Happy 70th birthday to the NHS

Posted by Liz Rees in Latest insights category on 06 Jul 18

I can’t let this week go by without wishing the NHS many happy returns, an institution in which we all have a vested interest. I don’t suppose too many of us remember its launch on 5th July 1948 but we’re all aware that it has much improved the health of our nation, and the unique ‘free at point of use’ model is admired worldwide.

Seventy years on, however, demographic trends are putting our public healthcare system under increasing pressure as demand exceeds supply, with too few paying into the system to support an ageing population requiring later life care.

Tony Blair’s government attempted to bring health expenditure up to the EU average, spending around 7% annually, in real terms, between 2000 and 2010, compared to an average of 3.7% over the lifetime of the NHS. Subsequent austerity measures, following the financial crisis, have resulted in a decline to 1-1.5% p.a.

In a timely announcement, however, Theresa May has pledged an extra £20bn a year for the NHS by 2023 representing an average annual rise of 3.4% in real terms over 5 years. To put this into perspective, the Institute for Fiscal Studies estimates that 3.3% is actually the minimum increase needed to simply maintain the status quo, while if the service is to be enhanced a more realistic figure is 4-5%.

Obviously, any extra cash has to come from somewhere; be it other public-sector budgets, borrowings or higher taxes. Initial indications are that £11bn will come from taxes and borrowings, with one option being an increase in the basic rate of income tax. The remainder of the money has been portrayed as a £9bn ‘Brexit dividend’, yet critics point to the cost of leaving the EU, and the uncertainty over future trade arrangements, potentially delaying any receipts. Moreover, there has been no announcement on funding to tackle the crisis in social care, which is putting the NHS under additional strain.

But what does the NHS have to do with our investments? Well firstly, the NHS improves the economic wellbeing of the country by producing a healthier workforce, with fewer absences due to sickness. The big boost to NHS spending from 2000-2009 coincided with a 22% drop in sick-days, while the reduced funding since then has halted further improvement. Furthermore, the NHS is a major employer, accounting for 1 in 20 of the UK workforce, so its recent 6.5% pay deal should stimulate consumer spending.

More specifically, many aspects of private and public-sector enterprises are inextricably linked, and businesses in a variety of sectors earn some of their revenue from the NHS, either directly or indirectly. From the most obvious, like pharmaceuticals, the list extends to: construction and maintenance of hospitals, provision of support service such as cleaning and catering, recruitment of staff and supply of laboratory services such as blood testing, to name but a few. The NHS is also a big user of technology, from booking systems for patients through to diagnostic equipment and automation.

So if you invest in a UK fund there is a very high probability you will have some exposure to trade with the NHS. In general, this is deemed to be positive for companies’ prospects because contracts are usually long term and payments reliable. Of course, it is no guaranteed path to riches as shareholders in Carillion (a contractor for several new hospitals) found to their cost, though its problems were largely down to poor management.

And it’s not just established businesses that are exposed to the fortunes of the NHS. There’s a plethora of biotechnology companies (the UK is a renowned world leader in the life sciences industry) working on cures and preventative treatments for all the ailments that affect us today. Often research is carried out in co-operation with experts from NHS and university departments. In fact, the UK government is second only to the US in the amount spent on global health research and development.

Suppliers that gain credibility with the NHS can find it opens door all over the world, particularly in the US, though dealing with the red tape and bureaucracy can be a challenge for smaller businesses. There are now a number of bodies, such as the NHS Innovation Accelerator, that link the NHS with start-ups. These organisations help them compile the necessary data needed to get their ideas in front of the right audience. A few Funds do seek opportunities in these early stage companies, notably Woodford Equity Income, while others wait until they have obtained a full listing on the stock market.

To sum up, a well funded NHS undoubtedly has implications for all of us, in many aspects of our lives and I’m sure we care about its future. So here’s wishing the NHS good health and longevity- may it remain a national treasure for many more years, keeping us, and our economy, fit and strong!

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