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A History of NHS Privatisation

75 years after its creation, the NHS is drifting from its original ideals – a result of both Tory and Labour policies that allowed private interests to carve up healthcare for profit.

This summer marks the seventy- fifth anniversary of the NHS. Fittingly, Prime Minister Rishi Sunak and his ministers have celebrated the occasion by proposing new legislation to compel more NHS organisations to increase the numbers of NHS-funded patients sent to private hospitals.

Private hospitals have been getting much less NHS money than was expected when NHS England signed up for a four-year £10 billion ‘framework agreement’ in 2020, allowing up to £2.5 billion per year to be spent in this way, with the intention to reduce the growing waiting list. Research from Open Democracy, based on Freedom of Information (FOI) replies from just over half the Integrated Care Boards (ICBs), suggests that as little as £500 million may have flowed through to private hospitals in 2021–22. Even assuming the whole total is double that figure, it’s still less than half of the framework annual limit.

In other words, despite repeated orders from NHS England to make more use of the ‘independent’ sector, NHS management on the ground prefers to keep its funding (and staff) in-house — to reduce costs and preserve existing services. Private hospital bosses in 2019 claimed to be delivering just 6 percent of NHS elective work, and this doesn’t seem to have changed much.

NHS bosses are likely to be even more reluctant if private hospitals press for a substantial increase in the tariff of prices paid — pushing them well above the level paid to NHS trusts for handling the most complex caseload.

Private hospitals’ high and rising charges for private operations are definitely one reason why the expected boom in numbers of ‘self-pay’ patients paying up front to avoid long waits for NHS treatment has not materialised. The private hospitals have only just got back to 2019 levels of activity, while private GP services are still largely an eccentric indulgence of a wealthy minority.

If real-terms cuts in NHS funding by successive Tory governments over a decade and more were part of a deliberate policy of running down the NHS to force patients into private healthcare, they have not worked so far.

From Bevan to Thatcher

Of course, sending NHS patients to private hospitals or getting them to pay for their own treatment are not the only forms of privatisation. Others include ‘outsourcing’ work to private companies that would otherwise have been done by staff employed by the NHS. This has been carried out by both Tory and Labour governments in the past four decades.

There was controversy when the post-war Attlee government used its landslide majority to nationalise the hospital network as part of Nye Bevan’s 1946 National Health Service Act. The Act laid the basis for the launch of the NHS on 5 July 1948 as the world’s first universal and comprehensive healthcare system funded from general taxation, providing services free to all at point of use.

The Conservative Party, led by Winston Churchill, which had never promised free access to healthcare, voted time and again against the legislation, and tried to block it right up to the spring of 1948; but the immense, immediate, and overwhelming popular appeal of the NHS left even the most hardline Tories with no choice but to accept the new system.

In 1956 an inquiry that the re-elected Tories had themselves set up, on the cost of the NHS, known as the Guillebaud Report, found that the NHS was extremely good value for money and, if anything, underfunded.

When right-wing Tory Health Minister Enoch Powell drew up the ambitious Hospital Plan for England and Wales in 1962, proposing a whole new network of general hospitals, there was no suggestion that the funding for the new hospitals should come from any private source.

A consensus had emerged. Both the main political parties accepted that the popularity of the NHS was too substantial for either of them to do anything but maintain it.

That consensus was shattered in 1979 when Margaret Thatcher won the general election on a right-wing manifesto. Her leadership was based on what was then called ‘monetarism’ but which has more recently been known as ‘neoliberalism’ — the quest for the smallest possible state apparatus and minimal public provision of services alongside low taxation on the wealthy and big business, and the maximum expansion of private enterprise.

In Britain this led to the first round of privatisation — the conversion of publicly owned services and utilities (including British Telecom, British Steel, and British Gas) into large profit-seeking businesses, with the sale of shares, followed by moves to create competitive ‘markets’ as the production of gas and electricity was separated from the delivery to the consumer.

With today’s cost-of-living crisis largely driven by inflated prices for energy, and growing concerns over the pollution of beaches, sea, and rivers by raw sewage as a result of chronic underinvestment and profiteering by water companies, it’s hard now to avoid the conclusion that these privatisation measures were the root of many contemporary problems, delivering gains only to a handful of the super-rich.

The Internal Market

However, the consensus behind the NHS was still so strong that when Thatcher in 1982 suggested compulsory private insurance and the end of the NHS, she faced a revolt. She publicly backed down, proclaiming that despite the evidence to the contrary, the NHS was ‘safe in our hands’.

Nonetheless, the opportunity to raid the NHS budget and carve out some potentially lucrative contracts for Tory-connected companies — and at the same time break up the most strongly organised sections of the NHS workforce — was too tempting for the Tories to resist.

So from 1983, and in earnest in 1984, ministers began driving the NHS at the local level to put non-clinical support services (initially cleaning, catering, and laundry) out to competitive tender and to award tenders to the lowest bidders, regardless of quality concerns. This was the start of forty years of NHS privatisation, which has fundamentally changed much of our public health system.

