I want to start by thanking the hon. Member for Farnham (Mr. Maurice Macmillan) for the tone in which he introduced the debate and the questions which he asked. They proved that I guessed right and that, after some personal persiflage at the beginning, he wanted to ask some serious questions. From a Tory spokesman, I did not expect any constructive answers. I have never heard so many questions asked in one speech.
It is worth remembering that we have an Opposition who claim to be responsible. During the debate, it is to be hoped that other right hon. and hon. Gentlemen opposite will be a little more constructive in indicating what they would do. However, I shall try to deal precisely with the hon. Gentleman's questions, because they should be asked. The problem of financing a health service is a real one, most of all for the Minister in charge.
I also want to thank the hon. Member for beginning by fairly analysing the causes of the problem. It is worth noticing that it is right to scrutinise the Health Service today, because it comes of age on Saturday, 5th July, 1969. This is an excellent time at which to appraise its development.
I would add two figures to those which the hon. Gentleman gave. In the first full year of Nye Bevan's Health Service, expenditure was £455 million. I think that it is true to say that Sir Stafford Cripps thought it rather a lot. Today, 20 years later, it is just under £2,000 million, at £1,942 million. When one takes the effect of pay and prices from those figures, whereas its money cost has quadrupled since 1949, its real cost has just about doubled. As the hon. Gentleman said, the share that the Health Service now takes of the gross national product has increased from 4 per cent. 10 years ago to nearly 5 per cent, today, and the increase in the real cost since we were in power is 23 per cent. That is why there was one unfair thing in what the hon. Gentleman said. He implied that there was a question of cutback. There has been no question of a cut-back of the Health Service; there has been an enormous expansion.
Let us take the hospital building programme, which we have doubled in five years. We now have a proper programme for the first time since the war. What we are discussing is not how to face cuts but how to sustain this astonishing development which we have undertaken and, I add, how to ensure that we have enough revenue to operate for the capital equipment that we have produced. It is no good producing hospitals and then having to close them down because we cannot afford to keep them up.
Before I come to the question of finance I want to follow the hon. Gentleman in analysing whether the process of increasing expenditure is inevitable: must we look forward to hospital services and to a Health Service in general taking more of the national resources. I believe that we must, and that the explanation takes us right back to the Beveridge Report. In 1944, we assumed that if we could only introduce a comprehensive Health Service the improvement in the health of the nation would flatten out the costs within a few years. We would all keep healthy and it would not cost anything to keep us alive.
That was one of the many basic fallacies of the Beveridge Report. In real life, what happens is that the Service—and I give the hon. Gentleman credit for his fairness in mentioning this—instead of satisfying demand stimulates it. It is not true in the case of health that demand stimulates the service; it is precisely true that the service stimulates demand.
But there is another reason which I want to mention, because it is sometimes forgotten. One of the heaviest of those costs which were not predicted arose because of our carrying out the principle of levelling up the service for the individual, for the group and for the region. It is true that by a stroke of the pen and creating the service we took the dollar sign out of health and made everybody equal, theoretically, in terms of hospital treatment. That was only the beginning. One of the main inequalities was between the regions in 1948.
Let me give a simple case. Most of the crack hospitals were concentrated in London, whereas England, north of the Trent, had more than its share of decrepit public assistance institutions and shocking buildings, often with very low standards. Instead of levelling London down we decided to level the provinces up, and this process has been continued ever since. Even so, there is a long way to go before the process is completed and the gravely over-privileged region of London is overtaken by the Midlands and the North. This process of levelling up is costing us far more money on the Health Service than Nye Bevan expected.
The second grave inequality was the inequality between different groups of patients, and especially between the patient in an acute hospital and the one in a long-stay hospital, such as a geriatric hospital or a hospital for the mentally subnormal. Once again, the Health Service inherited a deplorable state of inequality and injustice as between groups of patients. In some long-stay hospitals there were absolutely Dickensian conditions.
