NHS: Labour's private profits cap

Ed Miliband

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Labour is keen to make the involvement of private health providers in the NHS an election talking point.

Ed Miliband claims that David Cameron is heading a drive to privatisation which will continue if the Conservatives remain in government.

Hence his announcement of a profits cap if he gets to Downing Street after 7 May.

But what does the political rhetoric around the new Labour policy add up to?

Mr Miliband talks of "excess profits…draining money away from the National Health Service".

This argument will resonate with those who are suspicious of, or totally opposed, to the involvement of private companies in the NHS.

They believe that a private operator has to take a profit margin that is money which would otherwise be invested in front line healthcare.


The Labour leader's newly announced policy of limiting profits to 5% on contracts over £500,000 plays to a gallery which sees the future governance of the NHS as a defining issue in the campaign.

But it's not clear that floating voters are concerned where their treatment comes from as long as it's effective, under the NHS umbrella and free at the point of delivery.

The devil, as always, will be in the detail.

Mr Miliband has not spelled out how widely the net will be cast.

Will it, for example, include dentistry, pharmaceuticals and the private finance initiative? Will it include suppliers of medical technology and equipment?

What about beds booked in care homes by NHS commissioning groups?

Make it worse?

A 5% profit margin is above what cleaning and catering contractors can expect at the moment. Setting a cap might encourage them to demand a higher return and up their prices to the 5%.

Perverse outcomes can sometimes follow attempts to set limits on privately negotiated contracts.

Private providers of clinical services are likely now to require a return of more than 5% if they enter the bidding process.

Such contracts often need up-front investment in equipment and staff training, which can be delivered only with a profit margin that takes account of the costs and risk.

So it's more than likely that a profit cap will deter some operators from tendering for NHS work.


There is wiggle room within Labour's proposed 5% limit.

Local commissioning groups would have the right to lower or raise it to address "specific issues relating to as particular contract" as long as they can justify their decision. In other words the cap does not amount to a hard and fast rule.

The big picture for the NHS over the next five years is steadily increasing demand for care and a service already close to full stretch.

A similar proportion of private provision as now (around 6% of the NHS budget in England) might be needed to cope with that rising demand.

Whatever the campaign rhetoric, the reality could be that a profit cap is not rigidly enforced.

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