Stephen Pollard: There is a better way to fund and run our health service

'Is there anyone who really thinks that in two years time we will notice a real change for the better?'
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Well there's a surprise. Asked by Gordon Brown to "identify the key factors which will determine the financial and other resources required to ensure the NHS can provide a publicly funded, comprehensive, high-quality service" Derek Wanless has done just that. What else was he going to say, since his terms of reference from Mr Brown specifically instructed him only to look at such a system?

The Chancellor has spent the past two days trumpeting Mr Wanless' report as conclusive proof that the NHS approach – exclusively taxpayer funded and state run – is the only sensible method. Mr Brown might care to look at another report which came out only hours before his own. The "World Health Report 2000 – Health systems: Improving performance", published by the OECD, has a rather different tale to tell, stressing the critical importance of a mixed economy of healthcare, with public provision being improved by working in tandem with additional private provision – exactly the sort of systems which work so well on the Continent, but which Mr Brown doesn't want us to dirty our minds thinking about.

The health debate is nothing if not ironic. Europhile Labour says we've got nothing to learn from those Continentals, whilst the Eurosceptic Tories go off on their Grand Tour and return with tales of wonder of how well the Europeans manage their affairs.

The facts of the matter are these. No one disputes that we need to spend more money on health care. On the latest figures, health spending in Britain will rise to 7.6 per cent of GDP by 2003-4, compared with an EU average of 8.9 per cent But in terms of state spending, we spend almost the same (about 0.1 per cent of GDP less) than our neighbours. Almost all of that 1.3 per cent gap in total health spending is made up of the money which they spend in addition to tax.

So this is the real question: should we do what they don't, and close that gap by increasing taxes to pay for spending ever-greater amounts of public money; or is there a better way to fund – and run – our health system?

Hypothecation, which is fast becoming flavour of the month, is a red herring. If we're talking about the most sensible type of health system, arguments about a political device designed to get the public to pay more taxes miss the point. The issue isn't how to find ways of making tax acceptable, it's whether relying solely on tax funding is the best approach.

The Government's stated aim is to make the NHS more responsive to consumers. Hurrah. But there can't be many people who seriously think that the most efficient, most convincing way to do that is by strengthening a public-sector monopoly. And that leads on to the other main difference between the NHS and other European systems. The reason why they aren't exclusively tax funded is because they aren't state-run systems.

There are characteristics common to all the most successful systems.

First, there is a large measure of taxpayer funding. No one seriously proposes ending it. Accusing anyone who points to European models of wanting "privatisation" might score some cheap debating points, but it's nonsense. Even in the US, often cited as the most lunatic free market model, 45 per cent of healthcare is tax funded.

What make other systems different – and vastly more successful at delivering healthcare – are the final two common threads. First, there is a much larger degree of private, non-tax, non-compulsory insurance spending than in the UK. And second, but in reality the same point, instead of a state monopoly, the NHS, there is competition between providers – some state, some private, some profit making, some not-for-profit.

Most European systems are based not on paying taxes into a vast pool to the government, which then decides how your money is spent, but on "social insurance", in which compulsory contributions (effectively tax) go to independent sickness funds which are directly responsible and accountable to you, the payer. Depending on the country, there is a greater or lesser degree of choice as to which fund you join. Switzerland, for instance, has a system of competing insurers with an almost totally free choice. Far from this meaning the poor suffer, Switzerland has far better health outcomes than we have, despite (ignore the mythology of Switzerland) a greater proportion of poor amongst the population; and the concept of waiting lists is unknown. If your premium exceeds between 8-10 per cent of taxable income you are entitled to a subsidy from the state.

In Ireland, where one can opt for private cover, there is an equally successful method of guaranteeing good treatment for the poor. Insurers have to offer "open enrolment" where anyone can join a scheme, regardless of pre-existing conditions, with lifelong cover so that, as people grow older and pose a greater cost threat to the system, they are not cut off. Risks are spread among pools of insured people so that premiums for individuals are not unaffordable. And insurers in Ireland have to offer a minimum level of benefits to ensure that private patients are no worse off than the NHS patients.

In the same vein, Germany is steadily increasing the degree of choice of sickness fund available to patients, but to prevent cherry picking by the funds it has introduced a risk-adjustment formula to make those funds with healthier members transfer revenues to those with a greater share of more costly members.

In July, I fell and broke my wrist in France. Within 10 minutes of arrival at a busy A&E room, I was being treated. I was out within an hour – and was offered a CT scan on the spot, for which my British surgeon told me there was so long a wait at home that I would not have been able to have one before the bone set weeks later. I'm not the first patient to come back with such tales and now, thanks to a European Court of Justice ruling, I won't be the last. In July, having had his hand forced by the ECJ, Alan Milburn agreed to let patients be treated abroad.

We are now living through a controlled experiment. For the first time, the NHS is getting the money its defenders have always said it needed to work (although they are already saying it needs more). Is there anyone who really thinks that in two years time, when the extra £19bn from last year's Comprehensive Spending Review has been spent, anyone will notice a real change for the better? What they will begin to notice is patients coming back from treatment on the Continent and wondering this: if they can do it there, why can't we do it here?

The writer is a senior fellow at the Centre for the New Europe, Brussels