Working with Colin Hines as Finance for the Future, I posted this report this morning:
At the center of this report is a simple suggestion. That suggestion is that, to restore the NHS to the relative state it was in when Labor left office in 2010, it would now require any government to spend an extra £30bn a year, which should then grow by at least 4 % year. In real terms. Fulfilling the mandate that Finance for the Future has received from its sponsors, the Polden Puckham Charitable Foundation, I went on to explain how this money could be raised.
The summary of the report is as follows, but I suggest it’s worth reading the whole thing (including the appendices), as there’s a lot of explanatory material there:
Resume
This report looks at NHS funding over time. What it shows, using data on NHS spending from HM Treasury, inflation data from the Office for Budget Responsibility, population data and the opinion of respected healthcare think tank The Kings Fund, is that it is likely that the NHS is now underfunded by £30 billion a year.
This underfunding is the result of austerity in NHS spending since 2010 taking into account the demands of a growing population in the UK and the rising costs of NHS treatments as the range of conditions facing the NHS can address has grown over time.
The consequence of this underfunding is that the NHS would currently need to be funded at £3,058 for every person in the country if the services provided were to match the equivalent level of service in 2009/10 when Labor was in office for the last time, but the actual spending for each person in the UK is around £2642, which means there is a gap of over £400 per person a year in NHS funding in the UK today.
The evolution of spending per person, all expressed at 2021/22 price levels, has been as follows:
Spending per person grew rapidly under Labour. It has been stagnant ever since, at least until the Covid era began.
Real spending growth after allowing for population change since 2010 has been less than 0.9% per year and ignoring population change of 1.56% per year.
The King’s Fund has suggested that the latest figure should be 4% a year, apparently taking into account the population change in that figure. The Labor Party achieved growth of more than 5% per year during the first decade of this century. It is the deficit since then that has cumulatively created the £30bn annual spending deficit that is now likely to exist.
The question to be asked in that case is how could this sum be financed? Identifying a problem without suggesting a solution doesn’t help anyone. This report suggests that there are a variety of options available:
- £10 billion of the funding for this additional cost will arise as a result of additional taxes paid by NHS employees to provide the necessary services. These taxes will be paid by those lured back into service by better working conditions and higher pay, many of whom now work in lower-paying jobs in the private sector, and by those lured back to work after having resigned from the NHS. and to work. total. The impact of additional NHS spending on growth in other parts of the economy is also factored into this estimate.[1].
- At least £5bn could be collected from the taxes paid by those who are able to return to the workforce because their own conditions will be well enough managed to allow this or because those they care for will enjoy better health, allowing them to return to work. .
In that case, it is suggested that at least half of the funds needed to bring the NHS up to required service levels will be generated directly from the profits created by that additional spending.
It is suggested that there are a variety of options to meet the remaining £15bn spending requirement. Three relate to loans in various ways:
- A government could simply decide to run a larger deficit to finance the £15bn requirement. The impact on the national debt is negligible, less than 0.6% of the national debt on the basis that the government likes to declare it annually.
- As an alternative, the Bank of England currently has a quantitative easing programme.[2] to sell the government debt it owns and bought under the quantitative easing programs that paid for the banking crises of 2008/9, the Brexit crisis of 2016 and the Covid crisis of 2020/21. If £15bn of this program were canceled every year and bonds were sold to fund the NHS, the funds could be found to deliver the healthcare we need instead. In this case, there would be no net impact on the amount of UK national debt owned by third parties.
- If another option is needed, National Savings and Investments could issue NHS bonds into ISAs to provide the funding. £70 billion is saved in ISA every year. With proper marketing it would be easy to find £15bn a year this way.
Alternatively, changes to the tax system that would have no impact on the vast majority of taxpayers could raise additional funds. These may include:
- Halve tax breaks on savings available to the richest 10% of people in the UK each year. Today this group is likely to enjoy at least £30bn in ISA pensions and tax breaks every year when they are already wealthy. That subsidy per wealthy person could exceed the average Universal Credit payments to each person receiving that benefit. Halving this relief would still provide the rich with very generous subsidies for their savings, but it would also leave us with the NHS we all need, including the rich.
- Alternatively, given that the House of Commons Public Accounts Committee found that for every £18 spent on tax inquiries an additional £18 is raised in tax, investing £1bn in additional funds with HM Revenue & Customs could be enough to recover the funds. required by the NHS each year.
- Should another option be required, the UK capital gains tax rate is currently set at half the income tax rate in most cases. This tax is largely paid by the wealthiest groups in society. If the capital gains tax rate were set at the same rate as the income tax rate, then income from this tax is likely to double, raising £15bn a year.
- Other options are also possible, each raising less than £15bn. For example, a further £6bn a year could be raised by charging an additional 15% income tax on the investment income of those below retirement age and over 5 £000 of investment income a year as they do not pay national insurance for this but enjoy SNS benefits. And, as Labor has been arguing, the so-called ‘non-dom’ rule that allows wealthy people with a non-UK origin to live here but not pay tax on their overseas income could be abolished, raising perhaps £3 billion tax a year.
Of course, it would be entirely possible to mix and match these options: there is no need to use only one source of financing.
What is clear is that arguing that there is no funding for the NHS is wrong: there are multiple options available to fund the NHS that we all need, and the same logic used here could also apply to other essential public services. .
No political party has an excuse for saying we can’t have great public services in that case: we can afford them. All we need is the political will to make them happen.
[1] This is commonly known as the multiplier effect.
[2] See the appendix to the report for an explanation of the quantitative adjustment.
