Downing Street Years - Margaret Thatcher [379]
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 the attack 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. This was presented as a more practical and immediate way of realizing the objective of ‘money following the patient’. It was, of course, nothing of the sort. Relative to the overall hospital budget the amount of money paid in relation to performance would have been small. Central control of the hospital service would if anything have been increased. And there would have been no attempt to separate buyers from providers — in the short term at any rate — and thus no real provision to make money follow the patient. In short, a characteristic Treasury device to assert its central control of spending and disguise it as extending consumer choice.
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 which ended with a decision to commission further work on ‘top-slicing’. 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, he was — as I have said earlier — a convinced fiscal purist. 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 — though taken to its logical conclusion the Treasury position implied that we should have been trying to discourage the growth in private sector provision that was already taking place. In any case, both objections missed the point that unless we achieved a growth in private sector health care, which had been slow over the past few years, all the extra demands would fall 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 would. I was not arguing for across the board tax relief for private health insurance premiums — though in principle that would be justified — but rather for a targetted 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.