Margaret Thatcher: The Autobiography (98 page)

This was the philosophical starting point for the housing reforms on which Nick Ridley was working from the autumn of 1986, which he
submitted for collective discussion at the end of January 1987, and which after several meetings under my chairmanship were included in the 1987 general election manifesto. The beauty of the package which Nick devised was that it combined a judicious mixture of central government intervention, local authority financial discipline, deregulation and wider choice for tenants. In so doing it achieved a major shift away from the ossified system which had grown up under socialism.

Central government would play a role through Housing Action Trusts (HATs) in redeveloping badly run down council estates and passing them on to other forms of ownership and management – including home ownership, ownership by housing associations and transfer to a private landlord – with no loss of tenant rights. Second, the new ‘ring-fenced’ framework for local authority housing accounts would force councils to raise rents to levels which provided money for repairs. It would also increase the pressure on councils for the disposal of part or all of their housing stock to housing associations, other landlords or indeed home ownership. Third, deregulation of new lets – through development of shorthold and assured tenancies – should at least arrest the decline of the private rented sector: Nick rightly insisted that there should be stronger legal provisions enacted against harassment to balance this deregulation. Finally, opening up the possibility of council tenants changing their landlords, or groups of tenants running their estates through co-operatives under our ‘tenants’ choice’ proposals, could reduce the role of local authority landlords still further.

The most difficult aspect of the package seemed likely to be the higher council rents, which would also mean much higher state spending on housing benefit. But it seemed better to provide help with housing costs through benefit than through subsidizing the rents of local authority tenants indiscriminately. Moreover, the higher rents paid by those not on benefit would provide an added incentive for them to buy their homes and escape from the net altogether.

These reforms will need time to produce results. But the new arrangements for housing revenue accounts are applying a beneficial new discipline to local authorities. And deregulation of the private rented sector will increase the supply of rented housing gradually, as ideological hostility to private landlordism recedes. But I have to say that I had expected more from ‘tenants’ choice’ and from HATs. The obstacle to both was the deep-rooted hostility of the Left to the improvement and enfranchisement of those who lived in the ghettos of dependency which they
controlled. The propaganda against ‘tenants’ choice’, however, was as nothing compared with that directed against HATs and, sadly, the House of Lords gave the Left the opportunity they needed.

Their Lordships amended our legislation to require that a HAT could only go ahead if a majority of eligible tenants voted for it. This would have been an impossibly high hurdle, given the apathy of many tenants and the intimidation of the Left. We finished up by accepting the principle of a ballot, limiting it to the requirement of a majority of those voting. In the summer of 1988 Nick Ridley announced proposals to set up six HATs, of which – after receiving consultants’ reports – he decided to go ahead with four in Lambeth, Southwark, Sunderland and Leeds. I later saw some of the propaganda by left-wing tenants’ groups – strongly backed by the trade unions – which showed how effective their campaigns had been to spread alarm among tenants who were now worried about what would happen when they moved out as their flats were refurbished and about levels of rents and security of tenure. One would never have guessed that we were offering huge sums of taxpayers’ money to improve the conditions of people living in some of the worst housing in the country. As a result, no HATs were set up while I was Prime Minister, though three have been since I left office.

Housing, like Education, had been at the top of the list for reform in 1987. But I had reserved Health for detailed consideration later. I believed that the NHS was a service of which we could genuinely be proud. It delivered a high quality of care at a reasonably modest unit cost, at least compared with some insurance-based systems. Yet there were large and on the face of it unjustifiable differences between performance in one area and another. Consequently, I was much more reluctant to envisage
fundamental
changes than I was in the nation’s schools. Although I wanted to see a flourishing private sector of health alongside the National Health Service, I always regarded the NHS and its basic principles as a fixed point in our policies. And so I peppered my speeches and interviews with the figures for extra doctors, dentists and midwives, patients treated, operations performed and new hospitals built. I felt that on this record we ought to be able to stand our ground.

Some of the political difficulties we faced on the Health Service could be put down to exploitation of hard cases by Opposition politicians and the press. But there was more to it than that. There was bound to be a potentially limitless demand for health care (in the broadest sense) for as
long as it was provided free at the point of delivery. The number of elderly people – the group who made greatest call on the NHS – was increasing; advances in medicine opened up the possibility of – and demand for – new and often expensive forms of treatment.

In significant ways, the NHS lacked the right economic signals to respond to these pressures. Dedicated its staff generally were; cost conscious they were not. Indeed, there was no reason why doctors, nurses or patients should be in a monolithic state-provided system. Moreover, although people who were seriously ill could usually rely on first-class treatment, in other ways there was too little sensitivity to the preferences and convenience of patients.

If one were to recreate the National Health Service, starting from fundamentals, one would have allowed for a bigger private sector and one would have given much closer consideration to additional sources of finance for health, apart from general taxation. But we were not faced by an empty slate and any reforms must not undermine public confidence.

I had had several long-range discussions with Norman Fowler, then Secretary of State at the DHSS, in the summer and autumn of 1986 about the future of the National Health Service. It was a time of renewed interest in the economics of health care so there was much to talk about. Norman provided a paper at the end of January 1987. The objective of reform, which we even now distinguished as central, was that we should work towards a new way of allocating money within the NHS, so that hospitals treating more patients received more income. There also needed to be a closer, clearer connection between the demand for health care, its cost and the method for paying for it. We discussed whether the NHS might be funded by a ‘health stamp’ rather than through general taxation. Yet these were very theoretical debates. I did not believe that we were yet in a position to advance significant proposals for the manifesto. Even the possibility of a Royal Commission – not a device which I would generally have preferred but one which had been used by the previous Labour Government in considering the Health Service – held some attractions for me.

