CentreRight

by Professor Nick Bosanquet, Consultant Director, Reform

I’ve never known any business that does not claim to follow the ‘hockey stick’ pattern of earnings… This immediately shows some modest dip in earnings in the immediate future followed by continual improvement stretching to infinity (John Harvey-Jones, 1988).

Last week’s Pre-Budget Report was rightly exposed for its failure to address the budget deficit. The PBR not only failed to timetable a plan to tackle the deficit, but was also guilty of presenting hugely over-optimistic forecasts for the economy. Just when most companies in the private sector have got off the hockey field, with intense scrutiny forcing them to make realistic projections of their sales and revenues, the Treasury has moved in with a classic in hockey stick projections. This is shown in their projections for UK GDP for 2011 and 2012.

For 2010 the forecast for GDP growth appears realistic at 1 to 1.5 per cent. For 2011 the plans to reduce the deficit mean that public expenditure reduces growth by 1 per cent, but private consumption (+2), investment (+1), inventories (+½), net trade (+½) and dwellings investment (+¼) all raise GDP. Overall GDP is expected to grow by 3¼ to 3¾ per cent. But how reasonable do these projections look?

In relation to private consumption, from 2000 to 2007 this consumption contributed an average of 1¾ per cent to GDP .This was helped along by housing equity release and by heavy unsecured borrowing on credit cards. The Treasury projections imply that this consumption for 2011-12 is going to spring back to a growth rate even higher than in the boom years, although the conditions facing households appear to be radically different:
• the projections assume that a diminished number of households still in the labour force will embark on a major boost in consumption just at a time of pay freeze and, probably, contraction in the public sector workforce
• the projections need to be revised for high unemployment and rates of labour force withdrawal
• the projections also need to be revised for households increasingly saving rather than spending more of their incomes. As the Bank of England has shown, there are reasons to expect the saving rate to continue to be strong for some time, with some households, for example, beginning to register a further need for saving to provide an adequate income in retirement.

In relation to investment, the Treasury projections also expect a bounce in business investment, which is expected to contribute more to GDP growth than it did on average in 2000-07. However, there is evidence that corporate change is pulling investment in manufacturing and financial services towards the relatively high growth rates in Asia. There is also a pull for consumer products towards new Europe, where much food processing and component manufacturing is now heading.

As well as losing out from a changing distribution of investment, the UK also stands to lose out from any shifts towards investment protectionism. As OECD Secretary General Angel Gurria put it: “Investment protectionism poses a grave risk to recovery by further reducing international investment flows just at a time when these are most needed, ” with international mergers and acquisitions showing their largest year-on-year decline in recent history. The effect of this investment decline may take several years to become apparent, particularly given the short term stimulus from the car scrappage, but is nonetheless a real concern.

In relation to inventory, the projections show a perhaps too high contribution from this variable. In 2010 inventory change is expected to produce to contribute half (3/4 per cent) to the expected growth in GDP, followed by a further build up of inventories in 2011. This seems ambitious given the difficulties firms are facing in building up inventories at a time of constricted bank lending.

The Prime Minister in a recent interview defended these optimistic forecasts on the grounds that the growth in output would not be as constrained by inflation as in previous recessions. However, both households and companies can expect significant cost increases from increased taxes, including national insurance and council tax, and from higher prices to pay for carbon reduction. It is also not clear how long interest rates can remain low for, with the policy mix raising a serious risk of a housing bubble in 2011-12.

There are serious risks that the economy will not have the dramatic rebound projected for 2011 and 2012. What this reveals is that the economy will not be able to rebound fast enough to close the gap, even under the best conditions. As recent posts on ConservativeHome have argued, attempts to stimulate additional growth should be a priority for any future Government. However, only real cuts in public spending and genuine reform can close the deficit and move to an economy of growth. It is time that the Treasury got off the hockey field.

