The Health and Social Care Bill officially only covers England, but its removal of the private income cap will impact on both Scotland and Wales through the Barnett Formula
Health, education and care of the elderly are all among the services devolved within the UK. It would appear at first sight, therefore, that whatever choices are made in England as regards the way health services are delivered are a purely English domestic matter, and no business of Scotland or Wales. Indeed, questions are frequently raised as to why Scottish and Welsh MPs should be allowed to vote on these devolved topics.
There is, however, a major flaw in this argument, which stems from the method used to fund the Scottish Parliament and the Welsh Assembly. Most of the funding for the these comes through the Barnett Formula, which operates as follows: every £1 change in public expenditure per person on devolved expenditure in England triggers a £1 per person change in the Scottish and Welsh budgets.
The critical point, however, is that what drives the Barnett Formula is changes in net public expenditure: that is, expenditure net of fees and charges. The implication is that if there is a major policy change in England that results in more of a given service being funded by fees and charges, and a reduction in net public expenditure on that service, then there will be resulting Barnett consequentials for Scotland and Wales.
A Scottish or Welsh administration would have to respond to any such policy change in England that had major negative Barnett consequentials. If it did not simply go down the road of mirroring the English policy change, then it would either have to cut services, raise those taxes that are in its control, or find other sources of revenue via new fees or charges.
A major change of precisely this nature is in prospect just now with the Health and Social Care Bill for England, which is currently nearing the end of its parliamentary stages. This will abolish the present cap on the income that foundation trusts can raise from private patients or other commercial sources of revenue.
A number of trusts in England have already announced ambitious plans for expansion of their private and commercial income in the light of this expected new freedom. They have also indicated that a substantial amount of this new income will be used to cross-subsidise mainstream NHS healthcare.
One example is the Christie hospital – which is based in Manchester and is Europe’s largest cancer centre. The Christie plans to increase income for its NHS developments through joining forces with HCA, which is the UK’s largest provider of cancer care services outside the NHS.
According to Christie’s chief executive: ‘This partnership will provide a world-class cancer service for private patients, but importantly it will also enable us to enhance our NHS services. Our profit from the Christie Clinic will go into caring for our NHS patients.’
In other words, there are already clear indications that the Bill is likely to cause a substantial change in the way health care is funded in England: with a very much larger number of patients paying for their own care, and in addition, greater cross-subsidisation of the NHS by profits earned from the commercial activities of trusts.
The implication is that the current English health legislation is indeed likely in due course to produce a major negative Barnett consequential for Scotland and for Wales – much greater than the negative consequential for Scotland that arose from the earlier Westminster decision to increase higher education tuition fees.
Scottish and Welsh MPs and members of the House of Lords cannot take the view that the Bill is a purely English matter: on the contrary, it has profound implications for Scotland and Wales.
Margaret Cuthbert and Jim Cuthbert are independent economic researchers at the Public Interest Research Network, University of Strathclyde