The Wanless review and reports

Getting going

The chair and terms of reference

The Treasury lead for the Wanless review was Anita Charlesworth, deputy director of public spending at the time. It was not until January 2001, almost a year after Breakfast with Frost, that Charlesworth was appointed and substantive work started. As a result the review was conducted under appreciable time pressure.

‘The first I heard of it,’ Anita Charlesworth says, ‘is when Nick Macpherson came to me and said, “They want to do a review of NHS funding, would you lead it?” And I said “Well, there is no way of doing it that will not come up with a huge number. And I don’t want to do something like that for a year and more and then you have to bury it because no one likes the answer. So are they really up for that?”

‘So he said, “Go and see Ed Balls.” And it was clear that actually they were up for it, and they did understand that this was going to be a very large number.’

Furthermore, ‘It was clear that they were interested in other issues beyond the politically important one of waiting times. Issues such as outcomes. And that was to Treasury ministers’ credit. You might say, well once you’ve set the target of getting to the European average, why would you bother doing this?

‘But people did want to think more fundamentally. Part of that was Gordon Brown’s view that if you are going to start to spend – and he clearly wanted to spend – they had to be seen not just to be spenders. The ‘something for something’ agenda, the ‘rights and responsibilities’ agenda, the ‘prudence with a purpose’ agenda. All of that was deeply felt. Deeply felt by him personally, but also felt by him to be incredibly important for a Labour government that was going to start to spend. He felt that had to be handled really carefully.

‘So he really did want to be very clear about what you were going to get for the money, and how that would deliver both substantive improvements but also a more efficient system. There was a very strong desire to tilt the focus of the system towards not just access issues but outcomes. And I certainly felt it was a worthwhile endeavour to be doing, for those reasons.’

Two of the most important questions to settle were the terms of reference and the chair. The terms of reference reflected those in the Chancellor’s Budget statement and amplified them. Namely:

  1. To examine the technological, demographic and medical trends over the next two decades that may affect the health service in the UK as a whole.
  2. In the light of (1), to identify the key factors which will determine the financial and other resources required to ensure that the NHS can provide a publicly funded, comprehensive, high-quality service on the basis of clinical need and not the ability to pay.
  3. To report to the Chancellor by April 2002, to allow him to consider the possible implications of this analysis for the government’s wider fiscal and economic strategies in the medium term; and to inform discussions in the next Spending Review in 2002.

The devolved administrations – Scotland, Wales and Northern Ireland – were to be involved.

The terms of reference did three things. First, they made it clear that the NHS model was not in question. Second, it did not need much reading between the lines of point three to see that this might be used to justify tax increases. And third – by being silent on the issue – this review was not going to look at the management and organisation of the NHS. That was going to remain Milburn and Blair’s jealously guarded territory – via the NHS Plan and what followed from that.

Who was to chair it? Discussions were held with two people. Adair Turner, the former director general of the Confederation of British Industry, and Derek Wanless, who had recently ceased to be the group chief executive of NatWest. Wanless was a member of the Statistics Commission, a body that Gordon Brown and the Treasury had just created and which had brought the two into contact. As Ed Balls puts it: ‘We wanted it to be somebody who would be a credible person talking about the money and the finances, and productivity and value for money. But also someone who was a believer in the National Health Service.’

At this time, well before the financial crash of 2008, New Labour in general, and Gordon Brown in particular, had a distinct fondness for using bankers and business people as outside chairs for the huge range of external reviews, or external advisory bodies, set up in Labour’s early years. Part of its ‘big tent’ approach to politics.

Thus, to take just two examples from the many, Martin Taylor, the chief executive of Barclays, had chaired a task force on work incentives looking at social security benefits, tax and national insurance and that had recommended the introduction of tax credits. Sir Colin Marshall, the chairman of British Airways, had a look at industrial energy use, a report that led to the climate change levy. Both policies that Gordon Brown wanted to adopt, but using, as with Wanless, an external imprimatur to help make the case for the change.

Adair Turner fell out of the running because he wanted not just to look at likely trends and demands over the next couple of decades, but to ask the question about whether a tax-funded NHS was the right model. It is all but certain, from his other writings and pronouncements, that Turner would have concluded in its favour, at least in the medium term. But he was not prepared to undertake the review without asking the question.

But as Balls says: ‘The reality is that this was a Labour government committed to a National Health Service in the public sector, based on need not ability to pay and free at the point of use. So we were not looking for someone who was going to come along and go back to first principles. This was not about the financing of UK health care, it was about the financing of the NHS into the future… we were not going to ask an unelected Adair Turner, former head of the CBI, to do a review into whether the basis of the Labour party manifesto of 1997 was correct.’ That conversation therefore ended, though amicably enough.

Instead the task went to Derek Wanless who was happy with the constraint on the terms of reference. Although, as we shall see, the question of alternative funding mechanisms did eventually surface in the interim report.

