Brexit: crashing the NHS

09/11/2017

It is a matter of profound regret that Vote Leave chose to focus its campaign on mythical savings of £350 million a week, supposedly accruing from our leaving the EU. This money, we were told, "could be better spent on the NHS, schools, and fundamental science research".

The claim was not something with which we agreed, having demonstrated that there were no immediate savings to be gained from leaving.

Shortly after the referendum, we even had Booker arguing that we could end up spending more after leaving than we did before, using figures published in my Monograph 3.

Sadly, but predictably, the false claim made by Vote Leave has cast a long shadow, even more so as the unspeakable Johnson continues to try to defend it. It has poisoned the post-referendum debate and rendered politically difficult any commitment to pay sums to the EU after we leave.

As such, the false promise could prejudice the entire exit settlement, causing incalculable damage and eventually costing us more than was claimed we would have saved. The Vote Leave campaign, in its determination to win the referendum at any cost, has therefore exposed us to the risk of totally unnecessary and avoidable damage.

But now, even though it has become transparently clear that there are no immediate savings to be made (just as I predicted in April 2016), we have a bizarre development from Simon Stevens, the head of NHS England.

Although he must know that the Vote Leave claim was nothing other than a campaign tool, he has "demanded" – according to The Sun, that politicians cough up the promised £350m extra per week for the NHS, or risk destroying trust in democracy.

Stevens was addressing a national conference of NHS Providers when, citing the Vote Leave campaign claim, he said that this had been the key to winning the referendum. He then asserted: "The NHS wasn't on the ballot paper, but it was on the battle bus." A vote for leave was a vote for "a better funded health service - £350 million a week".

Obviously conscious of the controversy, he went on to say that the promises had been entered into by Cabinet ministers and by MPs. And: "Rather than our criticising these clear Brexit funding commitments to NHS patients", he said, "the public want to see them honoured".

"Trust in democratic politics will not be strengthened if anyone now tries to argue: 'You voted Brexit, partly for a better funded health service. But precisely because of Brexit, you now can't have one'", he added.

The Guardian then has Stevens making an "unprecedented plea" direct to the prime minister and chancellor, one that "may put his job at risk", urging them to start the "transition" to the NHS receiving the £350m – equivalent to an extra £18.2bn a year.

All of this indeed has Stevens on the line – an extraordinarily political intervention that can only embarrass the prime minister and her ministers. Thus, by contrast, Health Secretary Jeremy Hunt was relatively restrained, simply stating that the £350 million "wasn't a government promise", but that if there was any spare cash after Brexit, the NHS should be the "first port of call".

But for all that, Stevens's intervention simply does not compute. We assume he must be aware that the EU is demanding "sufficient progress" on the financial settlement before it will move on to trade issue. He surely must then be aware that the figure being talked about is in the order of £60 billion, effectively wiping out any savings for the foreseeable future.

From there, it should not be too difficult to work out that if the money (provisionally) intended for the EU is diverted to the NHS, there is a good chance that the negotiations will collapse and the UK will suffer the hardest of hard Brexits. And such would be the economic impact that that there would be even less money available for the NHS, as the government's tax base shrinks.

An informed view of the current situation, therefore, would support the idea of a "soft" Brexit, which would effectively rule out diverting money from the EU to the NHS. In making his demand, Steven is committing his organisation to economic suicide.

That then makes you wonder about the competence of a man in charge of an organisation which will spend £124 billion in 2018-19. Can he really be so superficial that he cannot see the consequences of what he is demanding?

Bet then this begs the larger question of whether those who oppose a financial settlement really understand the consequences of their actions. With the current UK GDP in the order of £1.9 trillion, just a one percent fall would cost the nation £19 billion and a loss to the exchequer of about £7 billion.

Figures vary as to the effect of a hard Brexit on GDP but any disruption of trade is bound to have a substantial effect. Currently, according to the World Bank exports account for about 28 percent of GDP, with imports responsible for about 30 percent.

For technical reasons, the two figures can't be added to give the total contribution (not least because some imports or re-exported) but we can assume that more than half the economy is in some way related to international trade – import and export.

A hard Brexit, without doubt, would have a devastating effect on exports, but it will also disrupt imports – and significantly in the early stages of Brexit. And, for every one percent loss of trade (export and imports combined), we would suffer a loss of GDP in the order of £9.5 billion.

Given that, for the first year or so, we could expect to see EU trade collapse, with a significant effect on trade with the rest of the world, an aggregate long term impact on trade of ten percent could hardly be considered an exaggeration. In round figures, that would cut the annual GDP by about £100 billion and tax income by £40 billion – nearly a third of the entire NHS budget.

However, if we allow a ten percent hit for the aggregate long term effect, in the first year, with massive disruption at the ports and no trade deals signed, it is not unrealistic to think in terms of an overall 50 percent loss of trade – over £400 billion. And, if that appears to be a staggering figure, one must recall that just two sectors of EU exports – chemicals and pharmaceuticals – account for £45 billion.

So far, economic modelling has been looking at the longer-term aggregate effects but, while it is conceded that a hard Brexit would cause massive trade disruption, no one has put a figure on it. And here, if trade does grind to a halt, we really are looking at losses running to hundreds of billions in the first year.

For Mr Stevens, therefore, his best chance of even maintaining the current level of NHS expenditure would be to hope for as neutral an impact on trade as can be managed. The least impact would arise from the UK staying within the Single Market, via the EEA.

The most remarkable thing in all this, though, is the dramatic effect of the law of unintended consequences. If the "promise" on the side of the bus was implemented, and money diverted from the EU to the NHS, the net effect would be a massive shortfall in tax income and a serious public service finding crisis, from which the NHS could not be immune.

The trouble is that, by his intervention, Stevens has turned up the pressure on NHS funding and made it even more difficult for Mrs May to settle the EU account. As a result, we are now more likely to crash out of the EU, which would then mean crashing the NHS.

What the unspeakable Johnson pushed for during the referendum campaign, therefore, is coming back to bite us, with Stevens delivering the coup de grâce - the brain child of the idiot Dominic Cummings, a man with the strategic acumen of a dead parrot.