Review: “Approaches to increasing productivity in healthcare” by Shimeon Lee (2025)
Yes, NHS productivity is poor – but not in the way you probably think
The Taxpayers Alliance have recently published a report on productivity in the healthcare sector. It is a subject on which, despite its salience, we know remarkably little. In most other sectors, productivity is simply the total volume of goods and services multiplied by their market prices, and divided by the number of workers or working hours. Output divided by input. Healthcare services, however, are provided by the state in the UK. They are not bought and sold on markets, and consequently, they do not have market prices. We simply do not know how much customers would be prepared to pay for them in a voluntary exchange. So all we can do is measure physical volumes, such as the number of medical procedures performed. We can even, very crudely, adjust for differences in quality, but we have no way of knowing whether these are the right procedures, performed on the right patients at the right time.
Nonetheless, volume measures, and productivity measures derived from them, are not uninformative. The productivity level at any given time may not tell us much, but changes therein do. If the system treats a lot more people with a given quantity of inputs, that it probably a good thing. If inputs massively increase while outputs barely do, that is probably a bad thing. With that in mind, it is concerning that notional healthcare productivity dropped sharply during pandemic, that it has still not returned to its pre-pandemic level, and that it is lower today than it was ten years ago.
Internationally, the UK is below the OECD average when it comes to the volume of medical procedures performed, sometimes just marginally, sometimes significantly. To what extent is this because it is less well-funded than other systems (the conventional wisdom), and to what extent is that because it is less productive?
That depends on what we mean by “productive”. When it comes to translating medical input factors (manpower and equipment) into activity, the NHS is actually remarkably good. So when we say that the NHS is “unproductive”, this does not mean that doctors and nurses are sitting around twiddling their thumbs, or that medical equipment is gathering dust. If anything, the NHS might have the opposite problem on this front: it might be overexerting its workforce and overusing its equipment. The former, in particular, risks burnout, low staff morale, high turnover and low retention rates.
At this stage, a proponent of the conventional wisdom might feel vindicated. “See, just like we’ve always said! The NHS is doing the best it can with the limited resources it has. But it simply doesn’t have enough of them. Because the Tories, including the fake-Labour red Tories, have systematically defunded it. They are doing this on purpose, so that they can privatise it. That’s always been the plan.”
But the report’s author, Shimeon Lee, also shows that UK healthcare spending per capita is above the OECD average, and that, while there are some countries that spend considerably more, these also tend to be considerably richer than the UK. The issue here isn’t a specific “underfunding” of this one sector – it’s the fact that NIMBY Island has been economically stagnant for so long.
So, to recap, the NHS is not underfunded, but it is, in important ways, underresourced. How is that possible? Are “underfunded” and “underresourced” not just different ways to describe the same thing?
They are not. Lee shows that the NHS is bad at the process of converting financial resources into medical input factors. A pile of cash does not magically convert itself into a doctor or a nurse. That conversion is itself part of the medical production process, and a system which struggles with that process is, in an important sense, unproductive.
While there was a never a “defunding” of the NHS, Lee shows that there was a sharp drop in healthcare-related capital spending in the early 2010s, and while it later recovered, the NHS remains an under-investor compared to other health systems. Health-related investment only accounts for a little over 0.4% of GDP, nearly a third below the OECD average, and less than half the level of Australia or Norway. In Germany, it is nearly three times higher than here.
The conventional wisdom is that marketised sectors of the economy are prone to excessive short-termism, because everyone is just in it for the quick buck, while the public sector acts (or at least, could act) in the long-term interest of the nation. The history of Britain’s nationalised industries suggests otherwise, and when it comes to healthcare, Lee’s paper suggests otherwise too. There is no strong correlation either way, but by and large, investment spending tends to be higher in more marketised health systems.
This should not be counterintuitive. Over the past seven years, Britain has had seven different Health Secretaries. If you are a health policymaker in an NHS-type system, especially in a policy environment with so much rotation, you can be forgiven for not being that bothered about long-term investment, and for focussing more on day-to-day spending.
The issue is not that politicians in other countries are more far-sighted than British ones. It is that in more market-based health systems, investment decisions in the health sector are less of a political issue.
So what can be done?
If we want the system to get better at converting money into inputs, we need to establish something resembling a medical labour market. Up to a point, this can be done even within the current system: it does not require a revolution. The Blair reforms have already created an internal market within the NHS, so it would just be a matter of extending that principle to the labour market: phase out national contracts, and treat each individual NHS provider as an employer in its own right.
When it comes to the system’s short-termism, though, we ultimately need to question our overreliance on the state as a near-monopoly medical provider altogether. Previous attempts to “take the politics out” of the system have not amounted to much. If we truly want to “take the politics out” of something, we have to take the state out of it, and put something else in its place.
