The real costs of contracting out

Michael Gold explains the dangers of a contracted-out healthcare system

Michael Gold

Originally published in Green World 90

Normally, 'privatisation' means that shares are sold by a state-owned organisation to private companies, financial institutions and individuals. But NHS shares aren't being sold - instead, it is being privatised by contracting out. It's being given away, taxpayers aren't receiving one penny, and it's downright theft.

Not surprisingly, those benefitting from the taxpayers' enforced largesse claim that this is not privatisation by the back door. The NHS will still exist although the provision of services will be contracted out to 'any qualified provider', which is supposed to be more efficient and cheaper. Regrettably, big business, the politicians and the media continually assert the primacy of the private sector, without ever looking at the real costs of contracting out.

The Centre for Health and the Public Interest (CHPI), an independent think tank, states that: 'Administering, monitoring and enforcing these contracts is costly. We estimate that there are now some 53,000 contracts between the NHS and the private sector, including contracts for primary care services. These contracts, as well as the contracts with NHS providers, are arranged and administered by 25,000 staff working in Clinical Commissioning Groups (CCGs), Commissioning Support Units (CSUs) and NHS England's local area teams, at an annual cost of £1.5 billion.'

As more and more private companies gain contracts, more and more staff are needed and the costs increase. Management costs in the old NHS were between three and five per cent, whereas they are likely to be nearer 20 per cent in a fully privatised/contracted-out system.

This is against a backdrop in which the amount of money spent by the NHS has increased inexorably since its formation in 1948 and will continue to increase as people live longer and new medicines continue to improve lives. The UK now spends 9.3 per cent of GDP on healthcare, but it is money well spent, and the table above shows that UK healthcare costs are lower - as a percentage of GDP - than almost all similar countries.

In addition, the use by private companies of financial incentives can lead to short to monitor and manage contracts with non-NHS providers before any further major contracts are arranged.' This would appear to be a necessary safeguard, but will it happen? Or could the results be embarrassing for the government?

The government's good practice advice is that public-sector contracts require around five per cent of a contract's value to be spent to ensure effective contract management. Additionally, contractors are reimbursed for administration costs by up to 20 per cent of the value of the contract, plus a margin for the contractor's profit.

If the NHS follows the good practice advice, this means that private healthcare providers would have to be unbelievably efficient to be cheaper than a publicly-owned and managed NHS with management costs of around five per cent and no contract management costs.

This is the reality of the government promise to ring-fence NHS expenditure: contracting will see the cost of administration rise and a lot less money left to be spent on treating patients.

After World War II, Britain had the first Labour government with an outright majority, and it started to create a better and more egalitarian society - the most crucial part of that was the NHS. Everyone - rich or poor - had access to first-class healthcare, free at the point of delivery.

Sadly, today's rabid, hostile political atmosphere is not some misguided aberration, but part of a meticulously planned ideological assault on the fabric of British society by neo-liberalism. Is there any hope of a return to the days when people mattered more than profits?

Let's hope it doesn't take another war to make us realise what really matters.

Michael Gold can be reached at, tweets @radicalmic and blogs at