Style and methodology

Anita Charlesworth says: ‘Derek was no socialist. He was a banker. But he did believe in public services in general, and the NHS in particular. And that was important for people in the NHS. I think for everybody who met him through the process, many started with a fair degree of scepticism about a banker. But he did, I think, win everybody over. People had confidence in him. And that was really important.

‘Furthermore, he was a statistician by background and that was also important. He was very analytical. It was always clear that this was aimed at the 2002 Budget. So we did not have very much time to do this, and you needed someone who gets the hang of the numbers very quickly. So his background in statistics helped a lot. He was very numerate.

‘The doctors and the analysts liked him because he was a technocrat in many ways. He listened to evidence and he liked evidence. So he got a lot of cooperation and collaboration. And, of course, canny people recognised the massive opportunity that this offered. It was also important that he was from Newcastle.

‘Obviously, Alan Milburn was not entirely happy about this process. I had to sit in a meeting where Alan Milburn and Derek Wanless met each other, talked about the football club, and established that Derek was OK. It also established that Derek would deal with the funding and would not look at how the NHS was run. And that was very much Milburn’s stipulation. He was not having the Treasury telling him how to run the NHS.

‘What I’ve said may imply that Derek was up for being pushed around. He wasn’t at all. He was very clear at the beginning that it would be his answer to this question, and that it would be published regardless. He made that absolutely clear. And he was later to stretch his terms of reference by at least taking a look at social care.’

The Wanless review may have been born out of deep internal tensions within the Labour government. But once the terms of reference had been agreed and the team appointed, it was all pretty much sweetness and light.

The Treasury team was assembled and to it Steve Dunn was seconded, an economist by background and a member of the Department of Health’s recently formed strategy unit. Dunn had in turn been placed into the unit by Clive Smee, who wanted to know what it was up to. ‘I was, so to speak, Clive’s mole in the strategy unit – but they knew that,’ Steve Dunn says. During the Wanless review Dunn played a similar mole-like role, that was similarly recognised. He reported back into the strategy unit as he spent 4 days a week in the Treasury, and a day back in the department.

There was, however, no real tension. Anita Charlesworth says that Smee and his team were ‘absolutely critical’ with Robert Anderson and John Henderson, two senior economic analysts in Smee’s team, doing a lot of the work. It also helped that Charlesworth had previously worked for Smee and knew many in the team.

If you were to carry out the Wanless exercise today, Charlesworth says, ‘There is a lot of data that is now routinely published that you could use.’ But back then there was less information and even less of it was routinely published. ‘So the technical task of doing the review required a very great deal of cooperation and support from the system, particularly from the public health community, the stats community, the economists, etc. And most of those worked in the Department of Health, getting the data and getting it organised so that we could use it. Without serious cooperation, support and collaboration, we would have been sunk.’

The review originally intended to build up the profile of NHS costs disease by disease, but there were insufficient data to do that. What came to the rescue – and proved in many ways to be the technical backbone of the report – were the National Service Frameworks. These documents, originally commissioned in Frank Dobson’s time as health secretary, set out the standards of care for particular disease areas, pointing to the most effective treatments both clinically and in terms of value for money, while suggesting the best way to organise services. Detailed costings had gone into them, not least to help persuade the Treasury to provide funding. As Wanless was getting going, these covered only coronary heart disease, cancer, renal disease, diabetes and one being developed for mental health. Between them, the five covered only around 10% of NHS expenditure. But between them they also accounted for about 50% of all mortality and some 12% of morbidity.

‘A huge amount of work had been done to build and cost those,’ Charlesworth says, ‘and I think Clive, in the nicest possible way, added a huge amount to their cost for the purposes of the Wanless review. Some of the costings proved reasonably flexible … and we could not have done that depth of work in the time available.

‘Furthermore, a lot of people in the department had worked on those. They were also clinically led, so in developing them the department had built a network of clinical engagement and consensus involving all sorts of people, including the royal colleges, and we were able to build off that.’

The review also created an external advisory group that helped identify what data were more than likely available if you knew what to ask for. As Charlesworth puts it: ‘You can’t always ask for what you don’t know about. And sometimes these sorts of review can struggle because if people have not produced things in the way you need them, you may not know that can in fact be done. So we used the advisory group to be able to get at those sorts of things officially.’

The review held three workshops, one each hosted by the Nuffield Trust, The King’s Fund and the Association of British Pharmaceutical Industries, with similar events in Edinburgh, Cardiff and Belfast to ensure engagement across the UK. It visited the United States and Australia, the latter including discussions with delegates from New Zealand. And in October 2001 it held a wider 1-day conference, just before publication of the interim report in November, to which selected media were invited.

