I want to focus on our political economy and how we consistently see the suppression of price signals. This includes, but is not limited to:
- land usage
- healthcare
- energy
- labour markets
- education
- social care work
Every country will limit the impact of pricing to some extent. However, the UK has shown the limits of this. Scarcity cannot simply be abolished in the economy by political intervention. Instead of prices adjusting, we see waiting lists, housing shortages, energy insecurity, worsening educational outcomes, and poor-quality care in the care sector.
As this was getting too long to write, I’ve decided to split it out, with a chronological approach. I’ve chosen to start with the NHS and the Town and Country Planning Act of 1947.
The NHS
The original vision
The NHS was created to provide universal healthcare for the British people, free at the point of use and funded through general taxation. The Attlee government nationalised the majority of existing infrastructure, bar GPs, into one coherent system. This would lead to care being given on need, rather than wealth.
The critical challenge is how to handle scarcity when price has been removed from consumption.
The break between price and action
At a basic level, prices perform two functions: they ration demand and signal where supply should expand. When demand rises, prices increase, encouraging suppliers to produce more while forcing consumers to prioritise their usage.
If price is removed, these functions do not disappear. They are replaced. Demand must be dealt with through other means—typically waiting, delay, or administrative control—while supply becomes slower to respond.
By far the biggest problem here is that the feedback mechanism from prices is immediately diluted. As an individual, it costs me nothing to go to the NHS once a year or 1,000 times a year. I am not penalised for my usage, nor my type of usage. I have no incentive to change my demand from the NHS point of view.
In other healthcare systems, like insurance-based ones, I would have to decide if making a claim would be worth it, which would immediately act as a demand cap. I may also have to make a co-payment, which again acts to discourage demand and prioritise usage.
For the NHS, the incentive structure is different. Because it cannot charge me for the demand frequency, it must turn to the price alternative – we know it as administrative rationing, with delays to treatment and access. This also leads to a serious problem. In a normal world, high prices would encourage suppliers to produce more of that good – whether it is milk, cars, flights, etc. Apply this to the NHS, and we should see rising demand for services or treatments attracting additional investment. However, the lack of price and the reliance on administrative and other non-pricing methods mean the NHS consistently struggles to adjust to the population’s changing demands.
The consequences
As there is no pressure from prices, the pressure must then come from other sources. In the NHS case, it is political.
Political pressure isn’t the worst thing in the world, but it is suboptimal. Politicians obviously have very different incentives from a healthcare system. For instance, see the usual demands for fewer managers in the NHS, even though we are already among the lowest in the developed world, according to the Institute for Public Policy Research. A newspaper headline leads to arguably worse outcomes for the wider healthcare service.
More fundamentally, a business can react to market signals, like pricing, to decide where to allocate resources. A public body with no prices, particularly one which is overwhelmingly centralised and reliant on general taxation, struggles to do this. Instead, there are short-term fixes consistently, quick changes to grab the latest headline and immediate voter preferences. Longer-term issues, such as building capital maintenance, are pushed out until it is unavoidable, rather than being considered part of normal operations.
An area of consistent short-term fixes is our trained medical professionals. Under the UK’s system, the number of doctors entering the system is planned through the General Medical Council. As a single player, the NHS is incentivised to keep salaries as low as possible, given that there are few other employers to challenge for workers. Wages are kept relatively stagnant, and this usually leads to workers leaving the NHS eventually to other healthcare systems, like Australia and New Zealand. Because there is such short-term political pressure, the easiest solution is to increase immigration rather than increase the uptake of British-trained doctors.
Another key area is our capital investment and productivity in the NHS. Given its emphasis on value for money, we see much lower beds per capita ratios than in other advanced nations, and much less investment in machinery or technology. Though this keeps costs down in the short-term, it worsens the problem in the long-term, and contributes to our poor productivity. We are continually forced to raise taxes and levels of medical immigration to compensate for the poor performance of the NHS.
How to reform it
We need to consider the fundamental principles behind a modern healthcare system:
- All of us will require healthcare at some point. No serious developed country would ever countenance not having some form of healthcare available to the population.
- Demand is growing. As we solve existing issues, we then turn to new ones. An example is mental health, which was never even conceived of in 1948. Any healthcare system has to assume further demand and be able to react accordingly.
