Global Neoliberalism and the consequences for healthcare policy in the English NHS
Clive Peedell (IAHPE 2009)
“Services are coming to dominate the economic activities of countries at virtually every stage
of development, making services trade liberalisation a necessity for the integration of the
International Chamber of Commerce1
“The commodification of public space has now become an aggressive Blairite objective”
Roy Hattersley, Labour MP (quoted in the Guardian, 7th November 2005)
“All public services have to be based on a diversity of independent providers who compete
for business in a market governed by Consumer choice. All across Whitehall, any policy
option now has to be dressed up as “choice”, “diversity”, and “contestablity”. These are the
hallmarks of the “new model public service”
John Denham MP, former Health Minister quoted in 2006
According to former Health Secretary, Frank Dobson, the creation of the NHS was:
“Labour’s greatest achievement. It is a working example of the best interests of the people in
this country. It is the most popular institution in Britain”2.
Neglect of the NHS was a principal cause of the Conservative government’s downfall
and a major issue that helped New Labour mobilise mass political support for a landslide
election victory in 1997. Labour’s election manifesto in 1997 warned that only Labour could
“save the NHS” and a decade of New Labour in government has resulted in the largest ever
sustained increase in healthcare spending in the history of the NHS. The King’s Fund has
since reported that significant improvements have been made in quality of care, with “huge
progress” in the reduction of waiting times and “more and better services”3.
However, the reform of the NHS has been described as “Labour’s greatest domestic
political challenge over two terms in power” 4, with NHS reforms proving to be highly
unpopular both within and outside the mainstream Labour party. In 2001, David Hinchcliffe,
the Labour Chair of the Health Select Committee warned that if pushed to their logical limits,
the reforms could amount to “a complete betrayal of everything that the Labour Party stood
for” and “would cause outrage within the mainstream Labour party circles”5. At the 2005
Labour Party Conference a resolution was passed that attacked the Government’s move
“towards fragmenting the NHS and embedding a marketised system of providing public
services with a substantial and growing role for the private sector”6 and in April 2005 more
than two thirds of signatories to a 1997 statement in The Times backing Labour’s policies on
health announced that they would not do so again.7
The Government continues to deny systematic piecemeal privatisation of the NHS
and are always quick to point out that healthcare remains “free at the point of delivery”.
However, despite the rhetoric, it is clear that a market-based approach has become central to
healthcare delivery and the role of the private sector is expanding. Labour MP, Michael
Meacher summed this up well recently8:
“Equity, equal rights according to need, public accountability, a professional standard of care
and integrity are being replaced by targets, cost cutting, PFI top slicing of public expenditure
– a service fragmentation by private interests. This is the case for health and education
housing, pensions, probation, rail, the Post Office and local government”
Why have New Labour taken this controversial and unpopular route to the delivery of
public services? Writing in the New Statesman, two Labour MPs, John Cruddas and Jon
Tricket recently provided a succinct explanation9:
“After years in opposition and with the political and economic dominance of neoliberalism,
New Labour essentially raised the white flag and inverted the principle of social democracy.
Society was no longer to be master of the market, but its servant. Labour was to offer a more
humane version of Thatcherism, in that the state would be actively used to help people
survive as individuals in the global economy – but economic interests would always call all
Stuart Hall, Emeritus Professor of Sociology at the Open University, argued that
whilst the Labour Government has retained its social democratic commitment to maintaining
public services and alleviating poverty, its “dominant logic” was neo-liberal: to spread “the
gospel of market fundamentalism”, promote business interests and values and further
residualise the welfare system10.
