problems – to the extent that these did not reflect the timeless influence and bottomless resources of old-fashioned human wickedness – was that the state had been doing too much. A Conservative social policy had to recognize this. If individuals were discouraged and communities disorientated by the state stepping in to take decisions which should properly be made by people, families and neighbourhoods then society’s problems would grow not diminish.
This belief was what lay behind my remarks in an interview with a woman’s magazine – which caused a storm of abuse at the time – about there being ‘no such thing as society’. But people never quoted the rest. I went on to say:
There are individual men and women, and there
are families. And no government can do anything except through people, and people must look to themselves first. It’s our duty to look after ourselves and then also to help look after our neighbour.
My meaning, distorted beyond recognition, was that society was not an abstraction, separate from the men and women who composed it, but a living structure of individuals, families, neighbours and voluntary associations. The error to which I was objecting was the confusion of society with the state as the helper of first resort. Whenever I heard people complain that ‘society’ should not permit some particular misfortune, I would retort, ‘And what are you doing about it, then?’ Society for me was not an excuse, it was a source of obligation.
I was an individualist in the sense that I believed that individuals are ultimately accountable for their actions and must behave like it. But I always refused to accept that there was a conflict between this kind of individualism and social responsibility. If irresponsible behaviour does not involve penalty of some kind, irresponsibility will, for a large number of people, become the norm. More important still, the attitudes may be passed on to their children, setting them off in the wrong direction.
I never felt uneasy about praising ‘Victorian values’ or – the phrase I originally used – ‘Victorian virtues’, not least because they were by no means just Victorian. But the Victorians also had a way of talking which summed up what we were now rediscovering – they distinguished between the ‘deserving’ and the ‘undeserving’ poor. Both groups should be given help: but it must be help of very different kinds if public spending is not just going to reinforce the dependency culture. The problem with our welfare state was that we had failed to remember that distinction and so we provided the same ‘help’ to those who had genuinely fallen into difficulties and needed some support till they could get out of them, as to those who had simply lost the will or habit of work and self-improvement. The purpose of help must not be to allow people merely to live a half-life, but to restore their self-discipline and through that their self-esteem.
Margaret Thatcher: The Autobiography Page 76