And across the whole exercise there was a cross-departmental steering group of civil servants, chaired by Nick Macpherson, whose membership included Nigel Crisp, the NHS chief executive and permanent secretary at the Department of Health, and Liam Donaldson, the chief medical officer. ‘This was not one of those reviews that was done in secret,’ Nick Macpherson says. ‘It was all pretty transparent, and the cross-Whitehall group allowed everybody to feel they knew what was going on, and they could report back to ministers if they had problems. But I don’t recall any.’

Box 2: Summary of the interim report, November 2001

The interim report opened with two core questions. ‘What are people likely to want [from the NHS] in 20 years’ time? And what resources likely are required to deliver the service?’ It underlined that this was ‘the first time in the history of the NHS that such a long-term assessment of resource needs has been attempted’ – while acknowledging that looking so far ahead ‘is fraught with difficulty’.

It set out funding over the 40 previous years, during which annual increases had see-sawed between +11% and -1% in real terms, noting that ‘this variability can only have added to the difficulty of managing the service effectively and efficiently’. The report then took what looked to be a carefully selected group of comparator countries against which to benchmark the NHS’s performance – France, Germany, the Netherlands and Sweden, along with Australia, Canada and New Zealand. These countries were chosen, the report says, for having similar aspirations to high quality and comprehensive care, while having incomes per head that were broadly similar. The comparison, across a range of measures, painted a generally unhappy picture. Survival rates for cancer lagged well behind European comparators, for example. More children died in the first year of life than in any of the comparator countries other than New Zealand. Health outcomes generally were poor. Waiting times for treatment were long.

But it then set out what was arguably the killer fact in either the interim or the final report. Namely, a widening gap had developed between UK health spending as a share of GDP and the average spent in the EU. Over the 16 years between 1972 and 1988, the cumulative underspend compared with the EU average was between £220bn and £267bn, depending on whether an income-weighted or unweighted average was used. ‘Not surprisingly, with such significantly lower spending, UK health service outcomes have lagged behind continental European performance.’ Very drily, it noted that ‘the surprise may be that the gap in many measured outcomes is not bigger, given the size of the cumulative spending gap’ (p 37).

The interim report did look at funding mechanisms, concluding, unsurprisingly given the terms of reference, that general taxation held up well against the alternatives. ‘There is no evidence that any alternative financing method to the UK’s would deliver a given quality of health care at a lower cost to the economy. Indeed other systems seem likely to prove more costly.’ (para 2.21).

It discussed the methodology for estimating the future demand for resources, saying that ideally they would be built bottom-up on a disease-by-disease basis. But that was only possible in the limited areas where the government had started to create the already mentioned National Service Frameworks for specific conditions. In the absence of better disease data, it took a life course approach, using a mix of demographic data and figures showing that average annual expenditure varied by age from around £2,000 per head for births and for those aged 85 and older, to a couple of hundred pounds a head on average for those aged 5–15 (p 15).

It acknowledged that patient expectations would rise, with future patients likely to be better educated, more affluent, less deferential and wanting more choice. They would also want better integrated care, much shorter waiting times, and improved accommodation – ‘not The Ritz, but not the YMCA’. And it set out a series of questions for consultation around all these issues, to help inform the final report.

The interim report also noted, accurately, ‘Trying to look ahead over such a long period of time is fraught with difficulties. The uncertainties are huge.’ By way of illustration, the report expressed concern about a shortage of cardiac surgeons, but, entirely understandably, failed to spot the rapid rise that was on its way in interventional radiology, which has meant that procedures, such as revascularisation, could be carried out by others. Equally, the section on delivering quality mental health care considers drug costs but failed to foresee the rise in the use of CBT and other talking therapies that was to come within the next 5 or so years.

The interim report

The interim report ploughed the ground and sowed the seeds for the final report to come. It laid out the core arguments about resourcing, including comparisons with other countries’ spending and set out the review’s methodology. But it did so without yet putting any numbers on the increases it was to recommend in the final report.

It contained one surprise, given the original debate with Adair Turner over its terms of reference. The report noted that it was set up to examine the resources required to run the health service in 20 years’ time – and that it was ‘not set up to examine the way in which those resources are financed’.

Nonetheless, its fourth chapter did examine alternative funding mechanisms, including social insurance, out-of-pocket payments and private insurance, and how those were used in the countries that it had chosen for comparison. Entirely unsurprisingly, it concluded that the UK’s model of general taxation held up well. ‘There is no evidence,’ it said, ‘that any alternative financing method to the UK’s would deliver a given quality of health care at a lower cost to the economy. Indeed other systems seem likely to prove more costly.’

Anita Charlesworth’s recollection is that it was Ed Balls who instigated the financing section. ‘We had not set ourselves up to look at alternative financing methods. It was not in the brief, and it was pretty much excluded by the terms of reference. Indeed, I had spent a lot of time explaining to those we talked to that it was outside the brief. And then suddenly it was in. So we had to do this very rapidly. And it shows, I think, in the interim report.’