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surely the relatively low proportion of GDP devoted to health in UK has a simple more Darwininian explanation, almost a Selfish Gene story. I am simply far more ready to put my hand in my pocket to cover the cost of healthcare for myself and my family than I am for my neighbours, colleagues or anonymous members of the UK population as a whole. Hence it is always going to be hard to sell high taxes to fund healthcare, whereas private funding - whether via insurance, co-payments or prescription charges, as in most other rich countries - is bound to be more politically acceptable. Add a dash of British hypocrisy in here. Many middle-class folk of ostensibly left-wing persuasion profess to believe that they and most other people are "decent" (i.e. altruistic), but of course when the NHS lets them down, they pay for private care,
BTW, you might ask those who argue that the NHS has been sytematically underfunded by the wicked Tories how this could have come about in a democracy? After so many decades (and a good many years of Labour Governments), how have the Tories managed to keep the NHS in poverty while winning elections?
Very informative piece. Well thought through. However we can’t keep our politicians out of it! We just need better politicians! … but that’s a whole different story! ….of course when they do get involved, basically there are never out of involved! …they stick their ore in and hold the conveyor belt up!…this has now meant that we have more and more queues for each treatment or investigation that the problem never gets sorted out in an holistic way! It’s also true that the more patients on those waiting lists need more and more managers and paper pushers to not only manage those ever increasing queues but to deal with the ores that the government keep putting in!… furthermore, the NHS now employ not private hospitals so much as accountants and bean counters to disperse the ever decreasing pot of money needed to avoid spending it, increasing the waiting lists further. They actively avoid spending it! And spend more on managers and civil law payouts than on the nurses doctors and surgeons we really need. The low wages of whom means we can’t retain their skills! It’s truly an utter shambles of biblical size!…it all starts at the GPs or A&E. You either can’t get an appointment and have to negotiate past lady’s who’s job it is NOT to allow you past their gate as gatekeepers to the service that day or any day soon any more or you queue in the ambulances outside as another queue in an emergency for hours on end! Either way it’s a queue! From the beginning! You queue for bloods, for basic BP checks, for prescriptions and for x rays, scans, treatments and care! You name it we wait for it! Even beds!…. Now that’s said, the service has been underfunded for decades. In a dirty attempt to undermine it so it can be privatised! Thatcher started this sell off but the public just wouldn’t allow our NHS to be sold off! So now we are trying to play catch up on a decreasing real terms revenue tax take. It’s a total shambles. Thatcher thought it best to get rid of all their problems by selling off water electric gas and anything else to first get money but second to get of the responsibility of all those utilities. The less headache to worry and be in charge of the better for their lazy way of governing! Plus I can imagine some kick backs along the way as individual incentives to sell off! Someone was going to gain from it! A bit like the PPE scandal! …. But running down the NHS was never good and we are where we are! More managers and support staff than nurses doctors and surgeons! Managing more queues than ever never getting treated in the round and always lacking in funds. I remember local health centres that closed to get treated at larger hospitals! Now they are failing Streating wants to go back to local hubs! With no extra staff and no money and no equipment! It’s a shambles! He had no clue. His best idea is AI…. AI! Yes, an app on our phone do we can treat ourselves! Ridiculous!!!! Just like 111 and 999 it’s never going to work better than proper GPs. Will they just stop! Have one ministry of health to oversee supplies and have doctors in the desks if surgery’s not staff! Do all tests immediately that day! Get the job done! Not delay it! But we must have doctors and nurses paid properly for their service so we get retention! Not do it on the cheap! Get the best equipment locally! And stop training people and letting them go! Make those who they go to pay back their investment snd loss, a bit like a football transfer fee! So we are not out of pocket! Stop these accountant led managers run things! We don’t need assisted dying as it’s already happening! Treatment isn’t being given now! People are dying needlessly because the system and attitudes are shot to bits! They are not treating and by so they are dying early! DNR are on everyone it seems to me! Poor decisions everywhere! Cuts after cuts after cuts on an increasing population. But it can all be paid for properly. We need a SPENDING POLICY!!!!!! Make all money move so tax is triggered because at the moment only a small proportion of our money is in our working pot triggering taxes! Too much money is unspent, unused and idle each month incurring no tax! None!! Nada!!!… if that was to be spent the tax revenue can cope with the needs of us including NHS. I’d put a spend by date on money and make the rich spend it back. Vat will cover the needs. The cost is the cost! Cuts can never work. But we are spending too much in one direction and nowhere near enough in doing the task in hand! Don’t cut make rules that make sure our money flows through our economy to increase tax take! Make all our money flow like a raging river not a trickle! One will produce tax the other won’t!