Today’s data, which show that the UK has now been in recession for the longest period since records began, highlight the importance of finding ways to return the economy to growth. A shift from public to private spending is essential for economic growth and a sustained recovery. A high level of public spending can slow contraction for a while, but then stability turns into stagnation. A 45 per cent public sector will lower the long term UK growth rate from 2.5 to 1.5 per cent.

Encouraging growth requires a greater focus on improving the competitiveness of the UK economy. Most large UK corporations already operate offshore.  For many of the FTSE 100 (such as Glaxo, BP and Astra Zeneca) the UK market is under 10 per cent of their worldwide sales and for the mining companies under 1 per cent. Much of their employment for support and service staff of large corporations is also abroad. Only a minority of highly qualified staff are employed in the UK, mainly in the South East. With close links to Asia (where China is already resuming its pre crisis growth) many of these companies are recovering fast.

Success in encouraging economic growth also depends on small and medium firms, which generate most of the private sector employment outside the South East. For these firms the main market is private consumption and other local business. The public sector deals in big projects and big tenders. Even in services where local suppliers were active, such as home care and school catering, there has been a move to very large contracts. Government and European regulations have raised tendering costs for small companies. The government has sought to make public sector contracts more accessible to small companies but with little success.

It is also small and medium sized firms which can make most use of the expanding opportunities from the internet. This has made it possible for smaller firms to trade internationally; the next decade will provide massive opportunities for smaller firms to expand their presence in global markets.

The prime variable for growth is business confidence. There is a chronic tendency in Whitehall to focus on the number of new jobs that seem to come from public spending projects rather than on the diffused, less measurable effects of a rise in business confidence: public spending projects tend to be highly concentrated and politically popular, while the location of investment from a rise in business confidence is not predictable in advance.

The key to business confidence is the belief that demand will rise in the future. An economy in which the main future is ever increasing tax burdens and public spending will be one in which small and medium sized firms are likely to feel that the enterprise culture is fading away. They will either follow the larger firms offshore or forget about investment.

A low tax economy is also needed to help families rebalance their own finances. It is essential that families save more to prepare themselves for sudden drops in income and retirement, as it is already clear that the state pension will only provide a minimum and people will be expected to provide for themselves above that. For saving to seem worthwhile families need confidence in their future income which can only come from confidence in their job prospects.

The Government argues that we should not start cutting public spending now: because this would destabilize the economy. But it also argues that there are some signs of recovery and that the economy has stabilized. It is time to start the move towards a lower tax economy. The confidence effects will be stronger than any reduction in demand from cutting public spending. Delay will simply make the transition more difficult—and delay the return to real growth across the UK.

Nick Bosanquet is Professor of Health Policy at Imperial College London and Consultant Director of the independent think tank Reform.

Dr Patrick Nolan is Chief Economist of Reform.

In his recent Conservative Party conference speech George Osborne suggested that a Conservative Government would make some steps towards ending middle class welfare. But then, in the next breath, ruled out making changes to three of the benefits that are most poorly targeted.

By Professor Nick Bosanquet

Today’s announcement by Andy Burnham that GP catchment areas in the UK will be abolished within a year appears to herald the long-awaited demise of the “postcode lottery” for GP services. But in reality it is a red herring and a stale one at that. These proposals have been in the pipeline for at least 10 years and this is a re-hash of the announcement by Patricia Hewitt in January 2006 (which promised patients a real choice of GP) and more recently by Lord Darzi in his Next Stage Review last. These reforms have yet to come to fruition and this unfortunately this is an example of “talking up” reform without having any real substance with which to support it.

No-one doubts that allowing greater patient choice and introducing competition into the GP service is a good thing but are the actual levels of choice available going to be as wide as reported? Taking commuters as an example; under new legislation they will be able to register with a surgery closer to the workplace. However, what are they supposed do upon discovering that the list for their preferred surgery is closed? Will they go on a surgery waiting list or have to settle for their second choice surgery and GP, thus entirely defeating the purpose of these reforms? It is therefore imperative that surgeries are assessed to determine their capacity to cope with any surge in patient numbers. The change in the tariff is also a red herring as the machinery isn’t in place to vary it by the outcomes of treatment.

