Economics: Wealth: a danger to health

Will the demands of the affluent undermine the health service? Yvette Cooper investigates

One day the NHS is in crisis, the next all is well. Last weekend Stephen Dorrell was said to be on the warpath in pursuit of an extra pounds 1 billion for health next year. A few days later, he and Mr Clarke split the difference: hospitals will get an extra pounds 600m next year after all.

So is all well with the NHS now? As one of the biggest industries in the country, with annual turnover of around pounds 40bn, and the lives of the nation dependent on it, the health of our health service matters. But as the facts and figures on health funding were traded back and forth all week, the picture that emerged was baffling. The BMA regales us regularly with horror stories about underfunding. And our own experience reminds us of the long waits at casualty departments, the operations cancelled and the haggard junior doctors who tend to us after working through the night.

Yet government figures show that health spending has indeed gone up in real terms since 1979. Even more significant, health care's share of the national cake has gone up since 1979 as well: from 4.6 per cent to 5.6 per cent. So what on earth is going on?

Part of the explanation lies in the fact that spending on health care needs to go up each year for care provision to stand still.

Not surprisingly, productivity doesn't go up within the NHS at the same rate as it does elsewhere in the economy. Technology and efficiency improvements may mean a factory worker can produce more toys in a day but a nurse can still only look after the same number of patients.

In the private sector, employees reap the benefits of their productivity gains through higher wages. In the NHS there are fewer productivity gains to be distributed, but doctors' and nurses' pay still has to keep up with the rest of the economy or no one will want to do the job.

Moreover, we demand more of our NHS every year. The greying of the population is taking its toll on health bills. In general, 70-year-olds are more expensive to keep healthy than 40-year-olds, so as the number of 70-year-olds goes up, the demand for health care increases.

Second, as science advances, new treatments emerge. In theory, that could create savings or push costs up, depending on the nature of the treatment. In practice over the past decade or so, improving medical technology for cancer treatments has pushed bills upwards.

The result of all this is that the NHS has needed a real increase in funding every year to match supply with demand. When Mr Clarke's heavy hand closed the public purse this year in pursuit of tax cuts, it wasn't surprising that the hospitals couldn't cope.

But for all the squabbles this year, there is no convincing practical reason why NHS funding should be facing a longer-term crisis. NHS needs may grow each year, but usually the economy grows too. So long as the NHS keeps hold of its 5.6 per cent of the national cake each year, it will pick up a real increase in funding most of the time. The ageing population and advancing technology shouldn't require any more than that. And if burgeoning health bureaucracy can be cut, there could be extra resources within existing budgets.

The real pressure on our health services is political, not practical. We are patients no longer; in fact we are impatient with long waits in a drab doctor's waiting room, and with the length of specialist waiting lists. We don't expect to wait for three hours in line at the supermarket checkout, so why should we do so in a casualty department. But we forget that the comforts we take for granted elsewhere in our lives have to be paid for.

According to many economists, health, like education, is a luxury good. The wealthier people become, the higher the share of their income they are prepared to spend on it. And if the state won't do it for them, they will do it themselves, by purchasing additional private insurance. Those who advocate higher state spending on the NHS argue that this is exactly what taxpayers want; 1p on income tax for health care would - they claim - be a vote winner.

But there is a troubling flaw in this argument. People who purchase private health insurance are not necessarily prepared to pay for better health services for everyone.

The real crisis in the NHS is not about pounds 300m here or there this year, or even about the elderly or modern technology. It is that a growing middle class will demand better care for themselves while refusing to pay for it for everyone else.