On the NHS, Sunak and co seem unable to grasp economics 101: pay more | Larry Elliott Economics editor

Before it became the meeting place for the global elite, Davos was known as a place where those suffering from TB came to be treated. Thomas Mann set his story The Magic Mountain in a sanatorium in the small Swiss town and rarely have the links with Davos’s literary past seemed more appropriate than now, with the global economy in rehab after a three-year sickness still not shaken off. There have been plenty of relapses since the start of the Covid-19 pandemic.

The first couple of weeks of 2023 have seen a modest improvement in the short-term outlook but that doesn’t mean the long-term problems have been cracked. The structural problems facing the global economy – weak investment, poor productivity, the climate emergency, rising inequality, political fragmentation – are still with us.

Klaus Schwab, the man who has been running Davos since the early 1970s, said last week it was time to “develop a longer term, constructive perspective and to shape the future in a more sustainable, more inclusive and more resilient way”. And he’s right. That is indeed the challenge.

But breaking out of a crisis mindset is not easy, especially in a country such as the UK, which has made a virtue out of busking it, and where the long-term consequences of short-termism are plain to see.

Neither Rishi Sunak nor Jeremy Hunt will be in Davos and it is not hard to see why. The performance of the UK economy has been a tad better (or, more accurately a tad less worse) than expected but they have a country in crisis to deal with at home.

The NHS is on the verge of collapse. Back in the early 1980s, Lindsay Anderson directed Britannia Hospital, a dark comedy in which an under-funded hospital beset by its picketing staff was a satire on the early years of Thatcherism. Forty years on, the film seems eerily prescient.

Excess deaths – a measure of how many more people are dying than normal – in the UK are running at their highest level in 50 years, the pandemic apart. Ambulance waiting times in England are the highest on record, as are the numbers waiting in A&E for more than 12 hours. There are more than seven million people on hospital waiting lists in England. Meanwhile, a study by the King’s Fund thinktank found last year the vacancy rate for nurses was running at 12%.

It is currently fashionable to say the NHS’s problems are not really anything to do with money, but that argument doesn’t stack up. Of course, the NHS could be better managed, but so could plenty of other organisations. Sure, there are other models of healthcare the UK could learn from. But the reason it is hard to attract nursing staff is because the pay of a senior nurse has fallen in real terms by 10% since 2010.

And the reason hospitals are buckling under the strain of surging winter demand is because a decade of austerity is taking its toll. The average increase in spending on the NHS since it was created in 1948 to 2010 was 3.7% a year. In the years between 2001 and 2010 the increase in real-term spending averaged 7% and waiting lists were coming down. Since then it has been 1.4% and lists have been going up again.

It is not just pay that has been squeezed. The UK devotes 0.3% of national income to health capital spending – new hospitals and the kit that goes in them – which is half the level of other high-income nations. The idea that the NHS is a bottomless pit into which governments of left and right have indiscriminately chucked never-ending amounts of taxpayers cash is a myth. The generous funding provided by Tony Blair and Gordon Brown had an impact. The much less generous spending settlements since have also had an impact.

It has been a similar story with social care. More than a decade ago, the coalition government commissioned a report from Sir Andrew Dilnot that concluded the system was not fit for purpose and required more funding, both from individuals and from the state. The report was never acted on, with the result that there are half a million people waiting for help, more than 150,000 vacancies and hospital beds occupied by people who ought to be in care homes. Again, the solution seems simple: get a plan and provide the necessary long-term investment. Economics 101 says that if you have staff shortages then the solution is to pay more.

Government ministers seem strangely unable to grasp this basic point, which means the NHS will continue to be in crisis – or on the brink of it – no matter what sticking plaster solution the Treasury comes up with in response to a chronic funding crisis. An ageing population and advances in medical treatment mean real-term increases of 3-4% a year are needed to meet the rising costs of care. The fact that health has been treated less severely than other parts of the public sector is neither here nor there. Other services – the justice system, for example – have had it even tougher since 2010, but are less visible.

Sunak knows there is a problem. The public have never entirely trusted the Conservatives with the NHS and remains attached to the idea of a service free at the point of use, even if few would currently describe health care as the envy of the world. Stopping the NHS crisis from being the first item on the news is vital for the prime minister. There is not exactly a whole lot of good news at the moment, but what there is is being drowned out by a crisis that could have been avoided and has been 10 years in the making.

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