Balls confirms that the decision to put in a section on funding models came from him. ‘The Conservative Party’s line at the time was to paint the NHS as a failed model,’ he says. ‘And I remember a discussion with the editorial people at The Times as the interim report was being done and them wanting to have a discussion about whether the Wanless report was ducking the big issue – which was whether a tax-funded NHS was the right model. So what became clear is that while our focus was on matching reforms with resource to deliver a 21st century National Health Service, there was a prior argument to be fought about whether the NHS was the right model.

‘It was never Wanless’s job to do that. It was our job, and the Conservatives were seeking to open up that dividing line. So I said to Anita that the interim report will be the platform on which we will have to go out and win arguments between now and the Budget. I know that the whole terms of reference are about a free-at-the-point-of-use, tax-funded health service. That is our starting point, and we are not asking Derek to examine that. But if there is nothing at all in the report about that issue, and why that is our starting point, it is going to look pretty weird. So would Derek be happy in having a short discussion in the report about why this is the starting point in the terms of reference? And that was what went in.’

With a bit of a blip: ‘I have not sought to bury anything’

The inclusion of a section on alternative funding mechanisms led to a bit of a blip when the interim report was published, alongside the pre-Budget report in November 2001.

Gordon Brown, in his speech, underlined the Wanless conclusion that, ‘There is no evidence that any alternative financing method to the UK’s would deliver a given quality of health care at a lower cost to the economy. Indeed other systems seem likely to prove more costly. Nor do alternative balances of funding appear to offer scope to increase equity.’ Michael Howard, the Conservative shadow chancellor, dismissed the report in general and that finding in particular.

Given that the terms of reference were ‘… to consider a health service that was exclusively publicly funded,’ Howard said, ‘it should not surprise anyone that Mr Wanless came up with the answer that the Chancellor wanted him to find; that a publicly funded service would be better. If you ask a Labour question, you get a Labour answer.’ He added that it was ‘now clear to everyone except Gordon Brown that without fundamental reform of health care, more money will not deliver the results which people in this country are entitled to expect’.

The ‘Labour answers to Labour questions’ jibe appeared to sting. And at a press conference called 2 days later to promote the report more generally, Wanless, when challenged on the alternative funding issues, stood by his conclusion that the NHS was underfunded. And that if equity was important to the British people then a tax-funded system was the most fair and efficient way of doing it. But, he said, it was ‘not his job’ to bury alternative funding models. He promised to talk to the Association of British Insurers further about their role, adding: ‘I have not sought to bury anything for good. It would be quite presumptuous and premature to do that.’

Anita Charlesworth’s explanation is that the funding section went in late. ‘So we did not go through a big process where we exposed him to lots of views, and gave him time, and built a roundtable – with time to think about it [the issue of alternative funding mechanisms]. So it came in quite late, and I think he was still cogitating, rather unhelpfully, when the interim report came out.’ The Conservatives sought to make capital, but Wanless’s ‘it’s not my job to bury anything’ proved to be only a 1 or 2 day wonder.

That did not mean that the media reaction to the interim report was a universal welcome. Anything but. It was not just the right-wing press, for example the Daily Telegraph, which accused both Wanless and the Chancellor of closing down the argument that the NHS should continue ‘as a publicly funded monolith’. The Independent said that ‘… those with more open minds will want to consider in more depth the evidence against alternative funding methods’. Anthony Browne, The Observer’s health editor, declared: ‘Whether it is paid for by tax or by other forms such as social insurance is the subject of a national debate that Gordon Brown said we must have. We do need this debate, yet Brown also declared the answer: more tax is the only way to pay for the NHS.’

If that showed that the essential argument for the NHS model had still to be won – let alone the argument that tax rises would be needed to pay for it – work nonetheless resumed on the final report. Wanless was later to be attacked for paying insufficient attention to other countries. But between the interim and final reports the review visited France, Germany and Sweden, held discussions with the Netherlands and examined a report it had commissioned from the European Observatory on health care systems that looked at the trends and challenges in eight countries. Although, to be fair, the focus was much more on the approaches these countries were taking to long-term resource planning, rather than on alternative funding mechanisms. There was considerable time pressure. The final report was due just 4 months after the interim, to be published alongside the March Budget of 2002.

The final report

Anita Charlesworth says that both before and after the interim report, the review did a lot of heavy lifting around workforce. ‘One thing we were very worried about, alongside the money, was whether you could get the staff. Particularly if you were going to load it so upfront.

‘So we developed a workforce model that hadn’t been done before. It was a spreadsheet. It had all the right parameters, though it might not have had the right numbers! We did spend a lot of time trying to work out whether you could save staff time through things like technology, and whether giving staff more time for audit and reflection and learning would raise quality. That was quite thoughtful work. Was there a potential productivity gain? But as with much of the rest of the Wanless report, it turned out that there was nowhere where it could really dock into the system.’