Competitive tendering damaged the NHS even when an ‘in-house’ bid won the contract, because the NHS bid had to compete with the most ruthless and reckless cost-cutting of the private sector, resulting in similar cuts in workforce and hours of work. In labour-intensive work such as hospital cleaning, fewer staff working fewer hours simply meant less cleaning — and greater risk of hospital-borne infections. It is now commonly accepted that the proliferation of antibiotic-resistant MRSA in many NHS hospitals followed this undermining of hygiene standards.

Patient care was also reduced by the loss of many experienced NHS support staff, who refused to accept pay cuts and worsening conditions, while the reduced numbers of quasi-casualised cleaners were now no longer part of the NHS ward team. They had a different employer and line of management, and nurses wound up having to do the work no longer covered by cleaning staff.

Through the 1980s ministers time and again moved the goalposts in an effort to increase the numbers of contracts going to their cronies in a host of companies that emerged to cash in on this new ‘market’. But the standards of work were so appallingly low that contracts often had to be wound up early.

Outsourcing of NHS support services initially remained confined to non-clinical jobs. And when Thatcher unveiled her plan to bring competition into the NHS in controversial legislation in 1989 to create an ‘internal market’, competition was almost exclusively between the newly created NHS trusts, with little or no involvement of the private health sector.

New Labour, New Markets

That situation was profoundly changed after the election of Tony Blair’s government in 1997, which began to explore completely new dimensions of privatisation. The first of these was an energetic and almost immediate implementation of the Private Finance Initiative (PFI), a 1992 Tory plan to ‘privatise the provision of capital’, which the Tories had never actually managed to put into practice.

Instead of the Treasury paying for new hospitals and projects, as had always previously been the case, and building public assets, the private sector would borrow the money and design, build, finance, and operate support services in the hospital, levying an annual ‘availability charge’ for twenty-five to thirty years. The NHS would cease to be landlord and become tenant in each PFI hospital, with the PFI contract standing as a long-term liability.

New Labour eventually built over 100 hospital projects this way, at grossly inflated costs due to ‘availability charges’ rising each year by 2.5 percent or inflation, whichever was higher. The higher cost of PFI projects also brought a tendency to squeeze down the size and capacity of the new buildings — with the first wave of PFI hospitals having an average 30 percent fewer beds than the buildings replaced.

The second New Labour experiment with privatisation was in using NHS funds to pay for treatment in private hospitals, and later in new private clinics and treatment centres. This began in 2000 when Health Secretary Alan Milburn signed a ‘concordat’, through which hard-pressed trusts could — especially at winter peak periods — send the simplest elective cases to be treated in private hospitals. However, since the costs were in many cases prohibitive (up to 40 percent higher than equivalent NHS costs) there was increasing resistance to this from trusts.

The concordat was followed by contracts drawn up and signed at the national level for the private sector to provide Diagnostic and Treatment Centres and then Independent Sector Treatment Centres (ISTCs), initially to be run and staffed by overseas companies.

Many campaigners warned from the outset that the creation of a new, government-sponsored ‘independent’ sector could seriously weaken existing NHS hospitals, depriving them of vital income and disrupting the training of doctors by hiving off many ‘routine’ operations to tiny private units.

Many of these concerns were echoed in 2006 by the Public Accounts Committee, which found gaping holes in the arguments put forward for further expanding the network of ISTCs. Compelling more use of private providers of clinical care would be even more of a problem in today’s context of staffing shortages: any expansion of private sector caseload can only be achieved by recruiting more from the same limited pool of qualified staff that the NHS itself relies upon.

But the private sector also needed sweeteners to entice them. So while NHS trusts were only paid per patient treated under New Labour’s so-called ‘payment by results’ system, ISTCs were given five-year ‘take or pay’ contracts that ensured they would be paid a guaranteed fee — whether or not the planned number of patients turned up. They were only sent the least complex cases: the NHS had to look after the rest. Nonetheless, they were also paid 11.2 percent above the NHS average. And with NHS providers excluded, the only competition was between private providers.

By the end of 2005 the policy had moved on once again, to incorporate private hospitals that wished to fill otherwise unused beds. New guidance obliged commissioners (local Primary Care Trusts) to offer almost all elective patients a ‘choice’ of providers — including at least one private hospital — from the time they were first referred. By 2008, the NHS’s sixtieth year, a patient was allowed to choose any hospital that could deliver treatment at the NHS reference cost.

New Labour ministers made clear that they wanted at least 10 percent of NHS elective operations to be carried out by the private sector in 2006, rising to 15 percent by 2008. Although spending has increased, these high target levels for private provision of acute services have never been reached.

However, community health services were extensively privatised, largely as a result of New Labour reforms from 2005. Their Transforming Community Services programme, which commenced in 2008, also encouraged the development of so-called ‘social enterprises’ to replace NHS providers, and helped ensure that the combined private (for-profit and non-profit) share of NHS spending on community services in England more than doubled, from 15 percent to 31 percent between 2006 and 2013.