Nick Bosanquet is Professor of Health Policy at Imperial College London and a Consultant Director of Reform

By Lucy Parsons, Senior Economics Researcher, Reform

Speaking at the Spectator conference today, George Osborne claimed victory in the debate on public spending cuts.  The Shadow Chancellor said that the Conservative Party had taken the “hard path” by choosing to tell the truth that “spending will have to be cut whoever wins the election”.

On the latter point, George Osborne is absolutely right.  Reform wrote back in April that the future health of the UK economy and public services depended on the country moving “back to black” and addressing the major cause of the fiscal crisis – namely, excessive public expenditure.  All the main parties now see to have reached agreement on this, although there remains a distracting debate over semantics.

George Osborne was also right to say that what this means is that a “credible commitment to cut spending” and get to grips with the UK’s record budget deficit is critical.  The latest Sunday Times poll showed that 60 per cent of the public support spending cuts to address the growing hole in the public finances.  Yet a credible plan setting out where the cuts would fall and what they would mean for public services is still missing from the Conservatives’ rhetoric.

Today, Reform publishes a paper by Vince Cable which sets out the Liberal Democrats’ plans for public spending cuts.  Tackling the fiscal crisis: A recovery plan for the UK goes further than other UK politicians have dared.  The paper spells out what a credible commitment to spending cuts really looks out.  It means setting priorities in government spending. It means real cuts in many areas.  And, critically, it means no ring fencing of particular budgets. The “big ticket” items – health, welfare, education and defence – are where the real savings will be made.

By Nicholas Boys Smith

As the G20 finance ministers met in London at the weekend, all the talk was of bankers’ bonuses – specifically, how to make them smaller and more dependent on long-term performance. Alistair Darling and his French and German counterparts clamoured to out-tough each other. But the G20 finance ministers are fixing the wrong problem. If they are not careful they will make things worse.

In the event, the politicians’ enthusiasm for bashing bankers was tempered by a reluctance to make the tough decisions. The question of whether and how to cap the value of bonuses was left to the G20 leaders’ summit in Pittsburgh in a few weeks. There is still much talk of capping each bank’s total bonus pool at a proportion of revenue or profits, as mooted by Gordon Brown in his FT interview last week.

The finance ministers’ reluctance to make this choice reflects their inability to balance their populist inclinations with the underlying realisation that regulating bonuses will achieve precisely nothing. As I explain in my new essay for Reform, bonuses were not the cause of the financial crisis. They were its symptom. The real problem was the nature of banks’ profits. Almost everyone (banks, regulators and economists) thought they could measure risk more precisely than they actually could. This was compounded by the international regulatory framework which set up a flawed approach to evaluating balance sheet risk and incentivised banks to “securitise” their debt. The underlying problem was thus not that banks’ bonus schemes were too short term. Banks’ bonus schemes were too short term because their, and their regulators’, understanding of risk was incorrect. To fix the bonus schemes, therefore, is to cure the symptom, not the illness.

What is more, some of the organisations that failed most spectacularly were actually quite sensible in their approach to long term incentivisation. Over 30 per cent of employees at Bear Stearns and Lehman Brothers, for example, held shares in those banks.

By Dr Paul Charlson.

Doctors for Reform has always had the interests of the NHS at its heart and is willing to stand up and make its views public which is the reason why I joined the organisation in the first place.

DfR believes passionately in a health service that provides high quality services to everyone in society regardless of income. Whilst the NHS has many virtues we believe that it could be improved. The current system is unfair and often disadvantages the least able in society.

The current economic downturn has sharply focussed the need to achieve greater efficiencies in public services. The NHS faces enormous challenges in the next few years. If efficiencies are not found then services are bound to deteriorate and important gains over the last few years could be jeopardised. The poorest and most disadvantaged in society are likely to be the biggest losers in a deteriorating system.

