A tax earmarked for the NHS is an option worth exploringby George Magnus / February 20, 2018 / Leave a comment
Is the National Health Service suffering a “permanent winter”?, asked the Financial Times in a recent assessment of how the NHS is coping with not just seasonal pressures but eight years of restricted funding. It is an important question, but the NHS winter health-check is the tip of an iceberg that incorporates the whole array of age-related spending, including also social care and pensions. In short, Britain’s ageing society is becoming expensive—fast.
It is high time we had a grown-up debate about the entitlement rights and obligations of ourselves as citizens, and the state, to which we look as a provider of infinite resources. Solutions are going to be controversial and challenge vested interests—but so be it.
One potential solution that should be debated is the “hypothecated NHS tax” proposal, recently advocated by a former Permanent Secretary to the Treasury, Nick Macpherson, amongst others. A hypothecated tax is simply a tax earmarked for a specific purpose. It’s not often been done because the Treasury and many economists elsewhere have historically disliked this idea as too cyclical—revenue shortfalls in bad economic times when they’re needed, and surges in good times—and too deceptive, because the government could still siphon revenues off to other programmes. Better, it is said, for the Treasury to receive all revenues and allocate, switch and replenish funding as necessary.
Yet, there are important reasons for a re-think in view of the unique circumstances of the financial burden of ageing. First, an NHS tax would probably be popular as taxes go, as everyone would be funding an organisation held in the highest esteem. Second, the cyclicality risk might be unavoidable, but could be mitigated by a parliamentary agreement that if revenues fell woefully short, the Treasury would have to make good. This would hopefully be infrequent.
“The Office for National Statistics expects the number of over 65s to increase by 7m by 2046”
Third, as a general tax, it would convey the essential message that healthcare in an ageing society is an expensive business, and will fall short unless we all pay. The technologies that are delivering better preventative and clinical care are costly.
So how would it work? If levied via National Insurance (NI), for example, the tax should apply to working retirees at a reduced rate. Older workers who have not yet retired,…