New Labour and Global Neoliberalism – the “new reality”, and the “logic of
The early 1980s saw the rise of neoliberal globalisation through the world wide
abolition of capital controls, removal of trade barriers, and computerisation. This facilitated
the freedom of movement of capital and goods and services across national borders. Heavy
influence promoting this approach has come from the World Trade Organisation (WTO),
World Bank, the Organisation for Economic Co-operation and Development (OECD), the
European Union, and the World Economic Forum. However, it is now generally
acknowledged that this reality has significantly eroded the capacity of the nation-state to
command its own destiny because governments must retain the confidence of international
asset holders by whatever policy modification is deemed necessary 11-12, otherwise they face
the risk of massive capital flight with potentially very serious economic consequences13.
After 4 successive election defeats (1979, 1983, 1987 and 1992), Labour’s social
democratic model of Keynesian demand management economics, progressive taxation,
extending welfare spending and redistribution was no longer seen as a practicable solution14.
This was described as the “New Reality” by New Labour “modernisers” like Peter
Mandelson and led to the jettisoning of traditional “Old Labour” social democratic policies in
favour of a variant of neoliberal Thatcherism15. This approach would accommodate the
global financial markets by promoting economic growth through the introduction of business
friendly supply-side policies aimed at freeing up markets and expanding choice, ensuring
economic stability for the private sector’s planning environment, strict financial management
and control of public expenditure, the defeat of inflation, privatising state-owned enterprises
and premises, privatising the provision of a vast array of public services, and remodelling the
state’s internal operations along business lines (New Public Management)16. This was
inherently unpopular with the centre left and left, and has therefore been described as the
“logic of accommodation”17.
Thus the Labour party understood that achieving the trust of investors and market
credibility was crucial to their election hopes. In opposition in the early 1990s, the Labour
party went on the “Prawn Cocktail offensive” to convince the City that Labour were “the
party of business”. Labour’s Political risk premium* went from 2% in 1992 to 0.5% in 1997,
thanks mainly to the promotion of policies such as the Private Finance Initiative (PFI)15.
The abolition of the Labour party’s constitutional Clause IV further appeased the City, by
denouncing nationalisation and emasculating the power of the Unions and the policy making
ability of annual Labour party conference. For many commentators, this symbolised the end
of Old Labour and the start of New Labour. Thus, the 1997 Labour Election manifesto stated:
“In economic management, we accept the global economy as a reality and reject the
isolationism and ‘go-it-alone’ policies of the past”
Whilst in power Labour further achieved the trust of investors and market credibility
by reducing the capacity of government to steer economic policy by a strategy of
“depoliticisation”. This took 2 main forms: Firstly, the control of interest rates was
transferred to the Bank of England’s Monetary Policy Committee and secondly, a binding
framework of rules to govern fiscal policy designed to tie all government departments to
rigorous expenditure limits was adopted. In his Mansion House Speech in 1997, Gordon
Brown said that for a government to succeed it has no option but to, “convince the markets
that they have the policies in place for long term stability.”
Professor Anthony King described the Blair government as the “first ever Labour
government to be openly, even ostentatiously pro-business”18. Thus, the New Labour
leadership had been “converted” from tolerating private enterprise to actively promoting it; a
significant political U-turn.
(*Political risk premium. This is the additional interest that investors take into account for
political parties in power and is a measure of how business friendly they are.)
New Labour’s change in direction for Healthcare policy and the English NHS.
Labour’s 1997 election manifesto was opposed to privatisation of clinical services
within the NHS. However, we now have a policy agenda promoting a market driven approach
to healthcare delivery with active encouragement of the private sector to deliver clinical
services in competition with NHS organisations, through the mechanisms of patient choice,
plurality of provision, and payment by results. Thus, current Government policy appears to be
sympathetic to the World Trade Organisation’s (WTO) General Agreement on Trade in
Services (GATS), which aim to opens up service provision like health and education, (which
account for approximately 15% of GDP in most European countries) to direct multinational
competition and ownership19. This is despite a statement in 2002 from the UK Government
that it would not take on WTO commitments that would compromise public service delivery
via the NHS. This represents a major U-turn in healthcare policy and it is therefore important
to understand from a historical perspective how and why this happened.