To continue to survive and improve in its quality the NHS must not only become more efficient it in how it supplies its services it must also act on demand. This means increasing the public’s responsibility for its own health both in the use of services and in leading healthier lifestyles. Government can only lead the horse to water.

As part of the ongoing debate on the NHS and US healthcare systems, earlier today I debated the merits of different systems with UNISON on Good Morning Wales. As part of this show we were asked to write letters to America on what lessons they should draw from the NHS. My letter drew on earlier Reform research and follows.

"I am Dr Patrick Nolan, Chief Economist at Reform, and a person who has been watching your health reforms with interest. Getting health right is fundamentally important – with health systems not only costing huge amounts but also playing a key role in shaping quality of life.

Countries are competing in the race to deliver high quality healthcare. This race is being won by the Swiss and Japanese health systems. These are followed by France, Germany, Australia and the Netherlands. The UK and the US lag behind.

The universal cover provided by the NHS is a valuable strength. In contrast the USA is the only major developed country that relies on voluntary private insurance. This voluntary coverage is ineffective and unfair and, although you have Medicaid and Medicare programmes, many of your population have no coverage at all.

But the NHS has weaknesses too. It lacks the elements of insurance that are common elsewhere. This means that it places too great an emphasis on treating people once problems arise, rather than preventing problems from developing in the first place. This also means that relatively little effort is given to ensuring that resources are used in the most cost effective ways possible.

The NHS provides both good and bad lessons for health reform. In drawing lessons from overseas I would, however, encourage you to look further afield. Many countries have found ways to combine the best of all worlds – universal coverage and strong elements of insurance. We can both learn from them."

As I noted on the radio this morning, debate on the NHS is increasingly looking like the story of the Emperor with no clothes. Attacking suggestions that the NHS is in need of further reform, or that it could learn from health systems overseas, as being “unpatriotic” or “talking down the NHS” misses the point.

There needs to be an honest debate on whether the NHS is performing as well as it should and whether it will be able to cope with the challenges that it will face in the future. As Professor Karol Sikora, cancer expert and member of Doctors for Reform steering committee, has argued “blind religious faith does not provide a solution to the real problem.”

This problem is, as noted by David Cameron, that the gap between what we will have to do and what we can afford to do presents an urgent need for reform. But advancing reform will require honest debate and difficult decisions – and the time to have this debate and start making these decisions is now.

By Elizabeth Truss, Deputy Director, Reform

Despite the political turmoil it created at the time, the introduction of tuition fees in 1998 and top-ups in 2006 has been one of the most successful policies of this Government. Ten per cent more students from low income backgrounds have gone to university since top-ups were introduced. There is a new stream of funding into higher education. Students have the muscle to demand better teaching. Yet Britain still lags behind the international leaders on funding for top institutions and in many cases undergraduate teaching is being subsidised to the tune of £10,000 per year.

The higher education sector is expecting to be hit hard in spending cuts. As one academic put it “we didn’t know it at the time, but these have been golden years for public financing of higher education.” The new financial reality presents a stark choice for universities. One alternative is to see the quality of resources falling as the government tries to get more students for less money. The other is to obtain more financial contribution from individual students.

However this pain can become a gain. Giving more financial responsibility to students is a good thing. Contributing to your own education is empowering and helps students take the decisions they are making seriously. Investing in education should be seen in the same positive way as home ownership. Students will stop being loss making for the top universities and start being something that helps the institution thrive. Additional fee income will fund bursaries and scholarships for poorer students.

By Dr Patrick Nolan, Chief Economist, Reform

It is well understood that not only does government spending need to come down but that a detailed plan to do this needs to be set out. In developing a plan there are a range of international examples that can provide insights on what would likely work – or what would not. One example of a country often used as an example of how to restore fiscal credibility is Canada in the 1990s. This was the first G7 nation to return to budget balance after the recession in the 1990s, the debt-to-GDP ratio was reduced by 20 per cent (the largest decline among G7 nations) and unfunded pension liabilities were addressed. So what are some of the key lessons from the Canadian reforms – particularly the 1995 Budget?

