Anita Charlesworth: Do we want a sustainable NHS enough to agree to higher taxes?

anita_charlesworthWhatever constitutes essential reading for doctors, the last edition of the Office for Budget Responsibility’s fiscal sustainability report seems unlikely to make the shortlist. The OBR’s job is to speak truth to power and provide an independent, transparent analysis of the nation’s financial health. The fiscal sustainability report is the economics equivalent of a full health check. Fundamentally the question they are asking is “can the country afford it’s spending commitments within the tax base.” In this year’s report, they have examined the potential impact of the Prime Minister’s announcement of £20bn extra for the NHS by 2023/24 on the government’s overall finances.

On one thing, the OBR is clear—there is no Brexit dividend to fund increases in NHS spending. This leaves three choices: borrow more and increase government debt; cut other areas of spending; or increase taxes. These decisions are obviously important, but many would question whether it’s a debate for those in the NHS.  

The 70th anniversary of the NHS is a timely reminder of the importance of looking beyond the short term to focus on the sustainability of the NHS. Public commitment to the principle of a tax-funded NHS, free at the point of use, remains rock solid, but a recent survey conducted by the Health Foundation found that nearly a quarter of people (23%) believe the National Health Service won’t exist at all in the future. The House of Lords established a Select Committee to look at the future sustainability of the NHS which reported last year. It concluded that the NHS model is fundamentally sustainable, but is at risk from short-term cycles of boom and bust in funding and workforce.

The OBR’s analysis shows what would happen to debt if we funded the planned increase for the NHS from borrowing, other things being equal. The answer is, debt balloons. Government debt is currently over 80% of our national income—this is high. Prior to the Great Recession it was around 40%. This means the UK doesn’t have much of a buffer to manage a potential economic storm from Brexit or even the normal ups and downs of the global economy. With the extra NHS pressures, debt increases to around 100% of GDP in 20 years’ time and 140% in 30 years’ time. Borrowing in year would grow to over 10% of GDP in 30 years’ time. As the OBR say, outside of wars, the UK has never run a deficit above 10% of GDP. In reality, no government could run such large deficits over a sustained period. So, funding the NHS from borrowing over the long-term is a chimera—if we want a sustainable NHS we have two choices: cut other areas of spending or pay more in taxes.

Over recent decades we have grown NHS funding by cutting other services. Big reductions in defence spending have created fiscal headroom. Education spending has fallen as a share of GDP as more of the cost of university education has shifted from state to student. Since 2010, healthcare has been the big winner in the public spending beauty parade; local government, including social care, the big loser. Spending on social care has fallen by over 10% in real terms since 2010 with 400,000 fewer people receiving help in 2013/14 compared with just 4 years previously, despite a big growth in the population over 65. Work by the Health Foundation and IFS concluded that it is incredibly hard, if not impossible, to see where there is scope for further cuts to other areas of spending on the scale needed to accommodate a £20bn increase in the NHS budget.

The experience of social care is also a cautionary tale for fiscal agnosticism amongst the NHS—cuts to social care have undoubtedly added to NHS pressures. Recent research shows that reductions to social care have contributed to growing A&E attendance.

This leaves us with the generational choice—do we want a sustainable NHS enough to argue for and agree to the consequences, in terms of higher tax? It may be that economists are suffering from a failure of imagination, but working through the numbers, if we want the ends of a high performing NHS, we need to will the means of additional tax. Looking internationally, our partners in the 15 countries of the EU that joined before the fall of the Berlin Wall all have larger tax bases. The UK has the 13th lowest share of GDP taken in tax with just Portugal and Ireland lower. If we funded all the extras promised to the NHS through taxes, this would be a substantial increase and putting up taxes while earnings are still below their 2007 peak would be hard. But it would still leave the UK 13th in the EU tax league table. Some might argue that this demonstrates that the House of Lords were wrong—the NHS is unsustainable. But it’s important to note we are not high spenders on healthcare internationally. The drivers of spending are not the model of a tax funded NHS; they are ageing, chronic disease, and technological advance. We would still have to meet those challenges if we reformed funding, but at what price for equity and the low levels of administration that come from our funding system?  

Anita Charlesworth is director of research and economics at The Health Foundation.