New hospitals on hold, health workers striking and severe underfunding were all effects of previous recessions. Andy Cowper ask what the latest crisis may mean for the NHS

As the recession deepens and chancellor Alistair Darling puts together a£21bn package of tax cuts and spending increases that seems to only deepen the sense of national uncertainty, health service watchers will be scanning the history books for lessons of slumps gone by.

Author and historian Charles Webster is the official historian of the NHS and his books brought the narrative of the service up to the beginning of New Labour's tenure in office. He warns it is important to see previous recessions in the social, political and economic contexts of their times and notes that for its first three decades, the NHS usually experienced low financial growth.

"The Ministry of Health was very dependent on Nye Bevan's personal forcefulness and political skill to get sufficient money to launch the NHS adequately," Mr Webster points out. "But tensions over funding became apparent very soon and precipitated Bevan's departure from the Cabinet.

"The NHS was regarded as first candidate for cuts at any phase in the post-war period from its foundations: governments of both political complexions faced almost continuous economic crisis, or a conflict of priorities in which the NHS tended to come out badly."

After Bevan left the cabinet, the Ministry of Health became a minor government department, with less effective politicians and civil servants in charge. This left the health service unable to compete for the funds it required to perform. "Every government initiative funding rival departments tended to be at the NHS's expense, as if the NHS faced a continuous recession," adds Mr Webster.

THE 1970s RECESSION

The economic climate of the global economy in the 1970s was rocked by massive increases in the price of oil, which contributed to a stock market crash from January 1973 to December 1974.

The London stock exchange was badly hit, and the exchange rate of the pound was devalued. Waves of industrial action spearheaded by the National Union of Mineworkers prompted then prime minister Edward Heath to go to the country with the bold, perhaps rhetorical question, "Who governs Britain?"

The electorate duly decided that the correct answer to this question was "not you, Mr Heath". However, Mr Webster notes that "because Labour under James Callaghan had only a small majority, that created problems".

This was compounded by a fall in the value of the pound and rapidly rising inflation. Powerful trade unions sought ambitious pay settlements for their members, adding fuel to the fiscal fire.

The aftermath of the 1973-74 recession forced the Labour government to go to the International Monetary Fund cap in hand for a loan. One condition of the loan was that public spending should be reduced.

This led to the curtailing of a long-planned and comprehensive nationwide district general hospital building programme, which former Conservative health minister Enoch Powell had set in train under Heath.

Hospitals mothballed, pay in dispute

Farcically the NHS was sometimes able to afford to build new hospitals, but not to open them - the John Radcliffe Hospital in Oxford and the Princess Margaret in Swindon were both opened and consequently mothballed.

Also to emerge in the aftermath of the recession was a major row over health minister Barbara Castle's plans to phase pay (private) beds out of the NHS, which would have threatened some consultants' private incomes. Meanwhile, pay disputes led to ancillary workers going on strike in 1979 as they had in 1972, leaving administrators to run hospital boiler rooms and laundries.

A 1974 reorganisation satisfied nobody. One notorious aspect of the reforms was "consensus management", intended to ensure local agreement between administrators and clinicians on services. However, as Webster notes, this tended to mean "any one vested interest at any layer of district, area or region level could stop any change happening. It was very cumbersome and subversive".

Work on health inequalities

Amid the confusion there were genuine attempts to introduce more enlightened policy making, such as a commitment to iron out health inequalities. Labour commissioned the Black report into health inequalities and launched a Royal Commission on the NHS.

But both were slow moving, with the recommendations of the former not emerging until after the 1979 Conservative victory made Margaret Thatcher prime minister. Photocopies of the Black report were notoriously released quietly for collection on a bank holiday, complete with a cover note from the health minister disclaiming the report's conclusions and warning that even if the problems of health inequalities existed, there would be no money to address them.

Health economist Alan Maynard also recalls the 1976 document Priorities For Health And Social Services, which highlighted untoward variations in clinical practice and called for more minor surgery to be done as day cases. As he puts it: "The issues in health policy change very little."

He also recalls that in 1977 the NHS faced zero real growth in the first year of the resource allocation working party funding formula. Until this was established health service funding had been skewed towards better-off areas, where the NHS had inherited more primary and secondary care services.

THE 1980s RECESSION

Following her election in May 1979, Margaret Thatcher was faced with high unemployment and big budget deficits. The Iranian revolution in 1980 caused another oil price shock and from 1980-82 the UK economy went back into recession.

In response the Thatcher government adopted strict monetarist approaches, the main aim of which was to reduce inflation by raising interest rates and tightening public spending to reduce the budget deficit.

Charles Webster contends that health's generally low funding in that period meant the 1980s recession had a less noticeable impact than in previous years.

Low expectations for the NHS

Expectations of the NHS were lower. But it was still close to the nation's hearts.

In 1982, a leaked think tank report prepared for Mrs Thatcher's cabinet outlined plans for drastic increases in direct user charges and a reversion to insurance funding of healthcare. The prime minister was forced to publicly disown the proposals and to tell voters the health service was "safe in our hands".

THE 1990s RECESSION

The late 1980s saw tax cuts and a property price bubble in the financial wake of big North Sea oil revenues and a stock exchange boom following the "Big Bang" deregulation of share trading. These factors, combined with low interest rates set by government, all boosted consumer spending.