The starting point for the Canadian reforms was the need to permanently change the structure of government itself. Aiming to simply do the same things but at a lower cost was not seen as enough. This desire to change the structure of government was then translated into action through three main elements: targets were set, cuts were allocated and the public was consulted.

By Dale Bassett, Senior Researcher, Reform

As A-level students and universities gear up for the coming “college crunch” – as too many pupils try to cram into too few places – Lord Mandelson has decided to add to the chaos by proposing that disadvantaged pupils be given a two grade “head start” over their better-off peers. The plan, which could see medical students admitted with two Bs and a C rather than the standard three As, is the latest instalment of the Government’s well-intentioned but dangerous “widening participation” agenda.

The obvious objection to this, as Andrew Cunningham notes in today’s Telegraph, is that high-performing pupils from better schools could miss out on university places. Disadvantaged kids certainly deserve a good education, but it seems equally unfair to discriminate against those who are fortunate enough to go to a good school.

by Dr Patrick Nolan, Chief Economist, Reform

The latest labour market statistics presented a bleak picture with unemployment rising by a record 281,000 to 2.38 million in the three months to May. Things are going to get worse before they get better – with some forecasters expecting unemployment to peak at around 3.2 million next year. Indeed, as Theresa May recently warned, “Unemployment is casting a dark cloud over the economy, ruining the lives of millions.”

This increase in unemployment creates a real challenge for government. A strategy of standing back and simply allowing any (eventual) economic growth to absorb the increase in unemployment will be likely to be ineffective. Not only are the future prospects for economic growth subdued but much future growth will be in sectors and regions, and among population groups, that are different from those where unemployment has increased.

But what should any government response involve? And what are the likely advantages and disadvantages of different approaches – and key factors in their success or failure?

It is widely accepted that any government response should include active labour market policies. These policies aim to help unemployed people back into work and include job search assistance, training and job creation subsidies. These different active labour market policies are suited to different environments and have different strengths and weaknesses (summarised below).

by Dr Patrick Nolan, Chief Economist, Reform

A widely anticipated Government green paper is planned for release next week on funding long-term care such as medical and non-medical services for people with chronic illnesses or disability. This issue of funding long-term care is only going to grow in importance. By 2050 there will be twice as many people aged over 85 and the overall costs of long term care will increase fourfold. Some estimates are that in 20 years there will be a £6 billion funding shortfall for these services.

A number of concerns have been expressed over the current system of long-term care funding. It has been argued that without change older people will have to pay more from their own pockets. There is also a boundary between medical treatments provided ‘free’ to the elderly in the NHS – although, of course, at a cost to taxpayers – and social care which is not.

It is sometimes suggested that long-term care should be free and universally available – as has been the case in Scotland since early 2001. Audit Scotland reviewed this policy in early 2008 and noted that the cost to taxpayers of long-term care was a third higher than if universal provision had not been introduced. This was reflected in a sizeable shortfall in central funding which is only going to get worse over time. In an era where there are already serious questions over funding other health and pension commitments, introducing free and universal long-term care across the United Kingdom is clearly unaffordable.

by Dr Patrick Nolan, Chief Economist, Reform

Spending cuts is the only game in town. Both the OECD and the Governor of the Bank of England have (in their own ways) emphasised a need for a debate on reducing government expenditure and debt. In April this year Reform released a detailed plan for expenditure reductions of at least £30 billion from 2010-11. The proposals in the report were widely debated in the media and at a series of lunch seminars, which highlighted that restoring the government’s finances requires being honest with the electorate about what has to be done.