Prudence and PFI
In Labour’s first term in office, the 1997 White paper “The new NHS: Modern,
dependable”20 actually pushed the “divisive” internal market aside a little by recasting
relationships between contractors onto a longer term basis, and by consolidating local
purchasing into primary care groups, abolishing GP fundholding in the process21. In addition ,
Labour opposed patient choice. Alan Milburn stated in June 2000 that “we are not prepared to
trade off being free and fair, for efficiency and responsiveness to the demands of patients”22.
Health policy at this stage was about continuity and incremental changes, not radical reform.
This was essentially a Fabian approach and the role of the private sector was extremely
limited, with the word “private” hardly mentioned in policy documents4. The only real
evidence supporting a neoliberal approach to healthcare delivery at this time, was the Private
Finance Initiative (PFI), which has been a key long term attribute of the government’s broad
The PFI was the brainchild of Tory MP, David Willetts and was introduced by the
Major government in 1993, although very few schemes actually went ahead. It was initially
bitterly opposed by frontbench and backbench Labour MPs, but most were eventually
“converted” to the ideology of PFI to the extent that the 1997 Labour Party manifesto
promised to “overcome the problems that have plagued the PFI”. This U-turn came about
because the PFI enabled public capital spending projects to be undertaken without adding to
the Public Sector Borrowing Requirement (PSBR), thus keeping public borrowing “off
balance sheet”. This allowed continued public service investment whilst still conforming to
the Treasury’s strict fiscal rules, a key part of the Government’s “prudent” economic strategy.
It also helped New Labour to win the confidence of the financial and business institutions.
The NHS Private Finance Act of July 1997 removed the last doubts that the private sector had
about the PFI and paved the way to billions of pounds worth of contracts.
Gordon Brown’s acceptance of PFI was a deliberate attempt to distance the Labour
party from the past24, upholding its new found reputation for “sound finance”, whilst at the
same time building an unprecedented “vote winning” number of new hospitals and schools.
He wooed financiers in 2000 when he was quoted as saying that they would be investing in
“core services which the government is statutorily bound to provide and for which demand is
virtually insatiable. Your revenue stream is ultimately backed by government. Where else can
you get a business opportunity like that?”25.
However, the PFI has been highly controversial and the criticisms are well
documented elsewhere, mainly through the work of Professor Allyson Pollock and
colleagues. Further problems are likely with the introduction of international financial
reporting standards (IFRS) to the public sector, which could put billions of pounds worthy of
PFI deals back on the balance sheets. According to the Audit Commission, in the case of the
NHS, “reclassification of PFI assets will potentially have significant financial implications
for individual organisations”. If current rules are not amended, NHS trusts would have to pay
not only the annual service charge for their PFI buildings, but also an annual capital charge
on top26. Unsurprisingly, the Treasury have managed to delay introduction of the IFRS until
An important effect of PFI has been the significant recruitment of private sector
business advisors/consultants into the big tent of government e.g Partnerships UK and the
NHS Commercial Directorate. People who were not neutral referees but interested players
were located centrally within the decision making process. By 2007, the Commercial
Directorate had a staff of 190, of whom just eight were civil servants, the other 182 being
recruited from the private sector 27.
The road to privatisation, marketisation and consumerism.
In keeping with strict fiscal policy, the first 2 yrs also saw Labour keeping to Tory
spending plans. Unfortunately, the continued chronic underinvestment resulted in the Winter
crisis of 2000 and prompted Tony Blair to appear on the BBC’s “Breakfast with Frost” show
and famously promise that UK health spending would match the EU average within 5 years.
The highly ambitious 10 year NHS Plan28 was announced soon after and Gordon Brown
commissioned Derek Wanless to report on the financial state of the NHS. The report
concluded that between 1972 and 1998, the cumulative underspend on the NHS compared to
EU average spending was £267billion 29. A massive injection of money was delivered to the
NHS increasing GDP spend from 5.6% to 9.4%, but strings were attached in the form of a
performance driven managerialist assessment framework, which included a “target culture”
and a new ratings system for NHS Trusts30.
