The NHS Plan and NHS Finance

If you are spending other people’s money it will often lead to spending too much of it.

IPPR’s Chris Thomas’s article in last week’s HSJ argues that there are problems for the relationship between His Majesty’s Treasury (HMT) and the NHS. At present HMT sees the NHS as a ‘bottomless money pit’. While the NHS claims to be an investment, the NHS seems to be spending all our money in trying to maintain an unsatisfactory status quo.

His conclusion,

Instead of the NHS proposing what it needs from Treasury, it might consider negotiating from the perspective of what it can do for Treasury.

The problem of needing HMT every moment of the day is a further consequence of the founding principle of the NHS that all resources will come from taxation. This is an issue for many, but not all, organisations that spend public money.

The means by which most resources reach most NHS trusts is via a very big grant from the Treasury to the NHS and then by parts of that grant moving from the NHSE to the trust. So the money comes from an organisation some way above your own.

I suggest that this experience of receiving resources is qualitatively different to earning your money from the work that your organization does.

Most of the money spent by large hospital trusts comes from somewhere ‘above them’ – through a weird and mysterious process.

The money comes into your trust having been collected through taxation from millions of different bank accounts owners. Most of them feel its loss because there are things in their lives they now can’t do with that money. It’s very real at that stage.

Later on, when being spent on a nurse or a patient it can also be simply identified as resource spent on something. It’s real at that stage as well. We know that it comes from all of us, and we know it is spent very specific health care.

It’s the bit in between that is a mystery.

I would be surprised if there were a hundred people who could describe how the decision to give the NHS £160 and not £165 billion was made. And then there are probably only a different hundred people (with an overlap of 50) who could explain why hospital trusts are allocated that much and not that much minus a few million.

This obscurantism is a real problem and is not just profoundly undemocratic but also means that the money stops being real. It’s real when it is taken from real people in taxation and it’s real when spent on real patients. But in between we cannot clearly explain its very important journey. It just becomes public expenditure.

This is how it becomes an abstraction – ‘other people’s money’.  

Given that all of this is unknowable if we, in our trust, run out of money, the way in which we get more is to complain that the HMT/NHS relationship is unfair and the relationships between NHS and ICB, and ICB and our trust are too. We earn more money by complaining and lobbying better than the others.

At a national level this means that the leadership of the NHS is trying every year to persuade the Treasury to give the NHS more money. Sometimes this is backed up by the sophistication of graphs and international comparisons. The bids that are successful will usually involve quite a powerful political threat for HMT and its masters. But year on year it’s not much more than “Ah, gwan, gwan, gwan. We really really need it.”

When this takes place alongside a crisis on NHS delivery this often works – but this year’s attempts (crisis and all) appear to have failed.

This method of increasing NHS resources has real long-term impacts upon us all. Let’s be bold and think that in the next three years NHS enjoys a good period. Each winter crisis lessens, and waiting times come down. But in terms of getting more money this improvement is problematic – it runs counter to the narrative of increasing problems needing increasing resources. If you want to argue for more money, you need more public-facing problems.

In the medium and long term this is a very very bad position for the NHS to be in.

Inside the NHS it’s not much better. Once the overall sum for the NHS has been decided then trusts usually behave in exactly the same way when negotiating for their money with the tier above them. If that’s an ICB then the ICB will have done the same to NHS England.

Every year there is a certain belief is that it’s not fair and that the way in which your trust could get more money is to make a ‘better case to those above them’.

Given the organisation managing your performance is also the one deciding what money you should annually get, then it’s best not to make them angry by being awkward.

This parental type of relationship is why such processes are often described at infantilising. If you behave well you may get more pocket money. 

And then again the amount of money you receive is never fair because it’s less than you should have – compared to the trust next door. If your leadership is good at “successful complaining” it’s often a better way of getting more resource, than for example if you are good at the hard work of improving productivity.

The money you get to spend on health care comes through several sets of unknowable decisions made by people above you. This means that a wise trust, when it thinks about next year’s budget, looks upwards to the way in which these decisions are made and can be influenced.

Of course, there will be some readers that will be upset by my pointing out the oddness of this and will believe I am arguing for mass privatisation. But I am not. Within the whole nature of money coming from taxation, you can change this dynamic internally. Given that NHS organisations provide a service you can pay them for the services they provide.

All of this is completely normal in the life of many public organisations, but for other public service organisations you have to earn more money by delivering more services. I remember that in 1988 the Education Reform Act suggested that schools that taught more pupils would get more resources. The outcry at this did make the existing distribution of resources to schools look very odd. Does that mean that if you teach more pupils now, you don’t get more resources?

Well yes, that was the case.

A few years later, in 2002, when this was introduced to NHS trusts this was called payment by results (or activity) and meant that some of the money spent by trusts had been earned.

Tomorrow I’ll explore how this rose and fell, staggered into a bit of life again, and is now a mess.

But I would argue that the British idea of earning money rather than just being gifted it, does have a long tradition which is worth thinking through.