As politicians such as David Cameron and Vince Cable appear to have recognised, making so called ‘efficiency savings’ will not be enough. The fiscal situation requires bold measures like addressing middle class welfare, reducing pay and employment in the civil service, focusing defence procurement on the UK’s real military needs and controlling increasing health expenditure.

Yet there has been limited political appetite for outlining a clear programme of expenditure and deficit reductions. International examples, however, highlight that UK politicians may be unnecessarily cautious – many countries have undertaken major programmes of reform that have restored fiscal creditability and improved the quality of their services. To highlight possible lessons from governments that have successfully reduced deficits this article briefly looks at reforms in New Zealand and Canada in the 1990s. (Many other examples could be given from countries such as Australia, Chile and Sweden.)

New Zealand 1991 – Self Reliance and Private Enterprise

A centre-right government was elected in New Zealand in November 1990. The incoming government faced a larger than expected fiscal deficit (approaching 20 per cent), as the economy moved into recession and funds were required to stop the country’s largest bank from collapsing. In 1991 the Minister of Finance, Ruth Richardson, introduced a wide-ranging budget (which, evoking memories of the 1990-91 Gulf War, came to be known as ‘the mother of all Budgets’). Key initiatives contained in the Budget included:

• removing middle class welfare, such as replacing a universal child benefit with targeted family assistance. This reduced the degree of churn in the welfare system, where tax rates on higher income earners were used to fund transfers they receive with associated administrative and deadweight costs. David Cameron and Vince Cable have raised similar concerns regarding the need for tax credits in the UK to be more effectively targeted to families in need

By Thomas Cawston, Researcher, Reform

As the Welfare Reform Bill goes through Parliament, some commentators have questioned whether a recession is the right time makes changes to the welfare system. But it is precisely when unemployment is growing and government finances are collapsing that fixing welfare must be high on the agenda. The immediate challenges should not obscure how the true cost of Britain’s welfare system has been growing out of control for years and is in urgent need for reform.

Work and pensions is the largest single area of government expenditure, with more spent on welfare measures than health and education combined. But borrowing £175 billion next year won’t be enough to foot the forecast tax credits and benefits bill. As Britain enters an age of more for less, welfare spending is one area where less is more.

An honest appraisal of the welfare budget illustrates that modernising welfare to work schemes, while important, is not the biggest fiscal challenge. Designed to defeat the five giants of want, disease, ignorance, squalor and idleness, Britain’s welfare system now wastes tens of billions every year on providing benefits to the richest.

• Each year £3.2 billion is spent on free television licenses and other pension gimmicks.  But a report from the Environment, Food and Rural Affairs Select Committee shows universal winter fuel payments are only needed by 18 per cent of recipients.
• Although pensioners are no longer the poorest in society, we still divert 55 per cent of welfare spending to a part of the population that is made economically inactive at 65. 
• £12 billion a year is spent on universal child benefit, although a quarter of households with children have total weekly incomes above £1,000.
• The state spends £1.2 billion on subsidising loans to students mainly from a middle class background, despite the long term financial incentives for young people to enter university.
• Supporting the middle classes is the new raison d’etat sociale, and it can no longer be sustained.

by Patrick Nolan, Chief Economist, Reform

On the "Big Questions" (at 26 minutes) on Sunday there was debate on 'whether the NHS should discriminate against the very old', while on Wednesday night a documentary, the "Price of Life", investigated access to cancer drugs. A common theme of both programmes was how to ration healthcare in the UK.

We cannot ignore the need for debate on rationing healthcare. Financially the NHS is in trouble - with a recent NHS confederation report highlighting a shortfall of £8 billion to £10 billion in the three years from 2011. This shortfall follows significant increases in the budget (which has more than doubled since 1997) and numbers of doctors (40,000 more) and nurses (80,000 more). So why is the NHS facing such a hole? Partly this is because of growing demand for health care, but it is also because of falling productivity.

