Operating costs

HISTORY of a sort was made on April 26th and 27th when over 20,000 junior hospital doctors in Britain went on strike. It was the fifth time this year that they had withdrawn their labour, but this week they abandoned emergency services as well as their more routine duties. No lives seem to have been lost, but no concessions were gained. As The Economist went to press, Jeremy Hunt, the health secretary, still intended to impose the new contract cutting the rate for most weekend work that sparked the strikes in the first place.

The finances of the National Health Service are in serious trouble. Between 2000 and 2009 spending on health increased from 6.3% of GDP to 8.8%, the average spent by countries in the European Union before the steep rise in NHS funding. Since then, Britain has fallen behind its peers. Annual spending growth has averaged 3.7%, adjusted for inflation, since the NHS’s founding in 1948, but spending is set to rise by only about 0.8% a year in the decade from 2010-11. On current trends, the share of GDP that Britain spends on health will be back to around its level in 2000 by 2021.

Hospitals are “on a knife-edge”, says John Appleby, chief economist at the King’s Fund, a think-tank. A few years ago, only a handful of the worst-managed hospitals ran deficits. The vast majority do so now (see map). Managers want more nurses and doctors to deal with a growing and greying population; employee costs account for about three-fifths of hospital budgets. A public-sector pay freeze has kept down the costs of most staff, but not the amount spent on nurses and doctors hired on flexible contracts. Between 2011-12 and 2014-15, spending on permanent staff rose by 0.03% a year and on temporary staff by 15.3% (it has now been capped).

At the same time, the tariff that determines most of hospitals’ income has fallen in real terms. The squeeze is meant to make them do more for less: Mr Hunt wants £22 billion ($32 billion) in efficiency savings by 2021. To help, in December he promised a £1.8 billion fund to invest in ways to save cash. The money looks as if it will plug gaps in budgets instead. So too will funds put aside for buildings. It is against this background that the health secretary is pushing a new contract for junior doctors.

But youngish hospital doctors are not the only grumpy medics these days. The 29,000 general practitioners (GPs) who perform 90% of patient consultations are fed up too. They have more work than before—patients’ visits rose by an estimated 23% between 2010 and 2015—and their earnings have fallen in real terms. In a recent poll by the Commonwealth Fund, a think-tank, 59% of British GPs said their job was “extremely or very stressful”, more than in the ten other rich countries surveyed. Three in ten GPs want to quit. So whereas Mr Hunt has been holding out against the junior hospital doctors, he is mollifying GPs. On April 20th NHS England said that the share of its £106.8 billion annual budget given to GPs would rise from 8% to 10% by 2020-21.

Simon Stevens, the head of NHS England, believes better primary care should stop the flow of sick people to hospitals, where treatment is more expensive. Adam Roberts, an economist at the Health Foundation, a think-tank, agrees, but warns that the money could either go straight into GPs’ pay-packets or lead to more referrals to hospitals that are already struggling to cope with current loads.

Shifting money around different bits of the system may help it go further. The bigger challenge, though, is making the NHS more productive overall when finances are as tight as a gastric band. A report in March by the Health Foundation found that productivity among health-care providers has fallen in recent years.

Carol Propper, an economist at Imperial College London, worries that financial woes are diverting attention from efforts to increase competition. Her research has found that when patients have more choice, hospitals do a better job of treating them. Such reform, she adds, should apply to GPs too: “If you are going to increase GP spending, you need to increase the ability for people to choose their GPs.”

General practitioners form a “cottage industry” untouched by recent reforms, Mr Appleby says. For all the changes in their remit since the 1980s, GPs remain small in scope, and much of what they do could be covered by cheaper staff, Ms Propper adds. But overhauling the system fundamentally would mean upsetting still more doctors. Mr Hunt seems to have decided that another fight would be bad for his health.