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A special NHS tax would be bonkers or a total fraud

19 January 2018

2:59 PM

19 January 2018

2:59 PM

Some very clever people are rallying around the idea of a specific NHS tax partly because of what has been called a ‘winter crisis’ in hospitals. It’s an idea that has been around for yonks, but Nick Boles’s book, Square Deal, has kick-started the debate again. He argues for National Insurance to be repackaged as National Health Insurance. This would ‘give the NHS what it needs while removing it from running financial battles in Whitehall,’ he says. Boles makes a strong case, not least as someone who has survived two bouts of cancer thanks to NHS treatment.

The key to his piece, I think, is this bit:

Currently, we spend 7.3% of GDP on publicly-funded healthcare and a further 1% GDP on publicly-funded social care… The taxpayer is therefore currently spending 8.3% of national income on the public provision of health and social care. In 2014, an independent Commission set up by the King’s Fund recommended some reforms which would extend the free provision of social care to more people. They argued that we would need to spend 11-12% of GDP on the public provision of health and social care by 2025.

There seems to be momentum building around an NHS tax, since it might force taxpayers to face up to the true cost of their health care. And it might allow NHS funding to be fully protected, now and in the decades ahead.

The Treasury’s former chief mandarin, Nick Macpherson, tweeted the following earlier this month:


Which is interesting mainly because of his background. Treasury types have always tended to oppose hypothecated taxes, to give them their technical name. (In translation, that’s ‘the dedication of the revenue from a specific tax for a particular expenditure purpose’.)

Others have piled in. Jeremy Hunt, says Rachel Sylvester, is ‘among a growing number of Tories attracted to the idea of a hypothecated health and social care levy as a way of making tax rises more palatable to the public’. Oliver Letwin supports it, she reports. So it seems does Graham Brady, the chairman of the 1922 committee of Tory backbenchers.

But there are a few reasons to be sceptical of the whole thing, which are worth setting out. First, it would either be bonkers or completely dishonest.

Let’s say the government opted for ‘hard’ hypothecation: we would all pay an NHS tax, and perhaps employers would too (as they do National Insurance), and whatever that revenue amounted to in a particular year – well, that would be the NHS budget. So if there were high unemployment, say during a recession, NHS funding would plummet – arguably when it’s needed most. In a times of plenty, it might even end up being over-funded and therefore spend too much. This would be madness. Surely it’s better to work out what funding is actually needed rather than to gamble on macroeconomic factors.

Thankfully, few are calling for this ‘hard’ version of hypothecation, but most are talking about something that’s arguably just as bad: the ‘soft’ option. This would involve an NHS tax, but the total amount raised by it would be topped up by the government – from general taxation – whenever needed. Not so much a square deal, then, as back to square one.

What, you might ask, would be the point of hypothecation at all in that case? The answer is… er… I suppose it might make people think more seriously about how much the NHS costs, but if it’s topped up it might also make them think the NHS is less costly than it really is – which isn’t a good thing. Even Lord Macpherson has said it was more about ‘smoke and mirrors to get people to agree to a tax increase’ than anything else. In other words, even if it does raise more money, it’s dishonest to taxpayers. Wouldn’t it be better for politicians, if they want to raise taxes, to be straight with those who are being asked to hand over their cash?

Lastly, as much as the NHS is our national religion, it would be wrong to assume widespread public support for a special NHS tax. John Appleby of the Nuffield Trust has pointed out that while 93% of those questioned in the 2015 British Social Attitudes survey thought there was an NHS funding problem, ‘only a quarter thought the solution was a dedicated NHS tax, with a further quarter supporting the view that the NHS should find ways of coping with its existing budget’. They want reform, not a spending splurge.

In other words, this is a big change that might face a massive public backlash like another recently proposed health-related ‘tax’ – the so-called dementia tax. We all know how that ended.


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