But the NHS is supposed to guarantee free care for all at point of care. So how can we consider denying treatment to people who are in need? The honest answer is that we already do – with a range of services (such as prescriptions, dental care and optometry) already coming at a cost for some people, or being subject to hassle and delay.

One reason for charges is that health services, like any other good, are subject to scarcity and opportunity cost, so allowing people to pay for some services means that funds can be freed up for other purposes. User charges may also help ensure that the allocation of resources more closely reflects consumer preferences.

We also need to be honest that health expenditure favours some groups and treatments over others.  While we spend around £200 on health care per year for every child aged 5 to 15, we spend £2,000 on each person aged 85 or older. Is this allocation fair? To put this question into context, rates of child mortality in parts of Birmingham, where “the Big Questions” was filmed, are as high as that in developing countries like Bangladesh. Should the first priority be to ensure that more people live to be old?

The greater rationing of healthcare resources is one of the difficult, inevitable choices facing the NHS. But although greater rationing is inevitable, with health demand and costs outstripping the ability to finance care, the degree to which we have to make these tradeoffs is within our control. At one level there is a choice between improving productivity and rationing care – providing greater health outcomes with fewer health resources reduces the need to ration.

Given this we need to be bold in debating options for health reform that have previously been off the political agenda but that would improve health sector productivity. Failing to do so would mean fewer health resources for us all.

Watch Nick Gibb MP, Shadow Minister for Schools, discuss "the soft bigotry of low expectations" at yesterday's launch of Reform's latest education report, A new level. The report is available at www.reform.co.uk.

Click to watch Elizabeth Truss, Deputy Director of Reform and Professor Francis O'Gorman, Head of English at Leeds University, comment on the report.

By Shemadene Edwards, Health Researcher, Reform.

Andrew Lansley, the shadow health secretary, has spoken of the need to reform the NHS through putting patients at the heart of the service, empowering health professionals and using information to drive choice. With these themes in mind, a discussion on “how can Britain learn from international examples about using information to deliver best service to the patient and achieve for money” was held at this Tuesday’s Reform conference on “the future of health”.

Sam Lister, Health Editor, The Times chaired the debate and cited an example of good practise in Denmark where 98 per cent of Danish doctors are able to access patients’ records using hand-held devices. They have reported back that this method of immediate access to records saves them on average 1 hour per day. Currently Denmark spends rather less as a proportion of GDP on healthcare than the UK does and is a tax-funded system. Why can’t the UK operate its healthcare system in the same way?

Further, as Andrew Lansley noted, while the NHS “is probably the most data filled healthcare system in the world” it often fails to translate these data into meaningful information for patients. Despite the volume of information out there, it can be almost impossible to find answers to questions such as “How can my father best be treated for cancer in Cornwall?” To ensure better patient experiences we need to create an “information marketplace within the NHS.”

By Dr Patrick Nolan, Chief Economist, Reform.

As has become very apparent in recent days, the medium-term funding outlook for the NHS, with baselines likely to be frozen in real terms for several years from 2011, means the UK health system has to be rethought now. To provide an independent and open forum that generates new ideas in the run-up to the general election, Reform held a conference earlier this week on the future of the health system.

The conference highlighted the need to make better use of limited health resources. The current approach to rationing health resources – where the myth of universal access is undermined by hassle and delay – fails to provide transparency regarding the extent and quality of services to which people are entitled. This lack of transparency is reflected in there being too little initiative given to improving services and managing costs at every level in the NHS.

Greater initiative given to improving services and managing costs would come from expanding the role of private provision and funding of health services in the UK. Private provision of health services is, however, held back by the uneven playing field between the NHS and private providers, with NHS services in supposedly contestable markets benefitting from subsidised public sector pensions and cross subsidies from other NHS services.

By Patrick Nolan, Chief Economist, Reform

In recent days the adage that “a week is a long time in politics” has seemed very true – with the political ground moving beneath our feet. Debate is now centred on the need for a massive decentralisation of power, greater political and institutional accountability to citizens and consumers, and greater value for money.
 
