{"id":41752,"date":"2018-03-29T14:05:56","date_gmt":"2018-03-29T13:05:56","guid":{"rendered":"https:\/\/blogs.bmj.com\/bmj\/?p=41752"},"modified":"2018-04-13T13:22:20","modified_gmt":"2018-04-13T12:22:20","slug":"john-appleby-a-dedicated-tax-to-fund-the-nhs-a-zombie-policy-idea","status":"publish","type":"post","link":"https:\/\/blogs.bmj.com\/bmj\/2018\/03\/29\/john-appleby-a-dedicated-tax-to-fund-the-nhs-a-zombie-policy-idea\/","title":{"rendered":"John Appleby: A dedicated tax to fund the NHS\u2014a zombie policy idea?"},"content":{"rendered":"

We don’t need a new tax to fund the NHS, but rather the political decision to spend more on the NHS<\/p>\n

<\/p>\n

\"john-appleby\"<\/a>The idea of a dedicated\u2014or hypothecated\u2014tax to fund the NHS is back in the news. The Secretary of State for Health and social care<\/a> has aired the idea (though he doesn\u2019t necessarily support it). And in a letter to the Prime Minister signed by 98 MPs<\/a> arguing for a cross-party commission on the NHS and social care, it was suggested that hypothecation was an option for future funding.<\/span><\/p>\n

But if the problem\u2014as Jeremy Hunt and many others argue\u2014is the need for higher spending on health, is a dedicated tax the answer?<\/span><\/p>\n

A year ago Richard Layard and I debated the pros and cons of a dedicated NHS tax in The BMJ<\/em><\/a>. While a week may be a long time in politics, the economic arguments about hypothecation remain the same.<\/span><\/p>\n

But what might a dedicated tax look like? One option would be to rebrand one or more existing taxes as an “NHS tax”. Layard has suggested national insurance contributions as a possible candidate. On its own, this will not cover planned NHS spend across the UK of around \u00a3150 billion\u2014falling short by around \u00a313 billion. This could be topped up of course by increased national insurance rates. Similarly, income tax (forecast to raise \u00a3189 billion in 2018\/19) or VAT (\u00a3130 billion) could be, with modifications, rebadged.<\/span><\/p>\n

So, we\u2019ve relaunched an existing tax as a new NHS tax. Job done? Well, no. We\u2019ve effectively moved the deckchairs around and little more. Taxpayers can perhaps see a bit more clearly that what the NHS spends comes from a specific tax. But so what? Is this materially any advance on knowing that the NHS is paid for from the taxes we pay HMRC?<\/span><\/p>\n

As with income tax and national insurance, however, the amounts we pay as individuals would also be more transparent, as presumably the NHS tax would appear on pay slips. Whether this is a good thing or a bad thing depends. On the one hand, it reinforces a connection between taxes with NHS spending. On the other hand, could it also undermine the collective insurance idea underpinning the NHS that a person\u2019s contribution to funding the NHS is not directly tied to that person\u2019s consumption of healthcare? The central point of the NHS is that the link between payment and consumption is deliberately broken.<\/span><\/p>\n

One thing we would probably want from an NHS tax is a degree of fairness. In particular that the tax is at least not regressive (the poor pay proportionately more of their income than the rich) and, more probably, progressive (the rich pay proportionately more). While income tax is progressive, VAT certainly is not and neither is national insurance.<\/span><\/p>\n

Another characteristic of a dedicated tax\u2014which we might deem desirable for funding a public service from which everyone benefits directly and indirectly\u2014is a wide tax base. But almost by definition, a hypothecated tax would have a narrower base than funding the NHS out of general taxation (to which everyone, including businesses, contributes).<\/span><\/p>\n

Of course, tying spending to any particular tax exposes the amount available to spend on health to broader economic conditions. The funds available for spending will increase as the economy (and income) increase, but reduce in times of economic slump. \u00a0<\/span><\/p>\n

Some of these problems could be, in theory, dealt with. Variations in funds available due to wider economic conditions could be smoothed over through top ups and reductions from year to year. And making an existing tax such as national insurance more progressive could be achieved by restricting contributions in relation to earnings. But these are not trivial things to do and will make the link between tax and spend\u2014a selling point of a dedicated tax\u2014much less obvious.<\/span><\/p>\n

Perhaps the most significant problem with an NHS tax is that it puts the (tax) cart before the (spending) horse. The key decision is how much we want to spend on the NHS; a secondary decision is then how we raise the funds to satisfy this decision. And in fact we already have a reasonably fair and efficient system for doing this through the current tax system.<\/span><\/p>\n

In short, what\u2019s required isn\u2019t the bother and difficulty of creating a new tax, but rather the political decision to spend more on the NHS.<\/span><\/p>\n

John Appleby<\/strong> is the Director of Research and Chief Economist, Nuffield Trust. He is a visiting professor at City University and Imperial College, London.<\/em><\/p>\n

Competing interests<\/strong>: None declared.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

We don’t need a new tax to fund the NHS, but rather the political decision to spend more on the NHS […]<\/p>\n

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