The NHS is a comprehensive public-health service under government administration, providing free health care. The NHS is financed primarily by general tax, with smaller contributions coming from local taxes, payroll contributions, and patient fees. The service has managed to provide generally high levels of health care while keeping costs relatively low, but the system has come under increasing financial strain because the growth of medical technology has tended to make hospital stays progressively more expensive and there’s a greater expectation on the service offered.

At first sight it would appear that the solution to the health industry is to allocate more scarce resources to this part of the public sector, however although more resources are being allocated and attempts are being made to make the healthcare more efficient, it appears that the supply of scarce resources will never meet the increased level of demand.

The burden on the public sector can be decreased by the involvement of the private sector, which will increase the investments, reduce the queue and decreases the pressure and demand made by the individuals. And most of all the involvement can mean a better quality of service.

The level of consumer demand for any good or service is heavily influenced by the distribution of income. For demand to be effective the consumers must have the ability to pay. In the UK economy their is an inequitable distribution of income. Private sector will be looking to maximise the profits, this would inevitably mean that certain services will become a priority (e.g. Botox) and certain services might be excluded ( e.g. breast cancer screening). This can be seen in Figure 1:

At present the government attempts to make the distribution of income more equitable by utilising income tax which is direct progression tax in order to relate tax to the ability to pay. Also a third of government expenditure is paid to social security payments which are aimed at the low income groups in society, this shows the need for the government to play a part in decreasing the gap between the rich and the poor. Keeping health within the public sector will not only ensure that it’s free, but would also mean that the government has control over the running of the business, it can prevent the production of socially undesirable consequences.

However in the free market the resources are allocated by market forces and the price mechanism (called the invisible hand by Adam Smith), there’s no government interventions, and therefore can also be a good thing. The profit motive provides an incentive to reduce costs and be innovative, leading to possibly a more efficient use of resources and allocation of scarce resources. The capital gained from reduced costs can be used to provide funding towards research and advancement of science, such as cancer research fund. Which can be beneficial in as sense that it not only provides a better healthcare and decreases the death rate, the idea can be patented and capitalised on to increase the revenue towards the British health care system. Whereas if it remained in the command economy, there would be no incentive for individuals to be innovative.

The NHS working in the free market would mean that it maximises community surplus, if there are no failures and imperfections.

Privatisation of the NHS would increase the competition, which will inevitably reduce price, but under the current British System, most of the private health care is offered by BUPA, so in a sense leading from one monopoly to another, leading to lack of competition and price discrimination.

The supply of health service is inelastic in the public sector, however given the service is free, there is excess demand, this leads to the waiting list as a means of rationing demand. If it was to be provided within the private sector, the income will act as the rationing system. To which some might argue that it’s better to wait, than not being able to get it because of the charge.

If people choose to save rather than to look after the health, which theoretically would be a large proportion of the working class, his would increase the amount of sick leave taken and significantly reduce the efficiency of the workforce- As the famous saying goes, ” a hard worker is a happy worker”.

Undoubtedly the healthcare is financed by the tax, however not directly and is income assessed, so those below a certain income barrier will not have to pay and will still get free healthcare.

In the public sector the NHS staff are under paid to cost cut, however movement into the private sector would mean that the staff are paid market waged salary, a considerable increase from what they get now. But the issue of training staff in the private sector rises- will they be sponsored through the private sector or paid by the government to study within the public sector.

Private sector avoids “free riders”, an efficient allocation of resources; MC= AR/P. Will mean that it restricts it only to British citizens and those who have paid for it.

Clearly movement into the private sector would mean that the amount of tax will be reduced, this will increase the amount of disposable income. Increasing consumer spending power and reducing the leakages. This would mean that aggregate demand increases. Inevitably if the consumer has a greater proportion of income, he/she would be able to purchase health insurance, they by not having to pay any direct payment. However still the working class may still not be able to afford it, even though they may be highest in risk of getting an injury. If low-income earner was to have an accident and did not posses the health insurance, what would happen. Would he be refused treatment? A means tested allowance can be paid on health for low income families to have health insurance. Even though the cost might be reduced if this type of scheme was offered, because of less people taking up the offer, it would mean that the government would still be paying if he/she doesn’t have any illness.

Health care is a merit good (MSB>MPB), and is a positive externality. Therefore it will be under consumed in the free market because individuals do not recognise how beneficial it is.

If NHS was to be managed through the private sector, it might reduce the services and the profit motivation of the firm may mean that there would be a reduction in staff, increasing unemployment and increasing labour immobility.

A new separate health tax could be introduced, which taxes people after assessing the family income. The tax could increase the funding and still keep the NHS within the public sector. It would be fair to working class families as the healthcare can be kept free. Increased tax however would mean that more high income earners will either move else where or bank with a foreign bank to save money.

I can conclude that although the investment of the private sector will improve quality of service, it creates problems in employment, the quantity of service offered as a result of it’s aim of profit maximisation and also increases the gap between the rich and the poor.