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NHS patients and taxpayers will benefit from TTIP

As negotiations for the Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union progress, UK critics of this landmark trade deal have made a number of claims against it. Arguably the most prominent is that it would jeopardise the National Health Service (NHS) as it currently exists. Indeed, Clive Efford MP’s NHS bill, which was passed by Parliament on Friday, called among other things to exempt the NHS from ‘any legally enforceable procurement or competition obligations’ under TTIP. (It is worth noting that, as a private member’s bill, it is unlikely to become law.)

This claim by TTIP opponents revolves around a clause known as ISDS (investor-state dispute settlement) which is commonly found in investment and trade deals such as NAFTA and the just-signed Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU. ISDS allows foreign investors in a country to bring a case against the host government before independent arbitration, when that government is judged to have breached the conditions set forth in the agreement. (More about ISDS here.) The arbiters, recognised by both sides, can then determine whether any such breach has occurred and what compensation, if any, is required.

In the particular case of the NHS in TTIP, ISDS would give US companies who had won a contract to provide patient services the ability to sue the UK government for compensation if the latter decided to unilaterally cancel the contract and bring those services back into public provision. An independent arbitration tribunal would then adjudicate the matter and rule in favour either of the UK government or of the investor – that is, in the event that the parties did not settle in advance. (Of all ISDS cases concluded as of 2013, 43 per cent of rulings were in favour of the state, with 31 per cent in favour of the investor and the remaining 26 per cent settled.)

So, what are the implications for the NHS and its ability to remain the way it is today? Contrary to what TTIP critics imply, ISDS would in no way impair the NHS’s continuity under full public financing and free-at-the-point-of-use provision. Indeed, ISDS places absolutely no limits on parliamentary sovereignty, as Parliament would retain its prerogative to regulate, expropriate or ban any industry or sector as per UK law. ISDS is strictly about compensation: ensuring that foreign investors can seek and obtain adequate redress for unforeseen government policy that undermines their long-term investment and business plans. In short, rather than undermining democracy, ISDS is really just about extending the rule of law.

Specifically, what would a future government have to do if it wanted to end private provision of NHS services (a highly undesirable goal, in my mind)? First of all, it would have to repeal the 2012 Health and Social Care (HSC) Act, which mandates competitive tendering (including to private companies and charities) by Clinical Commissioning Groups (CCGs). If it wanted to bring back monopoly provision immediately, it could cancel all existing contracts, compensating providers for the lost revenue. Alternatively, it could wait until contracts expired and re-start public provision then, thereby saving the Treasury the compensation amounts.

All of this would be the same with or without ISDS, except that with ISDS, foreign investors would be able to seek compensation before an independent arbiter in the event of contract cancellation. Knowing in advance that this possibility existed, foreign providers would be able to offer more competitive prices and better-quality services to CCGs, reflecting the reduced risk (and cost) of arbitrary government action without due compensation.

And that is why it is crucial to have ISDS in TTIP and to include the NHS in the agreement. Any service seeks to make the most out of scarce resources, that is, to provide the highest level of quality at the lowest possible cost. ISDS would help the NHS achieve this goal by lowering providers’ expected costs, thus enabling them to direct resources to serve patients and taxpayers rather than to insure themselves against the arbitrary whim of politicians. Meanwhile, Parliament would retain its ability to renationalise healthcare provision, but it would have to take account of the costs imposed on providers, patients (in the form of poorer services) and taxpayers (in the form of a more expensive NHS).

It is natural to disagree on the reforms that would improve patient services and deliver value-for-money to taxpayers – I happen to agree with my colleague Kristian Niemietz, who argues in a recent paper that reviving and expanding the market reforms of the Blair government holds the key to significant improvements in health outcomes and patient choice. But even supporters of a centralised, state-driven NHS should refrain from fear-mongering and misleading statements about TTIP, especially when the stakes are so high, with the European Commission projecting an additional £431 per year for the average family of four if the deal is passed. Patients, taxpayers and consumers more generally should welcome as wide-ranging an agreement as possible, including the NHS.

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As in all IEA publications, the views expressed in this blog are those of the authors and not those of the Institute (which has no corporate view), its managing trustees, Academic Advisory Council or senior staff.

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