National Health Service and Community Care Act
Last Updated: March, 2019
In 1988, as Oliver Letwin and John Redwood published their paper  Britain’s Biggest Enterprise , Margaret Thatcher announced that there would be a “review” of the NHS, the result was the paradigm-altering NHS and Community Care Act.

At the beginning of the 1980s the NHS was the most cost-effective health service in the world. The NHS was tightly integrated through area planning, national ownership and national control. This made it very difficult for the private sector to tap into public health care revenues. Throughout the 1980s the NHS endured service closures and non-clinical outsourcing, but the first big-break for the private sector came in 1990 with the National Health Service and Community Care Act.

The Act was implemented following a review of the NHS by the Thatcher government. It introduced an internal market into the NHS. Before the Act, hospitals and community services were under the jurisdiction of District Health Authorities, but the Act created a commodity relationship between health bodies by dividing the NHS into two groups of organisations; one group which purchased health services from the other group which provided the services.

The Act gave GPs (who gradually became GP fundholders) their own budgets to purchase services for their own patients. This handed funds to larger GP practices to allow them to go out to the marketplace and buy services such a blood testing etc. By 1997, 55 percent of GPs in England had become fundholders.

In a nutshell

  • District Health Authorities and GP fundholders were organised to purchase health services.
  • Hospitals, community health service providers and GPs were organised to provide those services. Hospitals and community health services were arranged into Trusts obliged to break-even by selling their services at the prices stipulated in their contracts.


It might be helpful to think of the NHS as having been like a family where the family income is pooled to meet the needs of the whole family. After the introduction of the 'internal market' the breadwinner holds the family budget, and the other family members sell their services to the breadwinner. The child is paid a rate (from which they must cover their costs) to go to school. The stay-at-home parent is paid a rate to clean the house. Services between family members also become transactional. The child might pay the stay-at-home parent for the dinners they receive when they come home from school. The child and stay-at-home parent must remain within budget for the work they are contracted to do. This analogy could be extended to include examples of 'cost cutting' and 'income generation'. For example, the child might reduce after-school activity in order to save money, or to make additional income from a paper-round. The point is that although the family still live under the same roof, they now have a 'commodity' relationship with each other. Their expenses increase as they employ lawyers to draw up their contracts, and accountants to manage their increasingly complex cash flow. Correspondingly, each family member, now with their own isolated income stream, becomes increasingly focused on staying within budget at the expense of the work that should be their primary focus and therefore at the expense of the family welfare as a whole.

The effect of the Act was to create a 'purchaser-provider split', essentially a primitive market in which health authorities and some GPs held the budgets to purchase services from care 'providers'. It is called the 'internal' market because at this stage, it was internal to the NHS, so virtually none of the money for clinical care was being diverted to the private sector, but it also had the effect of making NHS managers and doctors behave more like business people.

The Act changed the constitution of health boards, excluding locally elected councillors and trade union representation. Instead, members - who often had strong Conservative leanings - were selected. Less obvious, but more profound was the removal of local hospitals and community services from direct health authority control, with the establishment of Trusts and Trust boards. The remit of Trust boards is to manage their trust effectively and to make a return on their capital stock, not to improve patient care or give satisfaction to the community. The devolution of purchasing to GP fundholders with no formal mechanisms for local accountability was part of the same trend.

As the NHS is further marketised the proportion of the budget spent on administration is rising. A study commissioned by the Department of Health in 2005 showed administration costs rising from 5 percent before the introduction of the internal market, to at least 15 percent. A conservative estimate is that it costs £5-billion to £10-billion extra a year to run the English NHS as a competitive market. The results of this study was kept secret until 2010.

Profits dressed up as  Patient Choice 

Along with the introduction of the internal market, various income generating schemes were introduced into NHS hospitals all charging patients exorbitant prices, these include but are not limited to:

  • Renting oft commercial space (think of the shops you see in the main entrance of hospitals).
  • Contracting of hospital car parking.
  • TV and phone services. If you have had an elderly relative in hospital, you will know the emotional bind this creates as the only choice is to pay the extortionate cost for TV and phone access, or to go without, and that feels just awful when the elderly person in the adjacent bed has a family with the means to pay and you don't.

Capital charging was introduced in 1991-92. The idea is that hospital Trusts (now set up to operate like businesses) would have to pay a fee (interest of 6 percent) on their capital assets (land, buildings and equipment) to the treasury. This functioned as an incentive for Trusts to sell land and buildings, to increase their prices where they could, to cut corners where they could (such as in building maintenance), and to cut services where they could. Capital charging paved the way for the use of the  Private Finance Initiative (PFI)  because the madness of making Trusts forever pay for the capital assets that they already owned was a step along the way to the utter corruption of PFI.

Information technology and data gathering was increasingly outsourced. Access to the data held by the private IT consultants costs a lot of money. For example Caspe Healthcare Knowledge Systems Ltd. collects and analyses hospital Trust databases, however it only makes the data available to the Trusts for an annual subscription fee of £5-thousand. This restricts independent researchers from having a truly comprehensive and detailed picture of what is going on.

All this set the NHS on a radically new path, it began the destruction of the NHS's capacity to plan and distribute resources on the basis of the health needs of the population, and opened the way for the later moves towards the  privatisation  of clinical services (see  NHS Plan 2000 ).

Also see  Patient's Charter