Nick White: NHS productivity will never increase without more diversity of provision

Nick White is a practising consultant surgeon who has worked as a medical director in both the NHS and the independent sector.

The NHS’s productivity has declined by 11 per cent between 2019 and 2024. With a 16 per cent inflation adjusted increase in funding for the same period this means NHS output has only grown by five per cent or one per cent a year.

Many people have commented on this decline (including on ConHome), but there has been little in the way of policy put forward to improve things.

One of the NHS’s core issues is its labyrinthine structure. With 215 trusts, 42 Integrated Care Systems and countless layers of governance – with each statutory board costing £1 million annually to maintain – the system is riddled with friction. This complexity blurs accountability, as decision-makers are often insulated from the consequences of their choices, while those accountable for outcomes lack the authority to act.

Governors, non-executive boards, and foundation trust status add bureaucratic bloat without delivering tangible benefits. Scrapping foundation trusts and merging providers within ICS’s could streamline operations, fostering internal productivity through clearer budgetary accountability.

The current NHS reforms do not address these issues. Rather, they are focused on merging ICS’s to reduce duplication and reduce headcount and therefore cost rather than to provide clearer accountability. They aim to address the 40 per cent growth in NHS provider corporate spend we have seen since 2018/19.

This is mainly in HR/wellbeing (read EDI) and Business Intelligence; the BI growth is mainly collecting data rather than the analytics to understand what the numbers are showing.

Productivity thrives on incentives, but the NHS lacks them at both organisational and individual levels. Payment by Results (PbR) for trusts encourages activity by paying per unit of activity; it may not necessarily reduce waiting lists but will increase the number of reported activities.

Meanwhile, frontline staff, particularly doctors, face no meaningful financial or professional rewards for efficiency. The now-abolished local Clinical Excellence Awards (CEAs) were retrospective, disconnected from organisational goals, and failed to incentivise forward-looking performance.

Contrast this with General Practitioners, whose financial accountability as partners in doctor-owned practices drives better decision-making. GPs cannot run deficits without personal consequences, so they innovate and optimise. Extending this owner-delivered model to hospitals – where clinicians have a stake in success – could foster a sense of ownership absent in the current system.

During Covid-19, frontline teams thrived when given autonomy to experiment, but this came with relaxed budgetary controls, leading to spiralling costs. True autonomy must pair responsibility with accountability, including the risk of job losses for overspending.

Performance-related pay (PRP) could bridge this gap. Instead of blanket pay rises, incrementally introduce PRP instead of an annual pay rise, tied to meeting specific targets. Over five years, this could build to 15 per cent of consultants’ pay, aligning individual efforts with organisational and Department of Health and Social Care (DHSC) objectives.

For example, bonuses could link to ICS strategies (e.g., reducing emergency admissions), trust goals (e.g., financial discipline), and departmental priorities (e.g., patient safety). This would force teamwork, as doctors’ bonuses depend on collective success. Starting with doctors, who shape treatment plans and resource allocation, makes sense, given their cultural dominance in healthcare.

This approach may finally be able to deliver roll out of best new practice such as NICE or GIRFT guidance which has been historically very hard to scale from small teams bucking trends to widespread national consistency.

Fiscal policy must also align with productivity goals. The 60 per cent tax cliff at £100,000 and annual pension growth allowance deter consultants from extra work, as tax penalties hit high earners hard. Phasing out the annual allowance over three years – first abolishing the taper, then raising allowances, and finally scrapping it – could incentivise more activity without breaking the treasury. It could be funded by reducing tax relief at source for pension contributions for high earners.

Capital spending is another sore point. The NHS’s “missing billions,” as Lord Darzi termed it, stem not from inadequate allocations but from raids on capital budgets to cover operational deficits. This lack of discipline starves the system of modern facilities and digital infrastructure.

Paying off existing hospital trust and ICB deficits – currently costing them six per cent annual interest to the Treasury – in exchange for a hard ban on future deficits could enforce accountability. Private organisations go bust running deficits; NHS leaders should face similar pressure, with CEOs sacked for financial failure.

Digital innovation is often touted as a productivity silver bullet. Paraphrasing Adam Smith, if industrialisation is the replacement of labour with capital and mechanisation is the replacement of labour with capital then digitalisation is also the replacement of labour with capital. However, the way digital is funded through treasury rules is that it comes from (depleted) capital budgets rather than revenue budgets.

This explains why equipment such as PC’s are outdated and not replaced, they are bought rather than leased as a commercial enterprise would do. As digital services become increasing cloud-based subscription services the funding model for NHS digital needs to change to respond to this.

The NHS’s “three shifts” – hospital to community, treatment to prevention, and analogue to digital – have persisted across governments since the 1990’s. Constant reinvention breeds fatigue, so stick with them. Any future government whatever its political hue, should keep them and not launch another grand scheme. Fewer, clearer strategies are vital. The NHS drowns in overlapping plans, diluting focus.

Each trust and ICS should align with one national strategy, with local variations, tying performance metrics to the three shifts. For example, hitting tertiary prevention targets (e.g., reducing A&E reattendances from known patients with multiple diseases) could unlock performance related pay bonuses, embedding accountability across levels.

Perhaps the real issue is not NHS reform but healthcare reform.

Productivity may never rise significantly without a mixed model of provision. More commissioners and providers – public, private, mutual and charitable – would foster genuine choice. Failing organisations would exit, and successful ones would grow, unlike today’s stagnant status quo.

Benevolent funds, doctor-owned SMEs, and other new entrants could emulate the GP model, where ownership ensures accountability and drives efficiency. Only then might the NHS not just survive but thrive.