By 2012 almost a fifth (19 percent) of NHS spending in England on mental healthcare was going to private providers, with 28 percent of hospital-based mental health privately provided.

Further Tory Reforms

In 2010 the task of carving profitable contracts out of the NHS was taken on by David Cameron’s Conservative–Liberal Democrat coalition government, whose Health Secretary Andrew Lansley immediately after the election unveiled a previously concealed and controversial plan for NHS reorganisation. His aim was to create a full, competitive market in health in which increasing numbers of clinical services had to be put out to competitive tender to ‘any willing provider’.

Lansley’s Health and Social Care Act was heavily amended but eventually passed, fragmenting the NHS into 200-plus ‘Clinical Commissioning Groups’, which held the purse strings and, from 2013, had to implement extensive regulations centred on competition between NHS and private providers.

The biggest change was, once again, in mental health. Even before the 2012 Act took effect, NHS spending on independent sector mental health service providers had increased by 15 percent in real terms in 2012–13. Figures given in Parliament in November 2018 showed how the private sector spend continued to grow by 27 percent over five years. The private sector domination is most complete in the provision of ‘locked ward rehabilitation’, in which a massive 97 percent of a £304 million market in 2015 was held by private companies.

But it didn’t stop there. A staggering 44 percent of the £355 million NHS spending on Child and Adolescent Mental Health (CAMHS) went to private providers. In December 2022, NHS leaders admitted they were highly dependent upon the use of substandard private children’s mental health provision to meet needs. About 60 percent of children’s psychiatric intensive care beds, for the most acutely ill children, are provided by the private sector.

In 2019, the Financial Times quoted research which showed mental health patients in Manchester stood a 50 percent chance of being admitted to a privately owned hospital and a one in four chance of the bed being provided by an American-owned company. A further April 2022 report found 30 percent of UK mental health beds were in the private sector, after ‘NHS providers had closed much capacity’. More than a third (£1.8 billion) of the estimated £5.2 billion NHS spending on inpatient care now goes to private providers.

Overall, the 2012 Act brought an initial surge of outsourcing, with large numbers of low-value community health contracts, but the hoped-for private sector boom again failed to materialise. The amount spent by the NHS on private providers of clinical services, which had been rising since 2000, reached £9.7 billion in 2019–20, before the first year of the pandemic brought a massive 26 percent leap to £12.1 billion in 2020–21.

A major factor in this was the pandemic-driven contract signed in 2020 for a big increase in numbers of NHS patients to be treated in private hospitals — effectively bailing out and rescuing the private sector.

However, relatively little of the extra capacity was actually used. And, no doubt because of this, the biggest-ever increase in private sector spending was followed by a hefty 10 percent reduction to £10.9 billion in 2021–22 and from 7 percent to 6 percent of a higher total of NHS spending.

Moreover, despite NHS England policy statements and further ‘framework contracts’ making it easy to use private hospitals, the latest figures and evidence from board papers in several ICBs suggest that NHS trusts and ICBs have been pulling back as much work as they can in-house, rather than see precious NHS funds flow out to private providers.

Some of the growth areas in spending on private providers is also on the provision of new services for which the NHS has not developed its own capacity — not least data-based services, apps, and digital technology — where companies can apply techniques and expertise they have developed (particularly in the US health insurance industry). This is not so much the privatising of an existing service as preferring to employ private sector providers rather than developing NHS capacity.

Ending Privatisation

The chequered past of privat- isation, with so many contract failures and inflated costs, must now be viewed in the context of last summer’s legislation which admitted the disastrous impact of the 2012 Lansley Act and set about reversing part of its reforms. But, as has been the case with so many recent efforts, this initiative satisfied neither NHS leaders nor the grasping private sector.

The new Act has replaced the aim of competition with the language of collaboration and ‘integration’. But contracting out and privatisation both prevent integration — separating as they do sections of the workforce and creating barriers to the effective use of human and other resources.

Privatisation has had forty years to prove itself as an asset to the NHS and has failed on every level. We are now living with its deleterious effects. While we fight on to resist every further encroachment of the private sector, and aim to roll back the privatisation that has taken place, it’s clear that we have a lot of NHS still to defend, and the private sector is far from content with the position it is in.

Health unions have continued to mobilise NHS staff to oppose outsourcing of services to ‘wholly owned companies’, while contractors’ staff have waged campaigns, including strikes, to secure parity of pay with NHS staff. With the next general election looming on the political horizon, now is the time to redouble the effort to expose the real costs and consequences of privatisation and step up the fight to bring all outsourced clinical and support services back in-house.

If ‘integration’ is to mean anything progressive in the NHS, it should ensure, as every contract expires, that local NHS bosses are pressed to bring services in-house. The fight for a publicly provided NHS needs to be part of the fight for increased funding and a fully funded workforce plan. Only this can enable the NHS to provide an effective, efficient, universal, and comprehensive service focused on the needs of patients and not on the profits of grasping corporations.