Thursday 7 May 2020

Myths about public health spending

I've got a paper out with the IEA today about public health spending. It starts with a discussion about whether cuts in public health spending left the UK unable cope with COVID-19. You can read more about that, plus some views on Public Health England, in an article I've written for the Spectator...

No country can prepare perfectly for a new viral pandemic, but Britain’s public health system has fallen conspicuously short. Why? The stock answer from many is ‘under-funding’ – but the NHS budget has continued to rise since 2010, albeit not at the unsustainable pace seen during the New Labour splurge.

Public Health England (PHE), whose ‘primary duty is to protect the public from infectious diseases’, was created in 2013 and spent over £4 billion in 2018/19, of which around £3 billion was handed to local authorities in ring-fenced grants. Local authorities have seen their budgets cut in recent years, but this has little bearing on Covid-19 since the responsibility for dealing with pandemics lies with PHE, the NHS and the Department of Health.

PHE’s budget for ‘protection from infectious diseases’ rose from £52 million in 2014/15 to £86.9 million in 2018/19. There have been no cuts in this crucial area. Still, £86.9 million is only 2 per cent of the public health budget. If you include routine vaccination programmes, the amount spent protecting the public from infectious diseases rises to 13 per cent. With the benefit of hindsight – and arguably without it – it could be argued that this was not enough, but that does not necessarily imply that the overall public health budget was too small. The real question is what happened to the other 87 per cent.

The paper goes on to talk about the cost-effectiveness of public health spending. It is often claimed that 'prevention is worth a pound a cure' and that cuts to public health spending are a 'false economy'. Leaving those clichés aside, it is possible to evaluate the return on investment. It's difficult to tell whether the UK spends too much, not enough or the right amount on public health, but it is far from certain that it would be better to increase the budget rather than spend more on healthcare. Either way, spending decisions shouldn't be based on pseudo-economics.

There's a taster of what I say in this blog post for the IEA.

Many of the arguments made for increased spending on public health are based on a misunderstanding of economics. A study published in the Journal of Epidemiology & Community Health in 2017 is often cited as evidence that ‘[e]very £1 spent on public health in UK saves average of £14’. This implies a direct saving to taxpayers through the prevention of future healthcare costs, but that is not what the study looked at. It reviewed 52 pieces of research from around the world, covering a range of public health interventions, and concluded that, on average, they produced a return on investment to ‘the wider health and social care economy’ equivalent to £14 for every £1 spent. This is neither a cash sum nor a saving. The bulk of it comes from putting a monetary value on a year of life and multiplying it by the number of life years expected to be saved by the interventions.

Years of life clearly have value and there is nothing wrong with framing them in financial terms for the purpose of economic analysis, but the benefits that come from better health are largely intangible and are principally bestowed on individuals. For the most part, the ‘social value’ created does not yield a financial return on investment.

By way of analogy, a local council might decide to erect a statue to a revered character at a cost of £10,000. An economist could estimate its social value by finding out how much the residents are prepared to pay to keep the statue. If a thousand residents are prepared to pay £20 each, the social value of the statue is £20,000. This shows us that the statue has value, but it would be an obvious mistake to claim that the statue has boosted the local economy by £20,000 or has saved taxpayers £10,000.

You can download the whole report here.

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