Abbott should stop acting like a Tory and be more like Blair

On Friday, 26th August, Diane Abbott was interviewed by Shaun Lay on the Radio 4 news programme the World at One. (The podcast can be downloaded here.) The most interesting thing was that she didn't promise any extra money for the NHS. In fact she flatly ruled it out. The interviewer, Shaun Ley, pressed her on this:

“is your only option to say that we actually need to spend more on the NHS as a proportion of GDP, is that fair?” 

to which Abbott replied

“we certainly aspire to maintain what we spend on the NHS in a proportion of GDP”

So Ley pressed her again:

“you say that you do not want any increase in co-payment, you say that you do not want to change the system of funding, then you’ve got to spend more?”

And Abbott refused to promise more funding

“you’ve also got to save money, as I’ve explained to you”.

Abbot refuses to increase spending on the NHS in spite of the fact that the NHS is clearly underfunded. The government says that the NHS “overspends” whereas it's clear the NHS is not funded sufficiently to cover the demand. Labour under Corbyn are now agreeing with the government on the level of NHS funding. This is probably not surprising since John McDonnell agreed with Osborne’s ludicrous Fiscal Responsibility Act. Abbott, who is possible the least informed of any shadow minister ever, trotted out unevidenced tripe. She gave three ways that the NHS reorganised under Corbyn would “save” money.

First, PFI. Abbott said:

“Every year for the coming decade we going to be spending nearly £2bn on PFI and I’ve spoken to CEOs of big London teaching hospitals who are talking about buying out their private finance initiative arrangements because it would be much cheaper at current levels of interest.” 

Ley challenged this:

“to do that will they have to be able to borrow from elsewhere, or will the Treasury have to pay for it?” 

Abbott replied that

“the CEOs I have been speaking to are talking about borrowing money as an institution”.

I won’t defend PFI, it is an expensive mechanism for many reasons, but Abbott is clearly out of her depth on PFI. There are several issues here. Let’s start with her claim that getting rid of PFI would “save” £2bn. The only source for this figure appears to be an article in The Daily Telegraph in July 2015 – a year ago.

The Telegraph says

“The scale of the PFI charges is contained in official figures compiled by the Department of Health and obtained by The Telegraph.” 

Unfortunately the Telegraph do not provide a link to these “official figures” and searches on the Department of Health website does not yield any results. Abbott is quoting figures a year out of date that clearly she has not checked.

Up until April 2016, there were two financial regulators: Monitor for Foundation Trusts and the NHS Trust Development Agency (TDA) for NHS Trusts. In April 2016 these were amalgamated into one regulator called NHS Improvement. Two thirds of trusts are Foundation Trusts. Monitor provides annually consolidated accounts for all Foundation Trusts. The consolidated accounts for 2015/16 says that the capital repayment payments for PFI were £185m and the interest paid was £363m. So the total PFI finance costs for Foundation Trusts was £548m. This is in comparison to the total PDC dividend payments of £544m for Foundation Trusts (PDC is an alternative, government-backed, finance scheme).

The Trust Development Agency did not issue consolidated accounts, but there is no reason to think that NHS Trusts have larger amounts of PFI per trust than Foundation Trusts. NHS Improvement has released the 2015/16 fourth quarter performance report which includes both the aggregated figures for Foundation Trusts and NHS Trusts. This report says that in the 12 months to the end of March 2016 PFI costs (capital repayment and interest) were £898m (compared to £839m for PDC).

Thus we can assume that the finance cost of PFI to the NHS is around £900m a year.

So where does the Telegraph get a figure of £2bn from? The PFI arrangement is usually that a private company builds, and then operates the building on behalf of the NHS. The trust owns the building on effectively a lease mechanism. The “operates” comes in several forms, it could be just the maintenance of the building, but it could include services like cleaning, catering and car parking. These are all services that must be provided, and without the PFI contract, a trust would either have to provide these services themselves, or contract a private provider. (Under a law passed by John Major, there are VAT benefits for a trust to outsource such services to a private contractor.)

The important point is that there will still be a cost, even if a trust provides the services itself. The extra billion that the Telegraph quotes is presumably the service charges. For services the vast majority of the costs will be staff, so it is unlikely that there will be much scope for savings, unless there are staff losses or pay cuts. If there is a saving, it will be in the region of millions over the country rather than billions.

The finance part of PFI involves borrowing money, which can be done cheaply now by the government. However, note that Abbott did not pledge government funding to “buy out” PFI she specifically said that the trusts would have to borrow the money themselves, and this will be at a higher rate than the government would pay.

One English trust, Northumbria Healthcare Foundation Trust, has "bought out" its PFI, however, they didn’t go to the open market to borrow the money. Instead, Northumbria obtained a loan of £114m from Northumberland County Council and the council borrowed this money from the Treasury’s Public Works Loan Board. In effect this is a government loan in a roundabout route. Abbott has ruled out a Labour government financing such “buy outs” of PFI, so Northumbria is not the model she will use. Even so, the loan of £114m would yield a saving of just £3.5m a year to the trust, and if this is scaled up to all PFI schemes, such savings are unlikely to provide savings of “billions”.