The subtitle of the NHS plan, “A Plan for Investment, a Plan for Reform”, is
important because it suggested that the government wanted something in return for its money
(“Investment”) i.e significant changes to the way the NHS operated (“Reform”). A pivotal
moment came when Alan Milburn signed the NHS Concordat with the Independent
Healthcare Association in November 2000 that stipulated that the private sector should be
considered alongside NHS bodies as potential providers of clinical services. At the time
Milburn, explained to the Guardian (30th May 2001) that private sector would only be used to
increase the capacity of the NHS and this was “not about introducing a mixed economy into
healthcare”. However, by 2002, the plans for a market driven approach to healthcare delivery
had become clear. In the document Delivering the NHS Plan: Next steps on investment and
reform, it was stated that increased patient choice was to be accompanied by a market for
healthcare. Moreover, Alan Milburn told the Health Select Committee that as long as care
and treatment were freely provided by the NHS, whether it took place in a private sector
hospital or a NHS hospital was frankly a secondary consideration.
Since then, the private sector has played an ever increasing role as the government
took to the mantra of “what matters is what works”. There would be “no ideological barriers”
to NHS modernisation and this was born out with publication of the NHS Improvement Plan
in 2004, which prompted former Director of Strategy for the DH, Professor Chris Ham to
state in an interview with the Financial Times:
“The foundations have been laid for the complete transformation of health care delivery. We
are shifting away from an integrated system, in which the National Health Service provided
virtually all care, to a much more mixed one, in which the private sector will play an
increasingly major part. The government has started down a road which will see the NHS
increasingly become a health insurer”31
Choice, competition and diversity are now creating a patient led consumerist
healthcare market in the English NHS, resulting in the most radical departure from previous
Labour policy32. Two recent Labour Secretaries of State for Health provide further evidence
for the increasing privatisation and marketisation agenda. Patricia Hewitt said that “no
arbitrary targets should be set for limits on one provider or another”33. Following placement
of an advert in the European Journal by the DH Commercial Directorate inviting expressions
of interest in managing the purchase of clinical services from health care providers in the UK,
Frank Dobson said:
“If this is not privatisation of the Health Service, then I don’t know what is”34
The decision to open up the NHS to the healthcare market has lead to a recent rash of
policy initiatives, which has attracted much criticism from across the political spectrum and
within the healthcare sector. Politicians are at the bottom of the MORI veracity index and it is
therefore of no surprise that the government has started using influential members of the
medical profession (who rate at the top of the MORI veracity index) to promote their policy
The drivers of the healthcare market
The “choice” agenda is about turning patients into consumers. Choice, accompanied
by Payment by Results (PbR), is the main driver for market-driven healthcare and
privatisation, and is seen as a mechanism to increase institutional efficiency, overcome
producer/provider interests and empower the public. PbR (or more accurately payment by
activity) has been described as the reform “which makes everything else possible”35.
To make Choice work, the NHS needs to provide reliable and relevant information to
patients to help them make informed market choices between hospitals and clinicians etc.
This information is made available through the obsessive data collection of the performance
management framework of audits, inspections, monitoring and evaluation. Crucial to this
whole process is the National Programme for IT (NPfIT) with its Choose and Book system
and the Extended Choice Network (ECN), which allows patients to choose which hospital
they want to be referred to. The Extended Choice Network is essentially a national choice
menu (for England) containing all Foundation Trusts and accredited Independent Sector
providers. Unfortunately, NPfIT has been plagued with problems and The Public Accounts
Committee (PAC) of the House of Commons issued a damning report, which concluded that
despite a probable expenditure of £20 billion, “at the present rate of progress it is unlikely
that significant clinical benefits will be delivered by the end of the contract period”36. The
Chairman of the PAC claimed NPfIT “is the biggest IT project in the World and it is turning
into the biggest disaster”37. However, it is obvious that the government’s choice agenda can
only work with a successful IT system in place and this may explain why Tony Blair
appeared to rush through NPfIT and is probably the main reason why this expensive debacle
has not been shelved38.