- We need a much more dynamic and tailored healthcare system to reflect our times. There are different needs based on our ages, our gender, our ethnicity, our income, and so on. A healthcare system should be able to accommodate this.
Note that this does not necessarily imply a fully market-based model, as point one means a focus on wider society, rather than just simple prices. However, we can see that incorporating prices can lead to dynamism and better allocation. This suggests a role for insurance, co-payments, and other mechanisms.
Alternatives
We are lucky that there are plenty of alternatives to the NHS around the world, which give ample opportunities to learn from them and what they do well (and don’t).
I’d like to highlight two in particular, as I believe they meet the three key points above and would be politically acceptable:
- Germany, with its decentralised system of statutory health insurance. The national government does not directly provide healthcare, and it is primarily up to the individual states.
- Singapore, with universal healthcare through public insurance, co-insurance, government subsidies, and mandatory individual saving accounts for future health care needs.
(For more details, see here: https://danlewis8.substack.com/p/comparative-healthcare-systems?r=grzc0&utmmedium=ios&triedRedirect=true)
Note the clear positive role that pricing can play. Both utilise insurance, which can incorporate the price signal – you pay for insurance, which is partially calculated on your usage and history. You also have co-payments for appointments, which forces users to consider their demand (without spiralling into the American system).
Furthermore, given the competing suppliers, there are competition elements – insurers have an incentive to keep costs manageable, but also invest in their operations concurrently, like a normal business. By doing this, we can begin to break the political link and control between the government of the day and the performance of the healthcare service. Greater innovation and accountability are possible in these systems.
Moving forward
Right now, the UK is stuck. Though our healthcare spending has consistently risen, even during austerity, the NHS’s poor performance has continued. As we have seen above, this is not an accident – it is a healthcare system rationally adjusting to the absence of the price signal in other ways. This will continue regardless of who is in power, and can only be masked by strong economic growth at best. Queues, delays, and other issues are the inherent way to manage scarcity.
The British need to rebuild a healthcare system that includes the price signal. By doing this, we can build a modern healthcare system that can lead to better outcomes for all.
Housing
The original vision
The same issues that affect the NHS are also present in our housing, given that the Attlee government built both systems. Their beliefs were guided by the legacy of both World Wars, by the state’s management of the entire economy, and by fears of overgrowth and slums. The view was that the state would direct growth and produce the quality homes the British people needed after the war. This would lead to a fairer society for all.
The 1947 Town and Country Planning Act reimagined the relationship between land and the state. Development rights were nationalised, and the ability to build was dependent on planning permissions, not owning the land itself. As a result, the supply of land became less relevant, and it became about gaming the discretionary administrative system.
The break between price and action
In a normal market, higher house prices (demand) should indicate scarcity and encourage additional supply. This should therefore lead to construction and a new equilibrium.
However, the planning regime broke this connection. Firstly, development was now contingent on discretionary state approval, meaning that even with higher prices, supply was much more limited. Because it is discretionary, developers do not know when permission will be granted. This leads to supply being slower and more unpredictable, and unable to react to rising demand.
Demand has continued to rise, with population growth, changing households, and economic concentration behind it. Supply has been unable to adequately adjust.
We now have the smallest dwellings per person in Europe, the oldest stock, a consistent housing shortage, and an inability to match demand, with house prices to UK wages at a level not seen since the Victorian era.
Consequences
Because we have broken the link between prices and supply, we have attempted to alleviate the housing crisis in other ways.
Firstly, and nearly always announced by every new government: generous buying schemes (which raise the demand side again). Given the supply of houses is limited, the logical consequence must be a rise in house prices. This is great if you are on the ladder already (and crucially not looking to move), not great if you are not.
We have then turned to other mechanisms to deal with high prices. One of our favourites is quotas, in particular mandating % of social housing. Once again, note that this is just splitting what is there in the supply – so in reality, you are actually reducing the amount of supply available to the market. So once again, the price of houses must go up for those who are not eligible for social housing.
When we do try supply, we try these in fundamentally ineffective methods, such as trying to create New Towns to avoid offending existing homeowners. Note here the key issue. Yes, you have introduced supply. But crucially, you have introduced supply into a low-demand market. The prices for these homes must therefore be extremely low to attract demand – not likely to happen when you already load developers with so many other costs. Well-meaning acts such as the Building Safety Regulator, the two-stair initiative, and others increase costs significantly without a major increase in safety.
