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William Beveridge: His 1942 report formed the basis for the welfare state

The word "crisis" is overused and never more so than in a long run-up to a general election. But if the next government expects it can run and finance the NHS on the existing model, then the NHS, as we know it, will cease to exist by 2020. I believe the sheer weight of circumstances will panic the government into radical reform.

There are, generally speaking, two ways by which social reform comes about in this country. The first is from the force of an inspirational leader. The second is, to use Harold Macmillan's phrase, by "events, dear boy, events". The most radical health reforms are going to be made necessary in the next Parliament by events, dear reader, events. Health and welfare were once reformed by an inspirational leader. Sir William Beveridge published his blueprint for a new social order at the great turning-point in the Second World War, coinciding with Montgomery's desert victory at El Alamein. Public interest switched from how the country might survive to the world after the war, as Beveridge presented his reconstructions for post-war health and welfare.

Beveridge built on the basis Lloyd George and Neville Chamberlain had laid down over the previous 30 years and he did so for fiscal reasons that are as valid today as they were then. Lloyd George judged that the tax base was too small and inflexible to be expanded to finance his health and unemployment reforms. Paying by way of National Insurance built on the country's growing sense of fairness: you pay in before you draw out.

Beveridge naturally followed. His great health and welfare reforms were to be paid for from a much enlarged National Insurance scheme. So to advocate a National Insurance basis for reforming the NHS is far from revolutionary. It is, rather, to adopt the finance model that has always served this country well: the contributory principle.

A National Insurance approach to financing health has a number of clear advantages, and none more so than the prospect of the public being unlikely to elect a government committed to a non-hypothecated increase in taxes. Contributors never viewed National Insurance contributions as a tax, despite the fact that politicians have continued to call them thus. More important has been that contributors saw these services as theirs, paid for by their own contributions.Here is the beginning of a link between benefit levels, the level of healthcare, and costs. It is here that events, dear reader, will push reform in the next Parliament back along the National Insurance path.

Sixty per cent of cuts still need to be enacted. Yet even these cuts will not be sufficient. Balancing the books will require a further £12 billion cut in the welfare bill. The idea that tax increases of any size are going to be made for health, let alone welfare, is moonshine. But the NHS is already in deficit and that deficit will grow each year over the next Parliament to make a cumulative shortfall of £90 billion. That is not a misprint. In 2020 alone the annual NHS deficit will have reached a staggering £30 billion. The political response shouldn't simply be one of succumbing to blackmail for yet more and more money, without it being clearly linked to productivity gains. After reviewing the huge injection of new monies into health from 2001, the National Audit Office observed that while "there has been significant real growth in the resources going to the NHS, most of it [was allocated to] funding higher staff pay and increases in headcount. The evidence shows that productivity in the same period has gone down, particularly in hospitals."

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