We should keep this in perspective: Under the previous
Labour government, real spending increased at a rate of 5.9% per year, so some
degree of slowdown was required. Indeed, this huge surge in outlays was designed
to raise health spending as a proportion of national income towards the average
levels of health spending in other western European countries – a target which
was not achieved. On a per capita basis real health spending has remained
roughly unchanged since 2010 although the ageing of the population, which
raises the share of elderly people, means that the per capita numbers are
slightly misleading.
Nonetheless, the government can claim that it has abided by its manifesto commitment to protect the National Health Service from the cuts in other public services. But at a time when the strain on the NHS is greater than ever before, the government (irrespective of political persuasion) is going to have to face up to some uncomfortable truths on the provision of health care. Part of the problem stems from the fact that although health spending has been spared the worst of the cuts, the social welfare bill has been slashed, having fallen by 1% in real terms since 2009-10. Faced with a lack of options, people are being forced to turn to the NHS for help which it is not designed to provide, which in turn impairs its ability to meet its other targets.
Professor Sir Bruce Keogh, medical director of NHS England, highlighted in a newspaper interview two years ago (here) that the lack of local services such as district nurses, beds in community hospitals and mental health support were key factors behind the rising strain on front line health services. It is not as though the government is unaware of the problem. The Times reported in December that Chancellor Philip Hammond wanted to raise the funds allocated to social welfare provision but was overruled by the prime minister. It further suggested that the issues facing social welfare are “a political problem exacerbated by political cynicism,” following the stymying of cross-party efforts to find a solution to the problem by former Chancellor George Osborne before the 2010 election.
On the basis that the NHS in England expects to face a cash shortfall of up to £30bn by 2020, what can be done to plug the hole? Unpalatable though it may sound, a simple option would be to raise taxes. A rise of 1% in the basic rate of income tax would provide £4.5bn of additional revenue by 2019-20, according to the Treasury’s ready reckoner. Bearing in mind that the basic rate today, at 20%, is the lowest in decades (40 years ago it stood at 30% and it was last cut in 2008 from 22%), this is not the worst option. A 2% rise in the higher rate of tax would yield a further £2.0bn. The government could also raise national insurance contributions which are, after all, designed to fund social welfare provision. A 1% rise in employee contributions would raise almost £4.3bn and a similar increase in employer contributions would generate £5.1bn. But the real kicker is the government’s planned cuts in corporation tax rates. Each 1% reduction in the standard rate costs £2.4bn in revenue, and with the government planning to cut the standard rate from 20% today to 17% by 2020, this will cost £7.2bn in revenue. If corporate taxes are left unchanged and the other tax hikes are implemented, this would get us two-thirds of the way towards covering the health spending shortfall.
These are, of course, static calculations. Employers will create fewer jobs if payroll taxes rise which will result in less revenue than these numbers suggest. However, they illustrate that UK governments will at some point have to begin squaring the circle. The 30 year period during which governments have cut taxes whilst promising world class public services are over.
Nobody likes to pay higher taxes of course (least of all me). Thus the other unspoken possibility is to introduce some form of charges in order to encourage rationing. One option might be to introduce an initial charge for doctor’s visits with subsequent visits incurring no such penalty. The British Medical Association reckons that there are around 340 million consultations per year; over 90% of this contact is with local general practitioners and the average member of the public sees a GP six times a year. Running through the maths, GPs see 51 million different people per year. Imagine that the first GP consultation per year was charged at £10 with subsequent ones free (with suitable exemptions for the very young and the very poor) – which is the equivalent of three pints of beer per year or 12 pints of milk – this would yield £0.5bn per year in user charges.
Whilst this is not a huge amount in the grand scheme of things, it might be the direction in which we are forced to travel. As we all know, demand for health care is near-infinite, and unfortunately we need to find ways to fund this demand as our population ages and the pressure on the system mounts. But are our governments brave enough to face up this unpalatable truth? It certainly won’t win votes but it might help to preserve the health services.
Nonetheless, the government can claim that it has abided by its manifesto commitment to protect the National Health Service from the cuts in other public services. But at a time when the strain on the NHS is greater than ever before, the government (irrespective of political persuasion) is going to have to face up to some uncomfortable truths on the provision of health care. Part of the problem stems from the fact that although health spending has been spared the worst of the cuts, the social welfare bill has been slashed, having fallen by 1% in real terms since 2009-10. Faced with a lack of options, people are being forced to turn to the NHS for help which it is not designed to provide, which in turn impairs its ability to meet its other targets.
Professor Sir Bruce Keogh, medical director of NHS England, highlighted in a newspaper interview two years ago (here) that the lack of local services such as district nurses, beds in community hospitals and mental health support were key factors behind the rising strain on front line health services. It is not as though the government is unaware of the problem. The Times reported in December that Chancellor Philip Hammond wanted to raise the funds allocated to social welfare provision but was overruled by the prime minister. It further suggested that the issues facing social welfare are “a political problem exacerbated by political cynicism,” following the stymying of cross-party efforts to find a solution to the problem by former Chancellor George Osborne before the 2010 election.
On the basis that the NHS in England expects to face a cash shortfall of up to £30bn by 2020, what can be done to plug the hole? Unpalatable though it may sound, a simple option would be to raise taxes. A rise of 1% in the basic rate of income tax would provide £4.5bn of additional revenue by 2019-20, according to the Treasury’s ready reckoner. Bearing in mind that the basic rate today, at 20%, is the lowest in decades (40 years ago it stood at 30% and it was last cut in 2008 from 22%), this is not the worst option. A 2% rise in the higher rate of tax would yield a further £2.0bn. The government could also raise national insurance contributions which are, after all, designed to fund social welfare provision. A 1% rise in employee contributions would raise almost £4.3bn and a similar increase in employer contributions would generate £5.1bn. But the real kicker is the government’s planned cuts in corporation tax rates. Each 1% reduction in the standard rate costs £2.4bn in revenue, and with the government planning to cut the standard rate from 20% today to 17% by 2020, this will cost £7.2bn in revenue. If corporate taxes are left unchanged and the other tax hikes are implemented, this would get us two-thirds of the way towards covering the health spending shortfall.
These are, of course, static calculations. Employers will create fewer jobs if payroll taxes rise which will result in less revenue than these numbers suggest. However, they illustrate that UK governments will at some point have to begin squaring the circle. The 30 year period during which governments have cut taxes whilst promising world class public services are over.
Nobody likes to pay higher taxes of course (least of all me). Thus the other unspoken possibility is to introduce some form of charges in order to encourage rationing. One option might be to introduce an initial charge for doctor’s visits with subsequent visits incurring no such penalty. The British Medical Association reckons that there are around 340 million consultations per year; over 90% of this contact is with local general practitioners and the average member of the public sees a GP six times a year. Running through the maths, GPs see 51 million different people per year. Imagine that the first GP consultation per year was charged at £10 with subsequent ones free (with suitable exemptions for the very young and the very poor) – which is the equivalent of three pints of beer per year or 12 pints of milk – this would yield £0.5bn per year in user charges.
Whilst this is not a huge amount in the grand scheme of things, it might be the direction in which we are forced to travel. As we all know, demand for health care is near-infinite, and unfortunately we need to find ways to fund this demand as our population ages and the pressure on the system mounts. But are our governments brave enough to face up this unpalatable truth? It certainly won’t win votes but it might help to preserve the health services.
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