Another important development is the step towards privatisation of practice based
commissioning (PBC) through the Framework for procuring External Support for
Commissioners (FESC). This is backed by Lord Darzi’s ‘Our NHS, Our Future’ report, which
suggests there should be “extensive use within every SHA of the new Framework for
procuring External Support for Commissioners (FESC)”. Fourteen Private companies have
now been approved (see box 1) to support PCTs in their “world class commissioning” role,
but it is clear that some of these firms are also healthcare providers and there are obvious
potential conflicts of interest. However , the uptake of FESC has been very poor so far39.
Box1: FESC Approved Firms
Aetna Health Services (UK) Ltd
AXA PPP Healthcare Administration Services Ltd
BUPA Membership Commissioning Ltd
Partners In Commissioning
Dr Foster Intelligence
Health Dialog Services Corporation
Humana Europe Ltd
McKesson Information Solutions UK Ltd
McKinsey & Co, IncUK
Navigant Consulting, Inc
Tribal Consulting Ltd
UnitedHealth Europe Ltd
Other initiatives aimed at promoting market based healthcare and increasing
A detailed discussion of the full range of initiatives and policies promoting the marketisation
of the NHS is outside the scope of this article, but the following list provides plenty of
1. Independent Sector Treatment Centres (ISTCs). Please refer to the recent article by Pollock
and Godden in the BMJ for a detailed analysis40.
2. I(CATS) – ((Integrated) Clinical Assessment and Treatment Services) – These units act as
intermediate steps between Primary Care and Secondary care, but importantly have power to
refer on to ISTCs
3. Privatising GP services through Alternative Provider of Medical Services (APMS).
4. Darzi Polyclinics, which are likely to be built and run by the private sector, although some
Foundation Trusts may build and run Polyclinics to ensure a guaranteed supply of referrals.
5. Unbundling of Primary Care. Services are being broken up into saleable commodities. GPs
provide core services which can be “topped up” either by GPs or private providers
6. Privatisation of NHS logistics (sold to DHL (Novation)), Oxygen supplies, pathology
services (£1 billion over 5yrs), ambulance services, and offshore medical secretaries
7. Advertising of health services
8. Independent sector use of the NHS logo. Private companies providing services as part of
the Extended Choice Network can now use the NHS logo:
9. Individualised health accounts/vouchers. This is clearly another ploy to promote the market
by encouraging patients to become consumers.
10. Top up fees for new drugs and technologies. The recent Richard’s review has suggested
that patients should be allowed to top up their NHS care in the private sector.
It is clear that the government is pursuing a market driven approach to healthcare delivery in
the NHS (in England) with increasing use of the private sector. There are no signs that the
new Prime Minister is going to reverse this process, and in fact we are actually seeing
policies with greater emphasis on privatisation through the introduction of Polyclinics and
new GP Health centres that will almost certainly be procured and delivered by the private
sector. This should come as no surprise when considering the importance Gordon Brown
placed on the neoliberal agenda to ensure economic stability. In addition when he was
Chancellor of the Exchequer, Brown had significant control over public services through the
Public Service Agreements and Public Spending Reviews. Hence, much of New Labour’s
health policy over the past decade has his fingerprints all over it. Those hoping for a
slowdown in the pace of change are likely to be disappointed.
The late Robin Cook summed up this situation, shortly before his death:
“The history of social democracy can be expressed as the struggle to set limits to the market
and to define those areas where priorities should be set by social policy rather than
commercial forces. Yet this government is dismantling the barriers that its predecessors had
erected to keep those commercial forces off the public-service turf”.41
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26. Audit Commission. IFRS Briefing paper :. Managing the transition to international
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41. Robin Cook quoted in the Guardian, 17th June 2005