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
This article misunderstands how public expenditure works. The argument assumes that public expenditure allocations work on the basis of the Treasury examining all the relevant service legislation annually and deriving a figure from it (bottom up). That’s not how it goes. How it works is that the Chancellor decides what his spending targets are and the service departments must fit within it (top down).
This Bill will only affect block grant under the Barnett Formula for Scotland, Wales and Northern Ireland if either it results in less overall public expenditure, or if it results in expenditure in England for matters devolved elsewhere (say health) moving to a reserved matter such as defence.
The real meat of it is in the annual expenditure votes (preceding the Appropriation Acts) allocating expenditure to heads of service. All MPs can and do vote on that.
There are arguments for MPs from devolved nations voting on England-only matters, but this isn’t really one of them
The English have as much right to run their health service as the Scottish, Welsh and N.Irish. The answer is not to allow non-English constituency MPs to vote on English matters. The answer is to scrap Barnett and make each nation independent!
With regard to Chris’s comment, of course it is the case that what matters for Barnett is changes in the aggregate of net public expenditure on devolved services. But it is inconceivable that one could introduce a major change in the way in which one of the most important programmes is funded without having an effect on the ultimate path of public expenditure, and therefore on Barnett. So Chris is wrong.
Some public expenditure funded by fees and charges is included in net public expenditure eg. abstraction charges levied by the Environment Agency. These are called “analogous taxes” by HM Treasury and the expenditure of them has a Barnett consequence. The blanket statement “what drives the Barnett Formula is changes in net public expenditure: that is, expenditure net of fees and charges” needs fleshing out if it is to be a fair one.
To increase the public’s understanding of the Barnett Formula it would be useful if HM Treasury would provide a list of the various fees and charges and whether or not the expenditure of them has a Barnett consequence. To-date they have failed to do so, despite repeated requests.