The final report also contained the three scenarios of fully engaged, steady progress and slow uptake (see Box 3). These, Charlesworth says, stemmed in part from the worries of the ‘classic’ Treasury which was becoming somewhat alarmed at the huge sums that the final report was going to recommend. ‘There were Treasury officials getting very scared at growth rates of 7% a year over 20 years. The more established Treasury was not comfortable with this.’

Box 3: Summary of the final report, April 2002

The final report – Securing our future health: Taking a long-term view – took into account demography, the commitments already made in the NHS Plan of 2000, an estimate of changing patient expectations and likely changing health needs, advances in medical technology (while accepting those became less certain the further out they were projected), prices (including the cost and likely availability of skilled staff, using a workforce model) and potential levels of productivity.

It then painted three scenarios – ‘solid progress’, ‘slow uptake’, and ‘fully engaged’:

  • ‘Solid progress’ assumed increased life expectancy, with 5% fewer acute health problems among older people. The result would be a mix of additional healthy and unhealthy years of life, split roughly half and half. It assumed improved curative care, with a better skill mix in the workforce, and more efficient use of IT. Younger people would be more health aware, and existing targets for public health would be met – including reduced smoking, reduced obesity, better diets and lower rates of teenage pregnancy. The gap in life expectancy between the poorest areas and the average would fall by 10%. Broadly speaking, ‘The service is fully integrated, efficient, and has closed the major gaps with other countries.’
  • Under ‘slow uptake’ life expectancy still rises but more of people’s extra years are spent in ill health. The uptake of new technologies is relatively slow. Potential productivity improvements are not fully realised. The quality of care is good, but does not offer a whole system, fully integrated approach. Public health targets are not met, with levels of smoking, obesity and physical exercise essentially unchanged. This is the most pessimistic scenario.
  • Under ‘fully engaged’ people live both longer and healthier, with the proportion of a life spent in ill health declining. Public health improves dramatically and patients are fully engaged with a fully integrated health and care system. The reductions in risk factors from smoking, obesity and lack of exercise are largest where they are currently highest – in the most deprived areas. In the long run, this is the least expensive scenario.

In terms of resources, Wanless judged that there was little difference between the scenarios in the first 5 years because these would be a period of catch up. It projected annual increases of between 7.1 and 7.3% in real terms. After that, the scenarios diverged. Under solid progress, health spending would rise from £68bn in 2002 to £161bn in 2022. The fully engaged scenario, which would deliver the best health outcomes, would involve an increase to £154bn. Slow uptake, which would produce the worst outcomes, would also be the most expensive, taking total spending to £184bn. In terms of share of GDP, the outcomes in 2022 ranged from 10.6% for the fully engaged scenario to 12.5% for slow uptake.

The report contained a prescient warning. ‘I believe our projections for real terms spending growth of 7.1 to 7.3% a year over the next 5 years are at the upper end of what should sensibly be spent. Indeed, to be wisely spent, they already represent a very considerable management challenge.’

The report made clear that as work had progressed it had become ever more obvious that health and social care needed to be considered together. The data available to provide similar projections for social care spending were missing, Wanless said. Nevertheless: ‘I have considered it necessary to go beyond my remit to begin to consider social care.’ Using simple projections from current spending, the report estimated that social care spending needed to rise by between 2.0 and 3.4% a year in real terms, taking spending from £6.4bn in 2002 to between £10bn and £11bn by 2022. But that made no allowance for improving the quality of social care, so those figures were ‘underestimates of the resources required’.

Any future review ‘… should fully integrate modelling and analysis of health and social care. Indeed it is for consideration whether a more immediate study of the trends affecting social care is needed’. That did not happen.

Given the worry in some parts of the Treasury over the scale of increases that the review looked set to recommend, ‘One of the things that the scenarios were about was: is there a spend to save option?’ Charlesworth points out. ‘Gordon Brown had already created a bunch of ‘invest to save’ programmes, and Derek, being a banker, instinctively wanted a return on his investment. Plus, the fully engaged scenario included a large dose of people taking responsibility for their own health, which appealed very strongly to both Gordon and Derek.

‘Essentially, the scenarios were about saying that rather than pouring money into exactly the same system, is there a way – a fully engaged scenario, with fully integrated services but people changing the way they live and taking more responsibility – that gets you down to increases in spending over the long term that are a couple of points of GDP lower than the slow uptake scenario. In other words, is there a win-win here which looks much less scary in terms of fiscal sustainability? One that delivers really strong outcomes and a good deal for the taxpayer at a lower long-term cost. That’s what the scenarios were trying to do.’

With a twist

The twist for the final report came in the form of Derek Wanless going beyond his terms of reference to say something about social care. In the end that proved not to be a major problem – at least in terms of its inclusion in the final report.

Anita Charlesworth says: ‘Derek’s eternal regret, I think, was that he did not realise at the beginning the importance of social care and just how linked it is to health.’

