Are market forces snake oil or cure-all for the NHS?

Beyond the sound and fury of the post-Iraq War recriminations, another crucial but largely unrecognised debate rages on.

The debate is about whether and how far market forces should drive public sector reform. In the Number 10 bunker they look out on a mixed picture after seven years in power. In some areas they see progress – the literacy and numeracy strategy has produced some results. There is some pride in some aspects of regeneration, a belief that the Sure Start programme for vulnerable families with young children will pay dividends over time, and NHS waiting lists are shorter.

Alongside that, transport is a disaster, secondary school performance is still causing concern, further and higher education are in trouble, gun crime is worsening and public health is under threat from a combination of drug and alcohol abuse, smoking, sexually transmitted disease and obesity.

No one is suggesting market forces can begin to tackle all this. But the government feels the mediocre improvements in health could be spiced up by a dose of competition. Hence the announcement last week of a tariff for NHS elective care.

The plan is bold. New Labour may have abolished the internal market created by the Conservatives, but now they are busy recreating a more radical one of their own. Money will follow patients. Hospitals will be paid on the basis of the numbers they treat. Patients will be able, indeed encouraged, to choose between hospitals.

Eventually there could be a whole range of establishments, some run by private companies, some voluntary and others still nominally under council control. Many councils of course already see themselves more as commissioners than as providers of services. And yet at the heart of government there is uncertainty about how far to go in this market-driven world.

The attractions are obvious – offering more choice and control to those who use services is appealing. Competition should mean new players join the market, increasing capacity and hopefully bringing more effective modes of delivery. Competition should also stimulate services to improve what they offer.

Markets are not as simple as they seem, and there are some serious risks – already in the NHS some hospitals fear for their financial viability

But markets are not as simple as they seem, and in the run-up to an election there are serious risks – already in the NHS, some hospitals fear for their financial viability if even a relatively small number of patients choose to go elsewhere.

And then there is the fear that markets will disadvantage the disadvantaged. It is the better-off who traditionally have been able to exercise choice – markets are in many ways about survival of the fittest. But again this is not a given – some of the work undertaken by the health service in offering alternatives to NHS cataract operations shows that with help and support poorer and more vulnerable patients are able and willing to move around.

For those approaching this subject with a pragmatic rather than an ideological eye, the real task is to be clear what the nature of the market will be in different sectors – and even within sectors, depending on the needs being addressed. The dynamics of the relationships will not be the same for a one-off hip operation as they will be for someone with a chronic disease.

As anyone involved in housing will tell you markets are no panacea. You don’t need to look at the US healthcare system to know they can be flawed: look no further than what has happened in residential and nursing home care, where a distorted market has failed to stimulate innovation or encourage moves towards different forms of accommodation or support for older people.

Thus far many of the changes have been modest – behind government ministers sit their backbenchers, many bruised by the student fees battle and suspicious of market- style reform, even when the consumer does not pay. On the other hand ministers fear the existing incentives will not deliver. So expect more change, more market-style solutions, wrapped up in the banner of choice.