It was ever thus. As surely as night follows day, economic crisis is followed by grim debate about the crisis of the Welfare State. Is ever-rising public spending on health care, social security and the rest of the welfare programmes sustainable and affordable? Minatory projections of future spending levels are published to illustrate grim warnings about the risks involved if these programmes continue to demand an ever-increasing share of the national income. Ever-rising levels of taxation and public debt may throw grit into the engine of economic growth, it is argued, so compounding the problems of funding. Policy entrepreneurs dust off their long-cherished plans for radical changes in the system designed to turn visible public expenditure into invisible private expenditure. So it has been for the past three decades or more. So it is now. Over time, the terms of debate have scarcely changed.

Consider, for example, the reports of the Organisation for Economic Co-Operation and Development (OECD), articulating and propagating what might be called the dominant international policy paradigm. The themes that were to inform debate, and continue to do so, were set early (OECD, 1977). The starting point of analysis was anxiety about the continuing rise of public expenditure on health care as a proportion of gross domestic product (GDP) and projections of ever higher future spending levels absent measures to check the upward trend. At the time the figure for the United Kingdom was a mere 4.6%, although Sweden and Denmark had topped 6%. “Policy concern in the decade ahead is likely to shift toward ensuring that further improvements in the quality of health care are achieved more efficiently and effectively”, the report concluded. Above all, supply had to be controlled, given the evidence that in health care demand expanded with the available supply. Either user charges could be used to control demand, although the report recognised the problems involved: administrative costs, low take-up by the poor and high implicit tax rates for those on the edge of exemptions. Or there would have to be rationing by queuing and by the medical profession.

Subsequent reports (OECD, 1985, 1987, 1990) elaborated some of these themes, drawing on cross-national comparisons. In particular, there was ever more emphasis on the search for greater efficiency and effectiveness, with quality joining them to make up what is now the established rhetorical trinity, while recognising the slipperiness of the concepts involved and the difficulty of measuring them. New issues, such as provider competition and incentives to consumers to use low-cost providers, made their way onto the agenda. And perhaps the conclusion most relevant for today was that “much of the present policy debate is driven by value judgments, conventional wisdom and short-run budgetary considerations” (OECD, 1987: 94).

The fact that policy discourse has hardly changed over the past decades, with the familiar recurring themes informing current debates, suggests caution in seeing the global financial crisis as marking a turning point in the evolution of health care systems. If it turns out to be a turning point, it will be because the crisis marks the end of the era of economic optimism when year-on-year economic growth could, despite the occasional blip, be taken for granted, not because health care systems suffer from the original sin of fiscal incontinence.

To illustrate this point, consider Baumol’s much cited thesis that the cost of health care, as of education and other personal services, will inevitably rise over time. Productivity gains (if any) in these services do not match those in the manufacturing, technology-intensive sector of the economy. But earnings broadly march in step. So over time, health care will inevitably soak up a larger proportion of the national income. And this, of course, is precisely what has happened: the impact of demographic change and the ever-increasing scope of medical interventions has been reinforced by the relative price effect. Hence, Baumol’s “cost disease”.

If the fact that health care soaks up an ever-increasing proportion of national income across the globe is unsurprising, indeed inevitable, should it, nevertheless, be seen as alarming? Baumol (Reference Baumol2012) strongly argues in favour of acceptance rather than alarm. Provided economic growth continues to rise at an average rate of 2% a year, he argues, everyone can, nevertheless, enjoy rising living standards, even if health care continues to absorb ever more of the national income. We can, in effect, sit back and relax: never mind if the demands of health care financing shrink our share of the economic pie, because even a smaller share of a larger pie will leave us better off.

It is perhaps a deceptively reassuring message, inasmuch as it sidesteps questions about how health care should be financed, the appropriate balance between public and private funding and so on. But it underlines the fact that the crucial element in thinking about the future is less the likely growth path of health care spending than the likely growth path of the world economy. Projecting future spending paths for health care is now a highly developed, much practiced, art form (Appleby, Reference Appleby2013). Different methodologies yield different results, but at the top end of pessimism they suggest that the United Kingdom, for example, could be devoting as much as 16.6% of GDP on health and long-term care by 2061. Or, to put it in less alarming terms, by 2061 the United Kingdom could still be spending a slightly lower proportion of GDP than the United States does today.

All spending projections are sensitive to a range of sometimes heroic assumptions. For example, should we assume that morbidity (and costs) will be compressed into the last months of ever extended but healthy life or that expensive to treat co-morbidities will plague the declining years of an ageing population? So, it is not surprising that they are often subject to radical revisions (see, e.g. Cutler and Sahni, Reference Cutler and Sahni2013) However, the critical assumption, surely, is that made about economic growth: if that continues at the same rate as in the past, despite periodic stutters, then there is little reason for existential anxiety about the viability of health care systems. Over the past 50 or so years, the proportion of GDP devoted to public expenditure on health and long-term care doubled in the United Kingdom, as in other rich countries, while living standards rose at least as fast. So, even the pessimistic scenario about the next half century predicts that the future will be much like the past. Perhaps looking at history could have provided a short cut for futurology.

