Markets are, in theory, Pareto efficient (see Unit 1). The government hoped that by introducing some market discipline into the NHS then efficiency must improve. Specifically, it hoped that by separating the providers from the purchasers there would be a mechanism whereby inefficient providers would lose customers and so change their practices to become more efficient and hence more competitive. Money would follow patients so that the efficient, flexible producers would be rewarded with extra revenue. This should encourage the providers both to minimise costs and to switch to new efficient methods of treatment as they become available.

What about allocative efficiency? Traditionally the NHS has not been responsive to consumer demand. In fact, its ability to ration consumers' demand for health care and so keep costs down has been seen as one of it advantages by some economists. Some observers believed that the introduction of GP fundholders would change this. It would allow consumers to express their preferences for a range of hospital and community health services by transferring their GP registrations. So if you were unhappy about the range of health care offered by your GP, then you could switch to another GP. Since GPs' incomes reflect the number of patients on their list, this would, in principle, exert a market discipline upon the doctors to provide the care the consumers want. In practice, patients are generally reluctant to change their GP, so the market discipline this provides is weak.

Equity

One major equity issue was the fear that introducing market forces within the NHS would lead to "cream skimming", that is "the deliberate selection of patients both by hospitals and by fundholding practices who were easier or less costly to treat in order to protect budgets".

However no evidence has been found to suggest that this has been a problem. This may reflect the fact that the NHS continues to be managed as a public service rather than as a system where financial targets come before 'needed' health care.

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