While there has been some recognition of the need for greater transparency among public bodies like the NHS, health issues have generally played little role in this new and welcome debate. This can't continue. Just looking at the numbers, the NHS employs 1.3 million people and accounts for over 8 per cent of GDP, and one pound in six of all government spending is on health. But even these figures cannot fully capture the costs to us all when opportunities for improving the health of the UK population are missed.

The medium-term funding outlook for the NHS, with baselines likely to be frozen in real terms for several years from 2011, means the UK health system has to be rethought now. To do this it is necessary to accept the need for greater rationing of resources and to be open to radical ideas and insights. Only through doing this will it be possible to ensure that necessary reforms are made prior to 2011 and the potential of the NHS is unlocked.

Areas where debate is needed include the current state of play of NHS reform, how healthcare should be funded, options for getting more for less out of the health system, and how changes in information technology could change the NHS landscape. To help cement these issues onto the reform agenda, Reform is hosting a major conference on the future of health on 9 June. The goal is to point the way forward to a NHS that could do more with its 8 per cent of GDP – as process of making crucial decisions and improving incentives for reform must begin now.

Speaking at a Reform 'Back to black' seminar today, Douglas Carswell MP discussed how to ensure that we get better value from our defence budet.  He explained how current procurement policy is failing our armed forces, and why we need more "off the shelf" procurement".

Watch Douglas argue that if there was only one chain of restaurants you would expect bad service and overcharging - the same applies for defence procurement:

He explains that defence procurement is not a suitable method of preserving jobs and claims it would have been cheaper to pay every Briton involved in building the new Apache helicopter a million pounds:

By Professor Nick Bosanquet of Reform.

In 1921 a Government on the run set up an Independent Committee to review public expenditure. The story of the Geddes Axe gives a very definite lesson on how not to change course on public expenditure.

The Committee arose from the political need to do something about a powerful press campaign on government waste. Indeed Prime Minister Lloyd George had even sent a circular to his colleagues on 20 August 1919: “The time has come when each Minister should make it clear to those under his control, that if they cannot reduce expenditure, they must make room for somebody who can … That is the public temper and it is right.”  However the circular did not prevent a series of by-election defeats.

Led by Lord Northcliffe and the Daily Mail the campaign featured two civil servants Dilly and Dally. It  brought into relief that total public expenditure had risen from £272 million in 1910 to £1.592 million in 1920. Part of this was  the rise  in debt interest from £37.3 million to £359.8 million. But other programmes had gone up steeply as well, with a rise in spending on education from £17.2 million to £59.3 million.

By Professor Nick Bosanquet and Dr Patrick Nolan

Some commentators claim to have seen the “green shoots of recovery” in the UK economy. Yet the worst is unlikely to be over. Based on past experience, the economy has only been in recession for a short time so far: the last two recessions in the UK each lasted for five quarters. Further, even when the recession is technically over effects like unemployment will continue to worsen, as they lag economic growth.

While there are prospects for recovery, actually achieving balanced economic growth needs an environment supportive of innovation. This requires harnessing the dynamic nature of the market. As the private sector generates 80 per cent of productive activity, economic recovery cannot only come from the state.

International evidence strongly supports the key role of innovation and competition in promoting recovery and growth. The current crisis is in many ways a globalised version of the East Asian crisis of 1997-99. The recovery by South Korea from this was remarkably rapid. This was achieved by a combination of direct action to deal with toxic loans and opening up the economy to competition:

“Beginning in 1999, South Korea set aside an amount equal to 15 per cent of its GDP to buy bad loans and close bad banks. In addition it merged some strong banks and sold others to foreigners, opening up South Korean financial markets to international competition … South Korea worked to shore up its Chaebols, while at the same time opening up domestic markets to international firms in an effort to increase competition.” (Todd A. Knoop, Recessions and Depressions. Praeger, 2004.)

The result was a rapid return to 5-6 per cent annual growth by 2002.