Norman Fowler was much better at publicly defending the NHS than he would have been at reforming it. But his successor, John Moore, was very keen to have a fundamental review. John and I had our first general discussion on the subject at the end of July 1987. At this stage I still wanted him to concentrate on trying to ensure better value for money from the existing system. But as the year went on it became clear to me also that we
needed to have a proper long-term review. During the winter of 1987–8 the press began serving up horror stories about the NHS on a daily basis. I asked for a note from the DHSS on where the extra money the Government had provided was actually going. Instead, I received a report on all of the extra pressures which the NHS was facing – not at all the same thing. I said that the DHSS must make a real effort to respond quickly to the attacks on our record and the performance of the NHS. After all, we had increased real spending on the NHS by 40 per cent in less than a decade.

There was another strong reason for favouring a review at this time. There was good evidence that public opinion accepted that the NHS’s problems went far deeper than a need for more cash. If we acted quickly we could take the initiative, put reforms in place and see benefits flowing from them before the next election.

There was a setback, however, before the review had even been decided on. John Moore fell seriously ill with pneumonia in November. With characteristic gallantry, John insisted on returning to work as soon as he could – in my view too soon. Not fully recovered, he could never bring enough energy to bear on the complex process of reform. The tragedy of this was that his ideas for reform were in general the right ones, and he deserves much more of the credit for the final package than he has ever been given.

I made the final decision to go ahead with a Health review at the end of January 1988: we would set up a ministerial group, which I would chair. I made it clear from the start that medical care should continue to be readily available to all who needed it and free at the point of consumption, and I set out four principles which should inform its work. First, there must be a high standard of medical care available to all, regardless of income. Second, the arrangements agreed must be such as to give the users of health services, whether in the private or the public sectors, the greatest possible choice. Third, any changes must be made in such a way that they led to genuine improvements in health care. Fourth, responsibility, whether for medical decisions or for budgets, should be exercised at the lowest appropriate level closest to the patient.

For intellectual completeness all such reviews list virtually every conceivable bright idea for reform. This contained, if I recall aright, about eighteen. But the serious possibilities boiled down to two broad approaches in John Moore’s paper. On the one hand we could attempt to reform the way the NHS was financed, perhaps by wholly replacing the
existing tax-based system with insurance or, less radically, by providing tax incentives to individuals who wished to take out cover privately. On the other hand, we could concentrate on reforming the structure of the NHS, leaving the existing system of finance more or less unchanged. Or we could seek to combine changes of both kinds. I decided that the emphasis should be on changing the structure of the NHS rather than its finance.

On reforming the structure of the NHS, two possibilities seemed to have most appeal. The first was the possible setting up of ‘Local Health Funds’ (LHFs). People would be free to decide to which LHF they subscribed. LHFs would offer comprehensive health care services for their subscribers – whether provided by the LHF itself, purchased from other LHFs, or purchased from independent suppliers. The advantage of this system was that it had built-in incentives for efficiency and so for keeping down the costs which would otherwise escalate as they had in some health insurance systems. What was not so clear was whether if they were public sector bodies there would be any obvious advantage over a reformed structure of the District Health Authorities (DHAs).

So I was impressed by a suggestion in John’s paper that we should make NHS hospitals self-governing and independent of DHA control. This was a proposal by which all hospitals would (perhaps with limited exceptions) be contracted out individually or in groups through charities, privatization or management buy-outs, or perhaps leased to operating companies formed by the staff. This would loosen the excessively rigid control of the hospital service from the centre and introduce greater diversity in the provision of health care. But, most important, it would create a clear distinction between buyers and providers. The DHAs would become buyers, placing contracts with the most efficient hospitals to provide care for their patients.

This buyer/provider distinction was designed to eliminate the worst features of the existing system: the absence of incentives to improve performance and indeed of simple information. There was at that time virtually no information about costs within the NHS. We had already begun to remedy this. But when I asked the DHSS at one review meeting how long it would be before we had a fully working information flow and was told six years, I exploded involuntarily: ‘Good heavens! We won the Second World War in six years!’

Within the NHS money was allocated from regions to districts and then to hospitals by complicated formulas based on theoretical measures
of need. A hospital which treated more patients received no extra money for doing so; it would be likely to spend over budget and be forced to cut services. The financial mechanism for reimbursing DHAs when they treated patients from other areas was to adjust their future spending allocations several years after the event – a hopelessly unresponsive system. But with DHAs acting as buyers money could follow the patient and patients from one area treated in another would be paid for straight away. Hospitals treating more patients would generate a higher income and thus improve their services rather than having to cut back. The resulting competition between hospitals – both within the NHS and between the public and private sectors – would increase efficiency and benefit patients.

I held two seminars on the NHS at Chequers – one in March with doctors and the other in April with administrators – to brief myself more fully. Then in May we began our next round of discussions with papers from John Moore and Nigel Lawson.

Nigel took a critical view of John Moore’s ideas. By now, the Treasury had become thoroughly alarmed that opening up the existing NHS structure might lead to much higher public expenditure. Despite apparent Treasury interest earlier in the idea of an ‘internal market’, at the end of May Nigel sent me a paper questioning the whole direction of our thinking. John Major followed up with a proposal for a system of ‘top-slicing’ by which the existing system of allocating funds to health authorities would continue, but the extra element provided for growth in the health budget each year would be held back (‘top-sliced’) and allocated separately to hospitals which fulfilled performance targets set down from the centre.