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Bonanza for private sector in NHS 'level playing field'

More than 100 healthcare companies are rubbing their hands at the prospect of a major expansion of private, for-profit service provision in the National Health Service. They are also plotting to maximise their profits by sidestepping tax and VAT bills.

The ConDem coalition is encouraging Primary Care Trusts and Clinical Commissioning Groups to contract with “any qualified provider”, whilst enforcing the discipline of the market through the regulator Monitor.
Virgin Care, the medical part of Richard Branson’s empire, has already won £750m of NHS contracts. It provides specialist services, such as dermatology and retinal scanning, and in many areas has taken over running GP practices in partnership with doctors.

Competing with NHS services has always been problematic for companies which have to extract some of the income from the contracts they win in order to satisfy their shareholders.

The costs of services provided by the private sector companies are about £14 higher for every £100 relative to an NHS acute provider. So in order to be able to compete on price, either they pay their employees less, or the quality of the services they provide deteriorates, or both, as is more likely.

So now there’s a cunning plan afoot.

Last June the ConDems launched their Fair Playing Field Review into “matters that may be affecting the ability of different providers of NHS services to participate fully in improving patient care”. An interim discussion paper was published in November. It identified the following: “Corporation tax applies to private and some third sector providers, but not to public sector providers.”

You can almost see the grin on Branson’s face broadening.

So the companies – who no doubt ensured that this problem was noticed by Monitor’s reviewers – are now demanding the same status as tax-funded NHS service providers which pay neither corporation tax nor VAT.

It’s a no-brainer, surely.

Hang on, hang on, hang ON.

Hasn’t here just been a massive upsurge of anger against global corporations like Amazon and Starbucks that pay little or no tax on their operations in the UK?  

Do these companies really want to have their cake and eat it?

Indeed they do. And they must, if the for-profit model of production is to survive, as Paul Polman, chief executive Officer of Unilever, the world's third-largest consumer goods company, makes clear in advance of his visit to the World Economic Forum in Davos.

He and his fellow self-appointed masters of the economic universe will ensure that the debate at Davos focuses the attention of the world’s governments on “how the era of Western consumption can be better managed”.

“The structural changes that need to be made for society still haven’t been made," he says. "There has been a growing realisation that our present model of growth, while it has served us well for a long time, certainly has enormous shortcomings which are increasingly transparent.

“Individuals need to get used to lower pensions and welfare payments. Government needs to get used to lower spending levels, businesses need to get used to the costs that come with it and bear their part. Everybody has to chip in. People are realising in the West that our model is not a sustainable model.”

So by borrowing and twisting the language of “sustainability” they’ll be insisting that it isn’t possible to continue with a system where the state often accounts for well over 50% of economic activity. In the emerging economies, the government’s share of economic activity is nearer 20-30%, argues Polman.

Citing France as an “extreme example” of a state with too great a role in the economy he says: “No system is going to survive if 55-60% of the GDP is [coming from] the government.”

So there we have it. In a contracting economy, either there’s a 1) massive transfer of public sector services to a private sector freed from the burden of tax or 2) the system is doomed. We'd better make sure the second option is taken up and the system replaced by an economy that works for the majority.

Gerry Gold
Economics editor
16 January 2013

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