People outside Britain don’t pay much attention to what the people on ‘the island’ are doing. Rightly so: there are more pressing news stories to be written, including the war in Ukraine, the increasingly tense political battle over the upcoming American presidential election, and the fact that voters in 27 European countries are voting for a new parliament this week.
Nevertheless, in the past few days, the British political leadership managed to raise their nation’s profile in the news flow to where it became noticeable even beyond its shores. Prime Minister Rishi Sunak and the Labour opposition leader, Keir Starmer, got into a heated election debate over whether or not Labour’s proposal for improved health care funding would cost British families an extra £2,000.
The details of the proposal are less important than the structural problem in the British economy that the debate itself inadvertently pointed to. The need for extra money for Britain’s notorious National Health Service pops up every time the Brits go to vote. Yet, despite significant funding increases—which we will discuss toward the end of this article—the NHS never seems to be able to keep up with the health care needs of the British people.
At the heart of the problem is the well-known fact that the British economy is in bad shape. Last year, real gross domestic product, GDP, increased by a minuscule 0.1%. Since 2019, the last year before the pandemic, the economy has only grown by 1.7% in total; for comparison, in the first decade of this century, Britain’s inflation-adjusted GDP expanded by 1.7% per year. In the 2010s, the average annual growth rate was almost 2%.
In fairness, the artificial economic shutdown during the pandemic in 2020 lowered GDP by a staggering 10.4% in real terms. At the same time, there was a recovery in 2021, when the economy grew by 8.7%; some of it spilled over into 2022, when GDP expanded by 4.3%. The fact that growth imploded to 0.1% in 2023 is a testament to the structural weakness of the British economy.
For comparison, the American GDP was an inflation-adjusted 8.2% larger in 2023 than it was in 2019.
The structural weakness is not new—it is a long-term problem that has been accentuated in the past 15-20 years. In the 1950s and 1960s, British GDP grew by 3.2% and 3.5% per year, respectively. In the 1970s and 1980s, the growth rates averaged 2.6-2.7% annually. At 2.2%, even the mediocre 1990s kept annual GDP expansion above the 2% threshold.
One area where the Brits could, in theory, brag about their economy, is the workforce participation rate. According to the Office of National Statistics, the most recent figure is 74.5%. The ratio has been slowly on the rise since the turn of the Millennium, reaching 75.1% in 2023. In the last three decades of the 20th century, only 7 out of 10 Brits of the ages 16-64 bothered working or looking for work.
With that said, it is not a good sign that the lower GDP growth rate so far in this century coincides with a 5 percentage-point rise in workforce participation. It means, simply, that British workers are on a seemingly unending path toward lower productivity. Figure 1 reports the year-to-year change in labor productivity in the British economy, from 1996 through 2019:
Figure 1
To be blunt, this is a joke of a productivity record. Just to take one example for comparison: in the past two decades, Hungarian workers have beaten their British peers by a ratio between 2:1 and 3:1. In other words, the Hungarian workforce generates between two and three times as big an increase in economic value as the British workforce does.
I might add that the Hungarian workforce productivity is not in decline. If anything, it is on the rise.
With falling labor productivity, it does not matter how high a country’s workforce participation gets. With falling productivity comes weaker economic growth—thereby weakening the generation of value that builds everything from household finances to highways and hospitals. This means a weaker tax base for government, which of course leads to problems with funding the welfare state.
This, in turn, brings us back to the tax debate between Prime Minister Sunak and Labour leader Keir Starmer. The question at the center of the debate was about the funding of the British National Health Service. This tax-funded health-care conglomerate has a long, sordid history of exercising fiscal eugenics rather than providing health care for the British people. In my book The Rise of Big Government, I devoted an entire chapter to this very problem. I gave an account of the so-called Liverpool Pathway and how it was practiced some ten years ago:
annually, as many as 60,000 patients die in the so-called Liverpool Care Pathway—a palliative care system under the National Health Service—without having given prior consent to the withdrawal of life-sustaining treatment.
Thanks to financial incentives in the government’s funding formula for the Pathway, children were also included among the patients who were killed by starvation and dehydration.
As recently as 2020, the NHS was still putting patients through the Liverpool Pathway, a sign that the health care system suffers from chronic under-funding: if there were enough resources to treat all patients with the utmost effort, then there would be no need for the Pathway.
Looking at how the British government allocates its resources, it seems unimaginable that the NHS would suffer an unending fiscal shortfall. From 1990 to 2020, the government almost doubled the share of its outlays to health care: from 21.4% to 41.2%. In terms of appropriations, the British government’s health care spending increased by 7% per year in current prices, from 1991 through 2021. Compare this to 4.7% per year for government as a whole.
This rapid expansion of funding has made health care the preeminent function of the British government. The government continues to increase spending on medical services and other welfare state benefits at a rate that, almost without exception, exceeds the rate at which taxpayers can keep up and provide the necessary funds. In fact, with a steadily weakening labor productivity and an economy that is at a standstill, the problems with funding government that are being discussed along the election campaign trail are only shadowboxing over a problem that is systemically insoluble.
Only a transition to private health insurance plans can save British medical services. But that is a story for another day.