Abbott's policy that trusts should make their own arrangements to "buy out" PFI schemes is at odds with many of Corbyn's ardent supporters, who demand that the government should either buy out the schemes or even cancel them altogether. Since Abbott is saying that trusts should borrow to buy out PFI schemes raises the question of whether anything has changed at all since a trust may borrow from a bank, who may be part of a consortium providing PFI services.

Morally, one has to question “buying out” PFI loans. If the PFI companies have been “swindling” the NHS for decades there is no moral case to simply reward them by buying the loan off them. Morally, a radical government would seek redress for such “swindling”. Abbott is not suggesting this, which implies that she really does not regard PFI as being as bad as she is saying in public. What is clear is that there are unlikely to be savings of billions in buying out PFI schemes.

Abbott’s second point was agency staff. She told Ley

“we are spending £3.6bn on agency staff, there is no need for the health service to spending that on agency staff.” 

Here, she is marching in lock step with Jeremy Hunt, and like Hunt she will fail. There are numerous cases around the country where trusts have breached Hunt’s agency cap because trust boards have recognised that care would be unsafe with their staff level without agency staff. Removing agency staff does not solve the workforce problem. The staff shortage problem was caused by the Coalition. Osborne froze NHS pay rises and Lansley abolished the Strategic Health Authorities which were responsible for training. Although Lansley created new organisations to manage the funding of training of staff (Health Education England and Local Education and Training Boards) there was a hiatus in workforce planning. Further, Osborne made this even worse by announcing the abolition of the nurse bursary to pay for nurse training.

Abbott could have used the interview as an opportunity to attack the bursary policy and the woeful workforce policy of the Conservatives, but she didn’t. Instead, she just echoed what Hunt has already said.

The third area that Abbott claimed she would save money was on medicines and in particular Abbott chose to stigmatise diabetics. Abbott told Ley:

“And then there is the question of drugs, some of these proprietary brand drugs there is a mark up of times seventy three, so we think that there is money to be saved. And I think in the long term we do need to look at public health, we do need to look at prevention. Ten percent of NHS drugs bill goes on drugs for diabetes. We think public health issues like diabetes, like obesity, exercise and alcohol could in the long run bring down costs of the NHS as a whole.”

On the question of drug prices, this presumably comes from a report by The Times earlier this year that claimed that there was a “loophole” that allowed branded drugs to make such large mark-ups (accompanied, of course, by cherry picked examples). Abbott mentions “proprietary brand drugs” and presumably she means branded drugs that are dispensed when a chemically identical generic drug can be dispensed instead. (Some drugs are still under patent, so a generic is not available.)

While it is possible to improve the prescribing of generics, the NHS has actually done very well so far. Prof Appleby (then) at the Kings Fund estimated that the proportion of proprietary drugs has fallen by a third since 1976. If this change had not happened then the cost of prescriptions (taking into account that the volume of prescriptions has increased four times) would be twice what they are now. Of course, savings can always be made, but the likelihood is that the easiest savings have already been made, and the next lot of savings will be a lot harder.

I do not think that Abbott has any coherent plan as to make more savings from switching from branded to generics, I think she is making this point because it is part of Corbyn’s campaign against Owen Smith because of his former employment by Pfizer. Note that Abbott does not attack the politically created, but non-evidenced Cancer Drug Fund. She does not supply any new innovative ideas, like NICE. No, she attacks branded drugs because Smith once worked for Pfizer.

After attacking the price of branded drugs, Abbott then goes on the offensive against “diabetics”. She says:

“ten percent of NHS drugs bill goes on drugs for diabetes. We think public health issues like diabetes, like obesity, exercise and alcohol could in the long run bring down costs of the NHS as a whole”. 

While Abbott is right that “diabetes” does cost the NHS a large amount of money she makes the typical second rate politician error of not stating the type of diabetes. There are two: type 1, which is an autoimmune disease and cannot be prevented or cured, and type 2 that has some association with obesity, but is not entirely caused by obesity. Nine tenths of diabetics are type 2, and the NHS is keen on trying, where it is possible, to prevent people developing type 2 diabetes. However, blaming type 2 diabetics for the financial state of the NHS is something that right wing politicians do, now Abbott is joining in.

A tenth of diabetics are type 1, and there is little that can be done about reducing the cost of their treatment. Even if Abbott is claiming that she can save money on treating type 2 diabetics, she is being misleading. There is a growing obesity problem, and obesity may lead to type 2 diabetes. However, the age demographics of current type 2 diabetes is that it is a condition of the elderly. It is being old that is the cause of their condition. There are ways to make the treatment of type 2 diabetes in older people safer and more effective (and consequently, save money) but Abbott did not mention these ways and I am sure she does not know about them.

Everything about the interview screamed: a clueless politician briefed by an ignorant researcher. Spouting nonsense loses the confidence of the public, and worse, it threatens Labour's rightful claim to be the party of the NHS.

Abbott says that she will keep to the Tory NHS funding levels. This is appalling; the most effective way of destroying the NHS is to keep to the damaging flat funding policy of the Tories. Abbott needs to acknowledge that in 1997 Blair promised to raise the funding of the NHS every year in real terms. And on this Blair won a landslide. Then in 2000 Blair pledged to raise NHS funding as a proportion of GDP to European levels. And on this Blair maintained an enormous Commons majority in the 2001 election.

These figures are clear: Abbot should stop acting like a Tory, and should be more like Blair.