To Fix the NHS, Start Asking the Right Questions, Stop Fudging the Labour Market

As seems to be the case with virtually everything these days – Covid, the cost of living, the Ukraine war – the junior doctors’ strike has given rise to a lot of discussion about the wrong things, in the wrong way.

To date, the focus has been on three big issues:

• The demand for a 35% pay rise
• A concurrent four-day strike period, directly after a bank holiday weekend
• The woke politics of the leaders of the junior doctors, in particular Dr. Rob Laurenson

All of this is understandable. A rise of 35% sounds like a lot (and it is); a four-day strike is hugely disruptive; and Laurenson seems almost a comic stereotype of a hard-left youngster with a very comfortable bourgeois upbringing and woke ideas. He also managed to arrange the strikes while he was away on holiday.

However, I think some context about how the NHS is managing its labour force will be helpful to many readers. This demands we address the tough conundrum of why the NHS is so bad at managing people.

The basic question that the people of the U.K. face in dealing with this issue is: How do we get better quality healthcare and better returns on our money? The structure of the NHS has much to do with answering this.

The envy of the world?

The NHS is the biggest employer in the U.K. In fact, it is practically a monopsonist. That is a fancy way of saying that it employs virtually all of the doctors in the country, in one way or another.

I am a chartered accountant by trade, but my parents and one of my brothers are doctors. I have been amazed by stories of just how wasteful the NHS is in the management of its workforce.

In my analysis, I will refer frequently to a recent piece by Kate Andrews in the Spectator, where she explores what junior doctors really earn. I build on this with my own data and arguments.

Let’s start with some basics. An F2 doctor (basically a doctor with one year’s post-graduation experience) can expect to earn roughly £40,000 gross per year, with uplifts for anti-social hours and London weighting. These uplifts can take that salary up to around £55,000 to £58,000 per annum.

However, an F2 has not decided on what specialism to pursue. In order to become a specialist, the doctor will need to join a training programme, which can take anywhere up to seven years to complete.

The NHS, in its wisdom, offers trainees a salary of £40,000 per annum for doing this. In other words, after a year or two earning around £55,000 a year, you have to take a pay cut in order to advance your career in the long run.

Once you are in that training scheme, your pay will begin to rise over time, but earning much more than £63,000 per annum as a senior registrar (the grade just below consultant) is unusual. That is, after many years of training, far more experience and steadily increasing responsibility, you might see your pay rise by about £8,000.

This goes some way to explaining why so many F2s now defer entering training – often by many years. The numbers doing so have risen from about 30% in 2010 to over 65% in 2019 (the latest year for which figures are available).

Then there is the locum issue. Locum rates vary hugely across the U.K. Locums working in the sticks (e.g. rural hospitals or the outer reaches of Northern Ireland) can earn £90,000 per annum putting in a normal working week, even in the most junior roles. Moreover, you are offered the best shifts. The nasty hours go to the full-time employees, at whatever grade.

Some locum roles offer as much as £80 per hour for an F2-equivalent role – that is £160,000 per annum.

On top of paying the locums these rates, the NHS also pays substantial fees to the locum agencies. Including agency fees for nurses (which will account for the bulk of this), these fees recently came to £3 billion per annum – just for finding the staff the NHS needs.

Andrews talks about the absence of a market rate for junior doctors, because the NHS is basically the sole employer in the U.K. However, this needs more analysis.  

Firstly, NHS managers have created a much higher market rate within the U.K. by way of the locum roles. Secondly, they have created a higher market rate for F2+ roles (repeated taking up of F2 roles by doctors who theoretically have gone past that stage) than for specialist training roles. Thirdly, consider the mere existence of other countries – notably Australia – which pay better for less onerous roles. This means there is a higher market rate than the NHS is offering to doctors who would follow the conventional route of F2 followed immediately by specialist training. This is financially not a very smart move.

No one, as far as I can see, has addressed this. But junior doctors are human beings, and they will behave accordingly. As Charlie Munger, Warren Buffett’s less famous sidekick, says, “Show me the incentive and I’ll show you the outcome.” The mess the NHS has made of its medical labour force is living proof of this.

NHS or America?

In any discussion of the health service, the debate too often moves to a binary choice between the loving bosom of the NHS and the horrible capitalist mess which is America’s healthcare system.

Too rarely do we discuss how countries such as Australia, Germany, France and the Netherlands, to name a few, handle their healthcare. Those countries don’t seem to indulge in cringeworthy public worship of their socialised medical systems. Nevertheless their health outcomes on many important indicators are better than ours. Some of them spend a little bit more on healthcare as a percentage of GDP than we do; some of them spend a little bit less.

The American model really is bad. It is hugely expensive, terribly wasteful and has exceptionally poor outcomes in terms of population health and overall life expectancy. The U.K. seems to be heading in the same direction, but with a large public system.

Can we learn from other countries? One key thing to establish is whether successful systems distort the medical labour market as much as the NHS does.

Anecdotally, Australia is the Shangri-La for modern medics. Pay is better, conditions are vastly better (more respect, superior management, computer systems which work etc.), and many health outcomes are better than the U.K.

Interestingly, Australia currently spends much the same on healthcare as a percentage of GDP as the U.K. does. And even more interestingly, until they brought in this revised system a decade or so ago, their public medical system was hardly the world beater it is today.

Compared to what?

Andrews’ article refers to “average earnings”. But is being a doctor an average career?

Leaving aside the structural questions of the market for medical earnings, how do we benchmark a career in medicine against other careers? We’d have to start by accounting for things like the amount of education and training; academic demands; levels of responsibility; and nature of the hours demanded. Medicine is at the extreme high end of all of these. It also stands alone if we account for the need to perform some unpleasant and emotionally draining tasks.

This takes us back to incentives. A healthy market has a way of taking all of this into account. People choose careers based on things like aptitude, passion and work ethic. The price of their labour responds, and, in turn, so do their decisions.

By way of a very quick comparison, a newly qualified solicitor working in a commercial firm can expect to earn £100,000 a year, including bonus, even outside London. Doctors know this.

Instead of intelligently working with price signals, the NHS appears to be throwing money at the problem – with very little accountability.

Public sector spending: Wider context

It may come as a surprise to readers that the annual cost of the full 35% pay rise demanded by the doctors comes to £2.1 billion, according to the Government’s own figures. In the context, this sounds like a small number.

It seems strange that the Government has been so tough on this issue, given its gross irresponsibility with public funds elsewhere.

For example, the U.K. spent £2.3 billion on aid to Ukraine last year, and expects to do the same again this year. HS2 is due to cost far in excess of £100 billion for no discernible benefit. Indeed, the plans for platforms at Euston have cost roughly £2 billion already.

The taxpayer pours many billions of pounds into green subsidies of one form or another. Virtually all of this ends up in the pockets of the rich who have invested in the various recipient companies.

And as we know all too well, the country spent roughly £500 billion during the Covid crisis. This sum would cover the cost of the junior doctors’ pay rise for 250 years. Consider just the ‘track and trace’ debacle, which cost the taxpayer roughly £40 billion, or 20 years of the junior doctors’ pay rise.

To me, this raises an important question about what we do and don’t talk about. As we all remember, debate over pandemic spending was suppressed. Even now there is precious little discussion of it.

Our public discussion currently focuses on junior doctors as the enemies of the day. This after lionising them for a couple of years ago while they were on message and backing the ludicrous Covid restrictions.

But if we really want to save money and improve healthcare in the U.K., we should be talking about locum rates, locum agency fees, NHS management costs and economic incentives generally. We aren’t.

Lutatius is a pseudonym.