There were, however, two additional problems. First, assembling the data to make sensible projections on health spending was a challenge, but the data on social care were much worse. As the final report put it: ‘The review had neither the information nor the resources to be able to develop a ‘whole systems’ model’ that would have included social care.

The second issue was political, and in some ways the more profound problem for the report. Wanless was announced in March 2000, just a year after the Royal Commission on Long Term Care had reported. Labour had created it. But the commission split into a minority and majority report. One of its members neatly characterised the divide as: ‘The majority recommended what they thought a Labour government should do, the minority recommended what they thought a Labour government would do.’

The majority recommended free personal care – help with bathing, dressing, toileting and cooking for those who needed it. The relatively newly devolved government in Scotland accepted that. The Westminster government rejected it. England and Wales did put in some extra money, via the NHS, to support those in care homes who had the most extreme nursing needs. But it did not do much else. Those recent decisions made the issue intrinsically difficult to revisit.

‘The shadow cast by the Royal Commission cannot be underestimated,’ Charlesworth says. ‘It was a burning coal. And the fact that Scotland had accepted it and England rejected it was an additional layer of complexity. There was plenty of knowledge about what the options were, but with free personal care having been rejected it was quite hard to know what they were. For social care, Wanless happened at the wrong time.’

Nonetheless, Wanless felt he wanted to say something about it. In the final report he specifically noted that he had gone beyond his terms of reference and that social care should be included in any future review, for which much better data needed to be assembled.

Ed Balls says, ‘There were sensitivities about it, because of the proximity to the Royal Commission and what Scotland had done. But Anita was one of the best, most savvy civil servants and she was on our wavelength and very close to Derek. She would have come to us and said, “Derek wants to say this about social care.” And we would have said, “That’s fine … So long as this does not open up [a can of worms] …”’

As indeed Wanless’s recommendations did not. They dealt with the quantum – that spending on social care would need to rise and that much better forecasting of that was needed. But it did not get into who should pay for the higher expenditure – the future division, for example, between individuals, families or taxpayers.

‘We weren’t at the time,’ Ed Balls says, ‘seeking to solve the social care funding issue. This was about the National Health Service. 5 years later it would have been different. One could not have done a Wanless report without social care being in at the beginning.’

Or, as Nick Macpherson puts it: ‘There had been the Royal Commission. Everyone knew it was a problem. Everyone knew it needed to be addressed. But not this year thank you very much, and so it has continued to this very day …’


Finishing the report on time was a challenge. Indeed, the March 2002 Budget was pushed back to 17 April partly to allow for that, and partly because Gordon Brown and his wife Sarah had early that year lost their 10-day-old daughter Jennifer. But in the Budget, with publication of the final report taking place alongside it, Gordon Brown set the envelope for the July Spending Review. This would later spell out the precise allocations for most departments for the next 3 years.

Towards the end of an hour-long speech, however, as its final flourish, Brown laid out the NHS settlement – the fruit of the review. The NHS was to get an unprecedented 5-year deal, with sustained real terms rises of 7.4% a year – well over twice the long run average of just over 3%.

Social care was not forgotten. It was to receive 6% a year in real terms for 3 years. And with all that came the National Insurance increases to pay for it. A 1% increase in National Insurance contributions for employers, for employees and for the self-employed.

‘The fundamental long-term choice that our generation must make,’ the Chancellor said, ‘is whether the national consensus that existed for the last half century for an NHS freely accessible to all is to be renewed for the years ahead.’ The NHS 10-year plan of 2000 was already bearing fruit he argued, and the health secretary, Alan Milburn, would announce further reforms the following day. Because of these modernisation programmes, he said, resources could now follow reform. In terms of that fundamental question – whether the national consensus on the NHS would be renewed – ‘We have made our choice. This is a Budget to make our NHS the best insurance policy in the world.’

The Conservative reaction

Charles Kennedy for the Liberal Democrats welcomed the announcement. Ian Duncan Smith, by now the Conservative leader, did not. He dismissed the report because the Chancellor ‘had already told him [Wanless] what to say’. Waiting lists were rising, accident and emergency waits had grown longer, and hospital beds were blocked because care home beds had been lost, he said. The odds of surviving cancer in Britain were among the worst in Europe. The Chancellor, he argued, had refused to learn from other countries’ health systems. The announcement was merely one of ‘more talk’ and ‘more taxes’ and a prelude to ‘more failure’.

Duncan Smith was to be proved wrong about ‘more failure’. His comments on the state of the NHS had more substance. As already noted, Labour had put some additional money into the NHS in its first term. But the service has tanker-like properties. Performance takes a long time to turn, both when money is injected and when it is reduced. By the time the Wanless review was published, the service was in fact improving. But the published numbers were behind the reality, and it was taking a long time to turn. An analysis just ahead of publication of the Wanless report showed that the Department of Health was missing, or on course to miss, a third of the 35 targets the Treasury had set for it.