In the UK, access to social housing is governed by administrative criteria, with local authorities required to prioritise groups such as the vulnerable, the homeless, and those in “priority need”. These are legitimate policy objectives, but they operate within a system where overall supply is limited.
At the same time, population growth, including sustained net migration over recent decades, adds to underlying housing demand. In a system where supply cannot respond effectively, this increases competition for a fixed or slowly growing stock.
The result is that allocation becomes both administrative and politically sensitive. Housing is no longer primarily distributed through price, but through prioritisation rules. In conditions of scarcity, there have to be outright winners and losers. Such a binary tradeoff contributes to reduced public support for new development.
This dynamic is often underappreciated. Debates that focus solely on increasing supply can overlook the political reality that demand pressures, including migration, shape how new housing is perceived and accepted at the local level.
Alternatives
At a minimum, we need to fully repeal the 1947 Towns and Country Planning Act. I don’t see any other way to start to rebuild the cycle of price, demand, and supply once again in the UK.
Luckily for us again, there is no lack of alternatives, and crucially, we can do these on a relatively flexible level – frankly, I’m amazed the Conservatives never repealed the 1947 act for the major UK cities, given their low share base historically.
We need to move towards a zoning system, such as the Japanese system. It is straightforward and clear, and primarily focuses on building safety. If it is safe and clearly complies with the zone rules (e.g. don’t build an industrial estate in a residential zone), you can go ahead. There are no real discretionary elements, which means developers have certainty and can plan accordingly. Parts of the United States, in particular Austin, Texas, are also very liberal with their building permissions, but I suspect this will lead to backlash eventually, given it’s more freewheeling than elsewhere.
With the above in mind, I’d also suggest the following changes:
- Make it up to the regions on how they want to go about this, rather than a national system again. If areas experience much higher economic growth, they should be entitled to keep it. The national government should set the absolutely lowest floor (i.e., must be safe), and it’s up to the local governments on how they want to approach it.
- Allow regions to designate for themselves, wherever possible, about their prioritisation lists. We should be looking at France, which places local demand for subsidised housing above that of recent immigrants.
The transition problem
There is a very significant issue here compared to the NHS reform. Fundamentally, the UK has become a nation of expensive mortgages, with relatively low incomes. By increasing supply, we run the risk of negative equity for homeowners.
Unfortunately, I don’t really see a way out here. In the short to medium term, there are going to be losers (and for the record, that includes me). This would require different government actions to offset this, including removing stamp duty to help alleviate the market. In the longer run, we would all benefit, but translating this into a vote-winning strategy will be difficult, hence my preference for local power.
Moving forward
The UK has consistently struggled with house building and seen the average wage to house prices rise consistently since the 1980s. Factors such as globalisation, financialisation, and increased immigration have undoubtedly played a role here, but these are not the true causes. The fundamental issue is that the TCPA weakened the relationship between price and supply.
Until we reset this, we are not going to resolve our housing crisis.
Conclusion
In healthcare and housing, the UK chose to suppress the price signal to achieve fairness, equality, and stability, which are legitimate objectives. However, there is no way to eliminate scarcity in any system, and it can only be managed.
In the NHS, the lack of price signals has led to waiting lists, delays, and other capacity constraints. This has then led to weak supply changes, with lower productivity here than elsewhere around the world.
In housing, this instead emerged as shortages and increasingly contested allocation. Prices have risen, but the system cannot respond with additional supply.
These dynamics are precisely why the UK has struggled for so long with the NHS and housing, regardless of government or ideological persuasion. They can be temporarily masked through high economic growth and spending in the NHS, and generous buying schemes in housing, but these will never be resolved until the fundamental principle is addressed.
Ironically, in the pursuit of fairness and equality, we are getting the opposite. Healthcare is increasingly bifurcated by income, as wealthier individuals go private. In housing, the bank of Mum and Dad has entered the lexicon. The suppression of price has not removed scarcity and instead has changed how it is allocated.
We can make our systems fairer and more effective by better aligning demand and supply through pricing. Without this, the UK will struggle to see sustained economic growth.