But the UK was pushed back into recession when sterling was forced to leave the European Exchange Rate Mechanism. When it came under attack from currency speculators, chancellor Norman Lamont raised Bank of England interest rates to 15 per cent and once again the exchange rate of the pound was devalued. The economy hit a recession through 1991 and 1992.

NHS under review

Growing public and media discontent over NHS performance in the late 1980s had led to Mrs Thatcher carrying out a year-long review of the service, which resulted in 1989's Working For Patients report heralding the NHS internal market in 1991. The move led to a split between the purchasers - health authorities and GP fundholders - on the one hand and on the other the providers of healthcare - hospitals, ambulances and community trusts, which then became NHS trusts with some self-governance to encourage competition with each other for custom.

Wrightington, Wigan and Leigh trust chief executive Andrew Foster recalls early 1990s funding creating an air of "simple desperation [in] being under-resourced all the time, year on year; getting a funding increase well below NHS and non-NHS inflation. The NHS came under almost constant criticism for being unable to cope, with winter crises and management being blamed as a complete failure", he says.

"This was the era of cash-releasing efficiency savings, which was very demoralising. Quite a few people who joined as managers post-Griffiths were sympathetic to the aims of the internal market, but as we moved through the 1990s with underfunding and constant criticism, you saw the beginnings of managers' discontent with the Conservative government."

Tide turns

At the start of the 1990s, Mr Foster recalls, "management was broadly politically neutral and even favourable to some reforms, like the creation of trusts. But low financial settlements for the NHS turned the tide towards New Labour.

"Then health secretary Virginia Bottomley's remarks, about having to get Marks & Spencer to open early for her so she could shop uninterrupted by fellow shoppers telling her how wonderfully the NHS was doing, didn't help either".

He adds that when he first went to work in the North West in 1994, amid serious winter bed crises, Ms Bottomley was meanwhile suggesting the closure of 100,000 beds.

Positive outcomes

Neil Goodwin, a consultant whose final NHS job was as chief executive of Greater Manchester strategic health authority, also remembers the financial restraints.

"The most dramatic year I recall was 1996, when Manchester was one of three areas in England to receive no growth revenue at all, due to the funding formula, which was unfortunate for a part of the country that had probably the biggest health inequalities challenge."

However, with the benefit of experience, Mr Goodwin observes that a tighter financial climate ahead may not be all bad news.

"The NHS has often managed best when there are least resources, being forced to tighten the belt and be as efficient as possible. It really focuses where choices have to be made."

Aggressive NHS management

Mr Goodwin, Mr Foster and Professor Maynard all agree recent changes in financial management put the NHS in a far better position today to manage its resources than has ever been the case previously. Mr Webster adds that "periods of more available money have tended to take the NHS by surprise and cause it to use resources highly inefficiently".

Professor Maynard's lessons for recession include "stow your reserves away now if you can and be frugal in all you do. Managing in a recession involves aggressive management of all functions, but remember that your focus can't be just on money - it has to be about activity and outcomes".

Given the short career span in post of NHS chief executives, does the service overall have the organisational memory of how to do more with less that a recession will require?

Opinion is divided but Mr Goodwin believes that as a significant proportion of chief executives and senior managers have not experienced a recession, they will find the situation challenging.

"The learning points from my experience are, first, be very clear about priorities. You can't do everything with less, so have clear processes to determine your choices. Second, ensure your management team is as well developed in capability terms as possible - if you know your team needs skills and experience, get them in now before the recession hits funding.

"Third, strengthen internal and external relationships and partnerships. If these are not strong by the time this hits, then they will certainly weaken further when you're forced to re-examine priorities and choices under pressure. Recession and lower - or no - funding growth create stresses and add challenges that will test those relationships significantly."

THE GREAT DEPRESSION: A NEW AGE

The Great Depression of the 1930s is the longest lasting recession in the UK to date. Unemployment averaged more than 20 per cent of the workforce and reached the breathtaking figure of 75 per cent in some areas.

"The inter-war period's economic effects on health services were uneven and regionalised," says historian Charles Webster. "As the poorest areas with the most heavy industry and the greatest health needs had an economic nosedive, areas like the South East remained relatively prosperous.

"At that time, public services were mainly provided by local government, so some authorities in wealthier areas had a huge increment in their ability to raise taxation and so were able to terrifically expand quality and quantity of services. London, Middlesex and Surrey county councils for example all set up health centres, modernised hospitals and introduced school welfare, dental services for children and child health services."

New services in prosperous areas included the provision of school meals and school milk. However, in deprived areas, with only charities available to provide such support, the nutritional status of children suffered hugely.

As a result, the health inequalities differential between rich and poor areas opened up "spectacularly", according to Mr Webster. "Where there was high unemployment, local government couldn't raise the tax revenue and so couldn't even sustain previous services."

Mr Webster is clear that in better-off areas, councils were able to achieve "services that were quite arguably better than what the NHS provided. Tottenham, for example, had brilliant local government services. Which makes one think".

KEY POINTS

  • The 1973-74 recession meant the government was forced to cut public spending and a hospital building programme was curtailed.

  • In the 1990s there was "desperation" in the health service at being under-resourced.

  • NHS managers today are advised to prepare now for lower resources, although improved financial management should mean the NHS is better able to cope than in previous years.