A review of news over the past seven days, including thoughts on Burnham’s ambitions for a National Care Service and the case for a small increase in interest rates (“a stitch in time…?).
Theme of the week
Some first thoughts on Andy Burnham’s ambitions for a National Care Service (NCS)…
There are four key questions. What is it? Who would provide it? How much would it cost? And how would it be funded? Media interest has focused on the last of these questions, but all are important.
- What is it? Burnham wants NHS‑style universal social care in England: free at the point of use, with no means-testing. People would not need to sell their homes to pay for care or face catastrophic costs in a worst case. This would be more ambitious than Scotland’s NCS, though people in residential homes would still have to pay the day-to-day living costs.
- Who would provide it? The state would deliver the care, with minimal private sector involvement. Burnham has accelerated the Casey Review which should flesh out the details, but known elements include integrating social care with the NHS and improving pay and career progression for care workers.
- How much would it cost? Unknown, but estimates start at around £18 billion a year. Supporters argue that better coordination of health care and social care is the only viable solution in the long run and could eventually save money.
- How would it be funded? From taxation, perhaps some combination of new taxes on income (a social care levy, modelled on NICs) and a flat rate tax of (say) 10% on all estates at death (perhaps replacing IHT, though a straight swap here would be unlikely to raise enough money).
So, what to make of all this?
For a start, Andy Burnham deserves credit for prioritising the issue. Adult social care is a mess, and the problems will only get worse as the population ages. This is indeed the sort of long-term challenge that requires cross-party support.
However, I can see three big problems with Burnham’s proposed solution. First and most obviously, the centralised, state-led, “free at the point of use” NHS model is clearly failing, so why would we want to roll it out for social care too?
The NHS is notoriously bureaucratic and inflexible, slow to adopt new technology, and delivers poor patient outcomes. It might be idolised in the UK, but other countries have chosen to adopt many other alternative models.
As for “free at the point of use”, it is important to protect families from catastrophic costs, but it does not seem unreasonable to expect bigger contributions from those that can afford it. This including selling their homes if necessary (as would be the case if they held a large amount of wealth in financial assets rather than in property).
Second, it would be a mistake to exclude private sector providers. Again, the more successful healthcare systems – especially in Europe and Asia – involve a far wider mix of public and private provision, with much more choice. One size does not fit all.
Third, the tax burden is already at a record high. Additional levies on either income or wealth should be a last resort (not as it seems to be, the first), and only if it is impossible to find savings elsewhere in the budget or other ways of raising revenue (including pro-growth supply-side reforms). Any new payroll or property taxes could have all sorts of unintended and unwelcome consequences.
In short, there’s an awful lot to think about here and doubtless a lot more to be written as well.
The same applies to two more of Burnham’s big announcements this week: a renewed focus on technical education in schools and the greater sharing of tax revenues with local mayors. For now, though, here are good takes on the former from Sam Freedman “Burnham’s first mistake” and on the latter from David Phillips at the IFS.
Sunday 26 July
New Chancellor John Healey set out his stall in The Sun with a pitch to “buy British on a scale never seen before”. This is good, populist stuff – until you ask what it means in practice. For a start, is he saying that he will “buy British” even if a foreign company can provide a better product at a lower price?
Will he ignore all the international agreements that require fair competition for government contracts, even though other countries could then lock UK companies out? And does he really think that protectionism is a sensible economic policy, despite all the evidence that it undermines productivity and growth, and actually costs jobs?
To be clear, there are circumstances where the origin of goods and services does matter. For example, the import intensity of government spending is relevant to the “fiscal multipliers”. National security may also play a part, especially in fields like defence. But a blanket “Buy British” policy would be bad economics.
Monday 27 July
I found myself wading further into the debate about the need to “reindustrialise” and posted this chart.
Note that UK manufacturing output is near a record high, despite all the doom and gloom about the sector. Manufacturing jobs have still gone, but this reflects much higher productivity. Making more with less is usually regarded as a “good thing”.
Manufacturing output has also still fallen as a share of UK GDP, but this has happened in almost every advanced economy. It usually makes sense for each country to specialise in whatever they do best, and it is also normal for the services share to grow over time.
Of course, there are still lots of potential concerns (including the regional impacts). But it would be helpful if people were clearer on what they thought the problems are.
Generally, these problems (and the solutions) lie on the supply side, such as tackling the UK’s relatively high energy prices and the complexity of the planning and tax systems. These problems cannot be solved by clumsy interventions on the demand side, such as a “Buy British” strategy, or an activist industrial strategy which attempts to pick winners.
Tuesday 28 July
Two more reassuring signal on UK inflation.
First, the BRC measure of annual shop price inflation fell to 0.9% in July from 1.2% in June (the slowest since December last year). Food price inflation slowed to 2.2% from 2.4% (lowest since February 2025).
Second, the UK public’s inflation expectations ease further in July, according to the Citi/YouGov survey (though it would not be a surprise to see them edge up again in August given the recent bad news on energy prices).
Wednesday 29 July
Another reason for the MPC to keep interest rates on hold. The latest Bank of England data confirmed that broad money growth is still relatively subdued, at least compared to the surge in 2020 (which helped to fuel the spike in inflation in 2022). However, at around 4% (for household M4ex) it is hardly screaming “rate cut” either.
Thursday 30 July
The Bank of England’s MPC did indeed leave UK interest rates at 3.75%, but the 6-3 split was marginally more hawkish than expected I commented in detail on the decision in a separate blog (“Bank of England edges closer to an autumn hike”), which you can read here. But for a short take, here was my own vote and reasoning as part of the Shadow MPC run by CityAM…
Vote: Hold
What has influenced your decision?
This is a finely balanced decision. Inflation has been above two per cent for nearly two years and is unlikely to return to target for at least another year.
A small rate rise now could send a clear signal that the Bank is determined to prevent inflation from spiralling out of control again. It would also be preferable to larger increases later – a case of “a stitch in time saves nine”.
Nonetheless, the case for raising rates to protect credibility has weakened since the last meeting. There is still no sign of significant second-round effects from the surge in energy prices. Inflation expectations remain anchored, private sector wage growth continues to slow, and strong competition is holding down shop prices.
Broad money growth remains too weak to fuel a sustained rise in inflation, while higher market interest rates are already tightening financial conditions.
Meanwhile, GDP grew by an impressive-looking 0.5% q/q in Q2 in the EU and 0.4% in the euro area. However, both figures were distorted by Ireland’s dodgy data, which should almost always be excluded from comparisons with the UK – and especially when trying to gauge the impact of Brexit!
More meaningfully, GDP rose by 0.2% in each of Germany, France and Italy – still positive, but much less to cheer.
Friday 31 July
A date for your diary – the Treasury announced that John Healey will present his first Budget on Wednesday 28 October. This may be Healey’s first good decision. Rachel Reeves’ last Budget was as late as 26 November, which maximised the period of damaging speculation and uncertainty.
And finally…
Excitement is mounting ahead of the Clacton by-election on 13 August, as the people’s choice makes his pitch (he had me at No.2…)
Plain-speaking Economics 