Why improving health is an excellent investment in the economy

 

Last week the IPPR’s Commission on Health and Prosperity published its final report. The report not only makes a number of important recommendations for future health policy, but it also focuses on how better health can also improve economic outcomes. I must admit, when I was first asked to be a member of that Commission, I did have a minor concern about this. I felt that the argument for better health was strong enough on its own and it didn’t need an additional economic payoff as part of its justification.

That may surprise you coming from an economist, but it is actually a basic part of academic economics. Academic economists typically write papers where the aim is to increase individual and social utility, not economic growth. As countless studies have shown, a person’s health is a key element of their happiness, wellbeing and therefore utility. [1] But I also understood that power in the UK lies in the Treasury, so making the links between better health and a more productive economy are important.

However, what I didn’t know when the Commission was being set up was just how crucial the interactions between health and the economy would become for the UK in the years after Covid. Here is a chart from the report:

The pandemic led to a rise in economic inactivity (those in the potential workforce not working) in many countries, but that rise was partially or completely reversed once the pandemic was over in nearly every country. The exception is the UK, where what had been a downward trend in inactivity became an upward trend. The report estimates that since the pandemic just under a million workers have left the labour force in the UK due to sickness (page 20 of the report). This is a huge number, and impacts on the prosperity of everyone in the UK.

Why has this happened in the UK and not elsewhere? The report debunks the idea that it is a ‘lifestyle choice’, by showing that the increase in inactivity is most marked among those with greater health needs or at greater health risk. My own guess would be that this is yet another consequence of the squeeze in resources going to health in the UK since 2010. The NHS was just about managing even though it was working beyond full capacity, but this meant that the UK health system was particularly vulnerable to a big health shock, and as waiting time data shows it has yet to show any signs of recovery from the shock of the pandemic.

The rise in those with long term health conditions doesn’t just lead to exits from employment, but also lower earnings (page 17) and productivity (page 26) for those who remain. Once again, the latter in particular has knock on effects on everyone else in the UK. For those who worry about this it also puts upward pressure on immigration. If I had to give two ways I was confident about how we could improve the UK’s growth and productivity performance, it would be through additional public investment and through improving UK health.

Most of the report is about how to do the latter, during a period when the government is likely to believe that money is very tight. The key emphasis is on moving away from a health mission all about dealing with acute need (what the report calls the ‘sickness model’, page 35), and instead aiming to create good health (page 39). In the sickness model personal health is seen largely as an individual responsibility, and society only gets involved when health problems arise. The problem with that model is nicely summarised by this graphic from the report:

Social conditions help determine how much people are able to take care of their health, and with a few exceptions we have largely ignored this problem. Focusing on the eventual effects of these social conditions rather than the conditions themselves not only reduces social welfare, but it is also more costly. Rising levels of obesity is an obvious example of this.

The idea that we should focus on prevention rather than cure is not new. What the report does very well is systematically and broadly think about what prevention might involve. It involves improving workplaces, for example, by incentivising firms to reduce stress and improve the workplace culture (page 41). It involves improving the unusually low level of UK sick pay which will help avoid sick people coming to work, taking longer to recover and affecting other workers. It involves taxing unhealthy goods far more than we do at present, and using some of that money to subsidise healthy goods (page 43). It involves providing more help and care for our children outside school (45). It involves reducing inequalities. And of course it involves reorienting more NHS expenditure towards health monitoring rather than treating illness.

For those who say this all sounds like creating a nanny state, let me introduce you to the basic economic idea of a Pigouvian tax. Sometimes individuals do things that have negative effects on others, but society rather than the individual bears the cost of those things. (We are used to thinking about negative externalities in the context of firms and issues like pollution, but the idea is far more general than that.) A Pigouvain tax tries to shift the cost from society back on to the individual. This leads to better social outcomes, and it also raises much needed cash.

Sometimes this idea can be applied directly, and a sugar tax is a very good example. In other situations applying a tax is not possible, so other incentives or regulations need to be employed. To go into all the ideas proposed by the report would make this post far too long, so I strongly recommend reading the report itself (page 53 onwards). It is full of ideas, case studies and international comparisons.

One final point. There are so many reports around nowadays, many of which have worthy goals but which involve additional costs to the public sector that are often left vague. This report includes an appendix which presents a costing of each proposal, or in some cases how much money a proposal will raise. If you take all the reports proposals together there is of course an immediate net fiscal cost, but like public investment this is not only money well spent, but is likely to pay for itself because of the benefits to the economy that will result.

[1] The relationship between happiness, wellbeing and utility is both interesting and complex, but that is for another time.