Let me give one example. In 1953, the number of beds for mental illness represented about 36 per cent. of the total of all beds, but we were spending only about 15 per cent. of hospital money on those beds. The people concerned were under-privileged patients. Some progress has been made. The proportion of mental illness beds—thank heavens, by means of a breakthrough in treatment—has been reduced from 36 per cent. to 29 per cent., while mental illness beds still receive 15 per cent. of hospital money. Even so, there is a huge gap, that we all know of, between what is provided or assumed to be necessary for patients in mental hospitals and subnormal hospitals in particular, and what is provided for those in acute hospitals.
I now turn to another inherent factor, which is the speed of advance in medical science, drug development and modern techniques of surgery. One of the best examples is that of the kidney machine. It is greatly to the credit of my right hon. Friend the Minister who preceded me that—I believe I am right in saying this—we invested £1 million in saving the lives of people with kidney disease. We invested £1 million in the capital equipment required to do this. The treatment of chronic renal failure requires the provision of about £2,500 of capital equipment for each additional patient and an annual running cost per patient of between £2,000 and £2,500.
Total expenditure on intermittent dialysis, which was negligible five years ago—before the great plan was launched—is now about £2 million a year. Some people fondly imagine that kidney transplants will replace intermittent dialysis and reduce costs. The contrary is true, I fear. Their success, which is already remarkable, will probably require not less but more intermittent dialysis, and we shall then have the transplants and the dialysis to pay for. We shall be saving more lives, but we shall be discovering that we can treat more people with the disease. That is the essence of the problem of the hospital service.
Not all medical ingenuity and science necessarily costs money. Everyone knows how the conquest of tuberculosis in the 1950s produced a huge unseen subsidy to the Health Service and, incidentally, to national insurance. Let me take another example, which is more recent and less well known, namely, the revolutionary modern treatment of varicose veins—one of the commonest causes of admission to hospital all over the country. More and more this complaint is now being treated largely by techniques which can be given to out-patients, thus saving admissions to hospital. Instead of at least one week in hospital most patients can now be treated while still active and living at home—and the cost is about one-fifth of that of the older method. Here there is a genuine case of saving.
But the savings do not equal the increases in expenditure, and the inherent fact is that if we are to keep up, as we are keeping up, with the population increase and the other factors we must assume that more of the national resources will go to the Health Service in the next five years than it did in the last five years.
The hon. Gentleman was quite right to ask me how I think that this vastly expanding service should be paid for. He mentioned three ways in which the Health Service could be financed, namely, taxation, including rates—and I suppose that the hon. Gentleman was assuming that there is now a great difference in distribution as between money from taxation and money from local authorities—secondly, the National Health Service contribution, about which I shall have something more to say later; thirdly, the charges levied upon the users of certain parts of the National Health Service; and, finally, payment for private services either through contributions to a private insurance or provident scheme like B.U.P.A. or by direct payment to the doctor or nursing home. The last named would not pay for the Health Service, but it would reduce the theoretical cost by creating a private health service.
I want to examine each of the four possibilities. At present, the Health Service is financed to the extent of 85½ per cent. from taxation, central and local; 9½ per cent. from the National Health Service contribution and 5 per cent. from charges, including those for amenity beds, and privately paying patients. Let me repeat those figures; 85½ per cent. from taxation, 9½ per cent. from the national insurance contribution and 5 per cent. from charges. So the bulk of the money comes overwhelmingly from taxation, Os in 1948.
I was asked by the hon. Gentleman whether we were wise—so near the 21st birthday of the service—to say that taxation is the only thing that we should rely on, or whether we should include the other three. Here, we can learn something from the past. It is true that relying heavily upon taxation means that the Health Service is inevitably at risk during an economic crisis. The danger is not so much that there will be an absolute cut in the service, but that there will be a slow-down in the rate of expansion. Everybody who knows about Whitehall knows that in a period of crisis there is always a risk, with a great spending Department, if all the money comes from taxation, that pressure will be exerted.
I accept that, but I say straight away that in my view there is no doubt whatsoever that the greater part of what we raise will always have to come from taxation—rates and taxes. I am prepared later to consider the use of the National Health Service contribution under a new form, and after we have introduced our new national insurance law.