One more step back in time

In the summer of 2001, not long after that June’s general election, with the Wanless review under way but with NHS performance on waiting times if anything appearing to be getting worse, both Alan Milburn and Tony Blair became alarmed at the lack of progress. Each held separate weekend ‘away days’ with their staff to consider what to do. Blair commissioned Adair Turner to take a look at the part of the NHS outside Wanless’s remit – the management of the service. Milburn’s still relatively new strategy unit, along with his new adviser Paul Corrigan (Simon Stevens having moved to Number 10), got to work, with large-scale input from Stevens. The result was a programme of reform that ran in parallel to the Wanless review, but was put together entirely separately.

The outcome was the introduction of an array of more market-like mechanisms to the NHS. In effect the reinvention of the so-called ‘internal market’ in a much more sophisticated form – although health ministers would look with dagger eyes at any reporter who dared to suggest that. In its first term Labour had already created NICE to recommend which treatments the NHS should and should not adopt. It had also created the first full-blown NHS inspectorate, which it was shortly to revamp into the Commission for Healthcare Audit and Inspection (now the Care Quality Commission). But in a series of remarkable speeches from October 2001 onwards, Milburn began to trail what was shortly to be announced in detail the day after the Wanless report was published.

Delivering the NHS Plan, included the tariff – a price list of NHS treatments – that would finally and genuinely allow money to follow the patient. This restored patient choice over where they were treated, something that had largely gone missing as an unintended side effect of original internal market reforms, in which patients largely had to be treated in hospitals with whom their health authority or GP fundholder had a contract. With few exceptions, patients had had to follow the contracts, rather than money following the patient.

This time round, money would genuinely follow the patient. The tariff would ensure that hospitals that did more would get paid more, thus creating more competition than in the original version. Hospitals would be able to become ‘foundation trusts’ – rather more free-standing enterprises than NHS trusts had become. They would have some additional freedoms, and this time a stronger statutory underpinning to their nominal independence. Overseas suppliers would be brought in to compete to provide Independent Sector Treatment Centres – in effect surgical factories providing waiting list-type operations exclusively for NHS patients. In time, patients would be able to go to any private hospital willing to treat them at the NHS price. In other words, a ‘competition and choice’ model of NHS reform. It is, however, important to note, given Andrew Lansley’s Health and Social Care Act 2012 sought to take these more market-like mechanisms to extremes, ‘competition and choice’ sat alongside a set of other management tools. These included the myriad waiting time targets, their weekly pursuit through the Prime Minister’s Delivery Unit, clinical audit, and some at times decidedly vigorous performance management.

In the weeks running up to publication of the Wanless review, Number 10, the health department and the Treasury were essentially aligned on these reforms. Paul Corrigan, at the time Milburn’s heath adviser and later Blair’s, remembers taking these into Ed Balls at the Treasury, presenting them as ‘things we [the health department] believe will construct a higher return for the money you are putting in’. Things such as competition, choice and diversity of supply were, Corrigan says, ‘very Treasury sorts of things’ – and there was no push back. Indeed, he says, ‘these were slightly odd meetings’ given the Treasury’s tendency to seek to impose its own conditions over the receipt of money. ‘In the end we were to be held to account for the things we wanted to be held to account for. I can’t think of anything they imposed on us. They were all things that we imposed on ourselves.’

Later in the year there was to be a bitter and decidedly bruising battle over foundation trusts. Delivering the NHS plan declared, with no more detail, ‘we will explore options’ to allow foundation trusts ‘to access finance for capital investment under a prudential borrowing regime’. What this turned out to mean in more detail was an ability for them to borrow privately. And what complicated this was that there had never been any limit on how much private work NHS hospitals could do. Most did relatively little. But private patients made up some 20% of turnover in a few, chiefly in London. And for one or two specialist centres, such as the Royal Marsden cancer hospital, the figure was higher.

This raised two key concerns. First, if there was no cap on private patient numbers then foundation trusts that borrowed privately might well be tempted to up their percentage of private patients to service the debt. This would leave hospital patients in the same position as dental ones, where dentists, as independent contractors, mix public and private work. The public too often complained that the pricing for private treatment was opaque, and suspected that dentists pushed them towards private treatment by telling them that NHS treatment was inferior. Brown and Balls did not want that to happen to hospital patients. And there was a second, even more fundamental problem. Namely, if a hospital over-borrowed and went bust, its services could not, in political reality, be shut down. It would have to be rescued. And the Treasury would have to do the rescuing. Brown therefore insisted that their capital borrowing would have to take place within the overall NHS capital allocation. An additional layer to the dispute was, yet again, internal Labour party politics. Brown was convinced he had a deal to take over as Prime Minister, but inevitably feared a challenge: possibly, even, from Milburn. The Chancellor wanted the vote of the unions on his side in any such contest, and the health service unions were opposed not just to these issues around foundation trusts but to the whole ‘competition and choice’ agenda – including the greater use of the private sector that had been promised in Delivering the NHS plan. Resisting the idea that foundation trusts should be able to borrow privately would do the Chancellor no harm should a leadership contest occur.

