Why deteriorating healthcare is a macroeconomic issue


“Healthy People,
Prosperous Lives” is the first
interim repor
t of the IPPR’s Commission on Health
and Prosperity. (I am a member.of the Commission, but not an author
of this report.) This analysis could not have come at a more topical
moment, as suspicion mounts that there may be a link between the
worsening state of our health services and the dire state of our
economy. This report uses research to quantify that link.

Let me start by
looking at the contraction of labour supply since the pandemic that
has persisted in the UK, while in other countries it has largely or
completely disappeared. This chart is taken from an earlier FT
by John Burn-Murdoch.

There has been some
debate about whether this deterioration in UK labour supply is a
result of poor UK health outcomes, or whether it represents a
post-pandemic increase in early retirement. As the report points out,
early retirement may well be the result of poor health. The chart
below looks at pre-pandemic exits from employment following the onset
of chronic or mental ill health. Among those under 50, the most
common outcome is unemployment, but for all ages the most common
result is retirement. So retirement since the pandemic may in part
reflect the consequences of ill-health.

UK relative economic
decline did not start after the pandemic. As
comparison with the US showed
, GDP per capita grew at
similar rates in both countries from 1955 to 1990. In the 90s and
2000’s UK GDP per capita grew more rapidly in the UK than the US.
Some of this may have been due to an expansion in the UK financial
sector that came to an end with the Global Financial Crisis, but
another important factor could have been service sector growth as a
result of the EU’s Single Market. Towards the end of the 2010s,
however, US growth catches up with the UK, and overtakes it during
and after the pandemic. Between 2010 and 2021, US GDP per capita grew
by 16%, but UK GDP per capita grew by only 8.3%.

There is no doubt
that there are many reasons for this reversal of fortunes for the UK
relative to other economies since 2010, with Brexit being the most
obvious. However poor health caused by a deterioration in healthcare
could also have been an important factor. The IPPR report looks at
the impact of poor health from the bottom up, by calculating the
earnings lost as a result of the onset of chronic illness or mental
illness. The main reason for earnings loss is employment exit. In
addition, the research suggests that the onset of either form of
illness on a household member has a large impact on the earnings of
other members of the household.

The report estimates
that those that became chronically or mentally ill between 2015 and
2021 led to a reduction in GDP of about 2% in 2021. Of course how
much of that could have been prevented as a result of better health
provision is unknown, but it does suggest that a steady or sharp
deterioration in health provision will have noticeable consequences
on the performance of the aggregate economy. As these two charts
shows, in the UK we have had both a steady (from 2010) and then a
sharp deterioration (since the pandemic) in health provision, with
over 7 million people currently waiting for treatment.

Not only will this
deterioration in health provision have had a significant impact on
the overall prosperity of those in the UK, it also increases regional
inequalities. The report shows that because chronic and mental health
problems are greater in regions other than the South East England,
any improvement in health provision is likely to reduce regional
economic inequalities.

One final chart on
waiting lists, from
John Burn-Murdoch at the FT
, illustrates the clear
correlation between how well the NHS is performing and the party in

Health provision
gets worse under the Conservatives and better under Labour. Some see
the squeeze in NHS and social care funding since 2010 as part of some
grand plan to end the NHS, but I’m not convinced the Conservative
party will ever have the political capital to do this. The dynamics
work the wrong way. As long as the NHS improves under Labour, then a
prolonged period of worsening services under the Conservatives is
required to motivate NHS abolition, but by that time the
Conservatives will be much less popular and will not want to risk
losing further votes by ending the NHS.

Instead I think the
clear empirical association between Conservative governments and an
increase in waiting times is just a by-product of these
government’s desire to reduce taxation. What this IPPR report shows
is that this deterioration isn’t just bad for patients, but is bad
for the economy as a whole.

There has since 2010
been a clear plan to increase the farming out of NHS services to the
private sector (which started before 2010), and as this
from EveryDoctor
shows that plan has been very successful. (See postscript below.) However because the NHS is
relatively efficient, privatisation for profit is likely to either
raise costs or reduce the quality of care, thereby intensifying the
deterioration in healthcare that comes from a political obsession
with tax cuts.

With Labour leading
in the polls and a general election not too far away, thoughts are
naturally turning to how Labour could turn the tide on NHS
performance. The Commission report has plenty of ideas on that front
(as have others),
and I cannot do justice to these ideas here. Labour in opposition
talk a lot about reform, but at best this is a political device to
avoid saying the truth out loud before an election. The reality is
that the most obvious and effective way to improve health outcomes in
the UK is to spend more money on health and social care, and that in
turn requires higher taxes. What this report shows is that doing this
would improve the economy as well.

Postscript 03/05/23

EveryDoctor have now updated their map to show which MPs have links to private medical companies.

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