But what if the future is unlike the past in the one critical respect? What if long-term economic stagnation turns the competition between public expenditure on health care on the one hand, and consumer consumption and capital investment on the other, into something approaching a zero-sum game? Again, the record provides at least some hints about what happens when times get tough. First, it shows that mature health care systems in rich countries appear to have considerable adaptive resilience. Second, however, it also underlines the fact that national institutional and other factors (Klein and Marmor, Reference Klein and Marmor2012) will determine how they adapt: the ever-increasing use of a common language of analysis and prescription, adopted and promoted by international agencies, is deceptive in that the meaning of words tends to vary with the national context (Jacobs, Reference Jacobs1998).

Consider the reactions to the economic crises of the late 20th century, which first prompted OECD to issue its warnings about storms to come. Between 1960 and 1980 the mean rise in the proportion of GDP devoted to health care in OECD countries was 94.4%.Footnote ¹ Between 1980 and 2000, the equivalent figure was 23.3% (Hacker, Reference Hacker2004). In part, of course, this was because some of the countries concerned were still in the process of moving towards universal coverage in the earlier period but even in Britain, where this had been achieved long since, a deceleration in the rate of increase was evident. The emphasis in this period was, as Hacker argues, on achieving greater efficiency and responsiveness – the magic incantatory words – through structural reform rather than cutting benefits or coverage. But while public expenditure decelerated, out pocket spending accelerated: a combination of higher charges and more privately purchased health care. It is not clear, however, to what extent higher charges were intended to control demand – and, if so, with what effect on use and equity – as distinct from simply raising revenue.

The shift from public to private spending continued in the wake of the global financial crisis (see the analysis of cross OECD trends by David Morgan and Roberto Astolfi in this issue). So did the deceleration of public expenditure growth, with some countries going into reverse gear. A few countries even managed to negate the relative price effect by reducing the salaries of health care staff. In some cases, the severity of the cuts was directly related to the severity of the economic crisis – with countries like Greece in effect losing policy autonomy to the IMF and the European Commission – but overall there was no clear relationship between the two, nor does political ideology explain the pattern of change (Reeeves et al., Reference Reeves, McKee, Basu and Stuckler2014). It is a confused picture: free will reigns among nations, with little evidence of a deterministic logic beyond the control of individual states shaping policies.

But if there is cross-national evidence of adaptive flexibility in adapting to hard times, how sustainable are hair shirt policies? Are we simply witnessing a manic depressive pattern, where health care systems successfully retrench in response to economic crises, only to resume their spending upward trajectory once the crisis is over?

Here the case of NHS England is instructive. With an unprecedented slowdown in funding since 2010, following an unprecedented upward surge in previous years, the NHS now has to succeed in “the most ambitious programme of productivity improvement since its foundation” in order to close the gap between need and available resources (Appleby et al., Reference Appleby, Galea and Murray2014). So far that the gap has been largely covered by first freezing salaries and subsequently limiting their rise severely, clearly not a sustainable policy in the long term. The gap between wishful rhetoric – like asserting categorically, contrary to evidence (Ovretveit, Reference Ovretveit2009), that improving quality saves money – and reality is as large as that between need and funding. Long-term policies designed to transform the efficiency and effectiveness of services may have short-term costs before they produce dividends: changing the spending trajectory is not easy. The result is a service teetering on a fiscal cliff edge.

It is not the first time that the NHS has been in such a plight: in the 1980s its impending implosion was frequently predicted, and not for the first time (Klein, Reference Klein2013). But it would be the first time in its history that the Government of the day has not rushed in with extra funds to avoid the risk of calamitous headlines with a General Election approaching. Whether or not it does so depends on the third – and perhaps most important variable – in thinking about the future. The first, as we have seen, is uncertainty about the future dynamics of health care. The second is uncertainty about future economic performance. The third element is uncertainty about how future Governments will think about economic performance: the way they interpret the world around them in the light of the dominant paradigm of economic management at the time.

If governments pursue hair shirt policies in the case of health care, at great political risk, it is because they have committed themselves to a hair shirt economic paradigm with an emphasis on keeping national debt and taxation low. It is a paradigm that is fraying at the edges. The statistical evidence that economic growth slows once Government debt exceeds 90% has been comprehensively trashed (The Economist, 2013). Taxes as a proportion of GDP have even been falling in some countries, marginally in the United Kingdom and spectacularly so in Sweden. Critical voices about the impact of present policies on wealth and social stability achieve bestseller status (Piketty, Reference Piketty2014). Should faith in fiscal austerity begins to ebb, so may anxiety about the future sustainability of health care spending. If so, the evidence of recent decades may become a less reliable guide to the future.