The resulting row exploded into the open at the Labour Party conference in the October after the final Wanless report. It was finally settled by Brown winning the argument over private borrowing – correctly, in this author’s view, as the Treasury would have had to pick up reckless borrowing by a foundation trust. Separately, but with that, came a complex rule applied to foundation trusts so that they could not earn more in private income than the percentage they had been earning in 2006. In his memoir Blair describes the whole row as ‘endless, rancorous and destabilising’., Brown, in his account of events, makes clear that he was not prepared to tolerate a position where the government was ‘accepting all the liability, while ceding almost all control’. At the time the Wanless report was published though, such tensions, and indeed other tensions with the Treasury over the ‘choice and competition’ agenda, had yet to materialise.

The welcome for Wanless

In many quarters, the Wanless package went down well, though not with the Conservative leadership. Liam Fox, the Conservative health spokesperson, continued to argue that alternative funding mechanisms should be looked at more closely. Indeed, a week before the final report, a tape of Fox’s address to a fringe meeting at the Conservative spring conference emerged, in which he said: ‘We’ve got a problem in this country where the NHS and health care have been synonymous. We’re here to break that. That means we get money, raise money from people through tax, certainly by health insurance and even more so, it means, from self-pay. The big growth market in the UK is people paying from their own savings.’ He had added that the Conservative’s task was to convince the public that the NHS ‘won't work and cannot work’.

By contrast, Dr Ian Bogle, chair of the BMA, described the report as ‘a hugely important step forward’ and a ‘watershed for the medical profession’. The Health Service Journal called it ‘riches beyond compare’. From the private sector, Mike Hall, chief executive of Standard Life Healthcare, said the report was ‘a major step forward in revitalising the NHS’. The Daily Telegraph, in an ingenious piece of logic, called the national insurance increase ‘a scandalous breach of the spirit of Labour’s election promise not to raise income tax’. But at the same time, it published an opinion poll showing that 77% of those questioned supported the increases in NHS funding, with only 11% against. 63% felt that the increase in ‘direct taxation’ was justified, while 30% did not. A MORI poll for the Financial Times showed 65% judged the Budget to be ‘good for the country as a whole’, with just 20% taking the opposite view – making it the best received Budget in MORI’s long-running series since the 1970s.

In the immediate aftermath, and in the years running up to the 2005 general election, Ed Balls remembers citing these and other polls. ‘All the opinion polls – and we kept saying this to the Sun and the Mail, “You attack us if you want, but your readers think this is absolutely the right thing to do.”’

There was – and remains – a bit of a mystery as to why the increase was the remarkably precise 7.4% real a year over 5 years. Given that this was the first tranche of what was meant to be a 20-year programme, a rounder figure – say 7.0 or 7.5% – might have seemed more likely. There is no practical difference between the upper end of Wanless’s estimate of 7.1 to 7.3% for the first 5 years – the difference being merely the accounting base from which it was measured. So why 7.4%?

Ed Balls says with a smile, ‘We never minded a bit of spurious accuracy.’ No one interviewed for this study was able to recall quite why that figure. But Balls adds that in the run-up to the 2002 Budget, ‘The tax receipt numbers deteriorated. It was a bad January. And we had to work out how the health settlement was going to fit into the wider 2002 Spending Review. So it was quite dynamic in that period. And the 5-year number had to be consistent with the 3-year settlements for other departments – which is why we went for 3 years for social care not 5. It was not as though we had decided 9 months before that: this is the critical number for health and that is what we are going to announce.’

¶¶¶ Gordon Brown says in his memoir, ibid, that ‘I discovered that we had similar experiences growing up’ of their parents telling them the NHS had been ‘the deliverance from evil’ (p 164).

**** This may sound trite but virtually everyone interviewed for this study remarked, unprompted, what a genuinely nice man Derek Wanless was.

†††† The advisory group and the huge list of those consulted externally are listed in the interim and final reports.

‡‡‡‡ The member was Robin Wendt. See Timmins N. The five giants: A biography of the welfare state. William Collins; 2017 (pp 604–605).

§§§§ Known as NHS Continuing Health Care.

¶¶¶¶ Interview, April 2020. Somewhat extraordinarily, Gordon Brown in his memoir says these were reforms ‘that I had not been informed about – most of which I welcomed but some of which led us into huge difficulties’. My life, our times, ibid, (p 168).

***** A cap that the Health and Social Care Act 2012 raised to 49% for all types of NHS hospital.

††††† For a more detailed account of this dispute and its consequences see See Timmins N. The five giants: A biography of the welfare state. William Collins; 2017 (pp 623–625) and its references.

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