Profit caps for private healthcare providers – The wrong answer to a problem that doesn’t exist


March 30, 2015 by Paul Goldsmith


wish someone could take Ed Miliband by the lapels and ‘help’ him to understand that demand has to meet supply. I don’t see any other way to get him to see that when industries have massively rising demand for their services, such as energy, university education, and healthcare in this country, the LAST thing you do is discourage supply. Yet, in his constant search for miniscule electoral advantage from people who don’t understand economics but do understand simple solutions to problems. He has come up with another ridiculous policy. This one, to cap the profits of independent healthcare companies at 5%, solves no problem that actually exists, and will create more down the line. No matter though, because just as politics could mean that we don’t have enough energy to heat our homes in 10 years’ time in Labour get in, and just as politics could mean that we can’t fund our universities anymore because rich middle class kids have a fee cut, politics now means that members of the public on low incomes will soon have to wait longer for health procedures, if they get them at all. Is this really why Ed Miliband became Labour leader?

So you know, although health treatment in this country is free at the point of delivery for everyone in the country, some services are “contracted out” to independent (or, in Miliband’s words, ‘private’) providers. These services tend to be ‘non-core’ and non-emergency procedures such as hip and knee replacement. It was Tony Blair and New Labour who pushed this through. By 2010 4.4% of health provision went to these private firms, and it is 6% of it now. It reduced waiting times for these procedures, whilst giving the opportunity for a working class grandmother to enjoy the same BUPA treatment as a millionaire with private insurance. 

The idea, when  an announcement on Friday, Miliband said that Labour would make private firms reimburse the NHS if they exceed a 5% profit cap. His argument, I suppose, is that if a private firm is making more than this level of profit out of providing services to the NHS then that is immoral. But his real motivation was contained in his explanation that he wanted to halt “the tide of privatisation” that has taken place in the NHS since 2010. Not only is this a lie, because not a single thing has actually been sold off to the private sector, but this practice of contracting out was mainly led by New Labour. 

The truth is that Ed Miliband is spending this election campaign not just talking about how he provides an alternative to the Conservatives, but how he provides an alternative to New Labour. This can be seen in the many references to how New Labour got things wrong during last week’s Paxman interview, but also in some of his policy pronouncements, such as this one. This was about nothing more than flashing a bit of leg at the Unions, and various Labour activists, and little to do with what will actually work for normal people. 

Because let’s be clear. This will make NHS provision for ordinary working people WORSE, not better. Ed Miliband needs to think very carefully about whether he wants to be the person that diminished choice in healthcare for those that can’t afford it. He needs to think carefully about why it is a problem that when a private clinic performs knee replacements better than an NHS hospital, the NHS can ask them to do it. He needs to ask himself why it is a problem that the profit motive might make independent clinics, businesses that provide healthcare services, do things more efficiently than the NHS and thus for less money, which might save money for the taxpayer. He needs to ask himself why it is a problem that research from the British Medical Journal found that patients who get referred to these independent clinics make faster and better recoveries.

For this to continue, for waiting lists to be reduced for many of these procedures because the NHS has the option of contracting out services, they need to have the prospect of making enough of a profit to justify the large up front investment they need to make to provide those clinical services. They also need profit to incentives them to bid to provide these services. Otherwise we could have a shrinking pool of private healthcare providers, which would make it harder for the NHS to keep up with rising demand for care. Of course, I can’t really expect Ed Miliband  and his front bench team, none of whom have created a single job nor taken a single entrepreneurial risk in their life, to understand that.

Ultimately, Ed Miliband needs to decide whether he cares more about healthcare consumers, or he cares more about public sector healthcare providers, who are prone to hiding their fear of being held accountable for their work under the umbrella of bleating about a privatisation that simply isn’t happening.

If somebody doesn’t take the time to explain how demand needs to meet supply soon, Ed Miliband may find himself as the Prime Minister who made it harder for poor people to get their homes heated, harder for poor people to go to university, and harder for poor people to get the healthcare they need. Is that why he went into politics? Or was it just to become Prime Minister anyway he can?

One thought on “Profit caps for private healthcare providers – The wrong answer to a problem that doesn’t exist

  1. Well this is all very troubling – and I wish Labour were more coherent in a lot of ways – but you seem to be inordinately exercised by some of these minor details Paul. If some of these policies are as daft as you predict then you can be sure they will be kicked into the long grass after the election.

    You know as well as I do that elections are won and lost on the headlines and not the details.
    Many of the people I have spoken to recently don’t even really understand the implications of the first past the post system – let alone the economic subtleties you are dissecting with such enthusiasm. With 85% of the newspapers against them – 10 times less money to spend on the campaign – and huge vested interests (who frankly have rather more power than a few unionised public sector workers – shock horror – trying to protect their pay and conditions) ranged against them – I don’t blame Labour for a bit of populism here and there. As in this jolly you tube video:

    (who knew they taught you how to rap at posh private schools!?)

    When it boils down to it there might not be a huge difference between the two parties on the fundamentals – but I would rather have a party whose hearts are in the right place. You on the other hand seem to be prepared to take Tory claims to be ‘compassionate’ at face value – while exposing ‘Labour lies’ about the slow creep of privatisation. Deficit or no deficit the Tory instinct will always be to cut money to public services (that they don’t use themselves for the most part). I would also like to see more women in parliament – and more diversity in general. Obviously that is more likely with Labour.


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