Expert health panel calls for ringfenced health and care tax to replace National Insurance

A new tax earmarked solely for the NHS and social care is among the recommendations from a panel of 10 experts in a report on healthcare funding in England commissioned by the Liberal Democrats. This heavyweight report, Health and Social Care: Delivering a Secure Funding Future, will form the blueprint of the Liberal Democrats’ ongoing healthcare policy.

The panel, which includes former chief executives of NHS England, the Royal College of Nursing, and the Patients Association, concluded that the NHS in England needs a real terms funding increase of £4bn in 2018-19 and further real terms increases of £2.5bn in each of the following two years.

In the short-term, the NHS funding gap could be bridged by an income tax increase. The Liberal Democrats have been calling for a penny on the pound in income tax to help fund the NHS. Longer-term, health and care funding should be brought together in a single ring-fenced tax to replace National Insurance, the report argues.

Other recommendations include:

  • Creating an Office for Budget Responsibility for Health
  • Introducing incentives to encourage people to save more towards adult social care
  • Additional revenue for local authorities to invest in public health
  • Reinstating the cap on the costs of adult social care

The panel also argued that consideration should be given to scrapping the total exemption from National Insurance Contributions for people who work beyond the age of 65. Liberal Democrat leader Vince Cable is considering this proposal for higher earners.

Liberal Democrat leader Vince Cable said:

This specialist report provides some convincing answers on arguably the greatest domestic crisis facing the country: how to deal with the severe pressures on health and social care services. We must never again be in a position whereby funding is so short that more than 50,000 operations have had to be postponed over the course of a single month.

The health and care budget should be financed by an earmarked tax, which could replace national insurance. Many of those previously strongly opposed now accept that, in the case of the NHS, there is a strong argument for a form of ringfenced tax.

Panel member Professor Clare Gerada, former chair of the Royal College of General Practitioners, said:

At a time when the NHS and social care face such immense pressures, policy makers must be willing to look at bold solutions in order to safeguard vital services for generations to come.

Developing this report has been a welcome opportunity to explore ideas including the creation of a dedicated health and social care tax, which could help deliver the long-term funding that services desperately need. I hope policy makers of all parties will consider these recommendations seriously.

Panel member Dr Peter Carter, the former chief executive of the Royal College of Nursing, said:

Our NHS has tens of thousands of staff vacancies and is billions of pounds short of the funding it needs. It is clear that we cannot carry on like this. There is a desperate need for an injection of extra funding, but we must also look at longer term solutions to put services on a more sustainable footing.

Whether this is enabling services to modernise and innovate, and encouraging prevention and more out of hospital care, this report looks at ways we can tackle these deep seated challenges right across the system.

Norman Lamb, Liberal Democrat and former health minister, said:

This report is an important contribution to the debate on the future of the NHS and social care. I have long argued for a hypothecated tax and that is now gaining support across the political spectrum.

However, it is clearer than ever that we also need to establish a cross-party NHS and Care Convention – a time-limited process that would engage with staff, patients and the public to come up with a plan for securing the long-term sustainability of these treasured services.

Liberal Democrat health spokesperson Judith Jolly said:

We will all rely on our NHS and social care to treat and support us at one time or another. These services, and the hard working staff who run them, deserve more than to be left to struggle through another crisis, barely able to make ends meet.

The introduction of an ‘OBR for Health’ would mean independent, reliable and long-term forecasting of exactly what resource is needed to carry on providing the high quality care we all have the right to expect. I whole heartedly welcome this recommendation.

In response to the report, former Permanent Secretary to the Treasury Lord Macpherson said:

This report addresses the main challenge facing the country’s finances: how to fund the inevitable increase in spending on the NHS and social care. It contains interesting and constructive ideas on tax which merit further consideration and debate.

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  • Lord Macpherson : “This report addresses the main challenge facing the country’s finances.”

    Whilst I welcome the fact that Sir Vincent Cable has followed Jo Grimond’s practice in the 1960’s in convening a panel of experts to consider this great issue, I’m afraid Lord Macpherson of Earls Court (Eton & Balliol) is incorrect to use the term ‘the country’s finances’.

    The term should be ‘England’s finances’ – given that is the part of the UK affected by the report. Beyond that, there is much to digest and think about and it could be a useful benchmark for the study on health and social care that Alex Cole-Hamilton is trying to set up in Scotland (though in general plans to combine health and social care are more advanced than in England).

    Maybe somebody can tell us what (if anything) is happening in Wales and Northern Ireland.

  • John Barrett 5th Feb '18 - 10:04am

    Any funding increases for the NHS is unlikely, on its own, to tackle many of the problems in the NHS, which we are regularly told that it is unable to cope with the demands we place upon it.

    Hopefully there will also be a serious attempt in any NHS plans for the future to reduce the demand on the NHS, with the public playing its part.

    Some Accident & Emergency units have reported that approximately 50% of admissions at the weekends are as a direct result of alcohol abuse, which could be avoided. Many other illnesses and hospital admissions are directly related to excessive drink, smoking, lack of exercise, too much junk food etc.

    Just pumping more cash into the NHS to deal with the above problems is not going to solve anything unless those problems are tackled at the same time.

    Unless the general public plays a more active part in looking after its own health, those who cannot avoid health problems will continue to be treated in an NHS whose resources could be used much more effectively used and the extra bonus of looking after our own health is that many people will also feel better for much longer too.

  • Yeovil Yokel 5th Feb '18 - 10:26am

    Beveridge Mark II?

  • Peter Martin 5th Feb '18 - 12:26pm

    You can’t “ringfence” taxation in this way. Hypothecated taxes rarely function as intended for very long. National Insurance itself It was initially a contributory system of insurance against illness and unemployment, and later also provided retirement pensions and other benefits. It was first introduced by the National Insurance Act 1911 and expanded by the Labour government in 1948, and has been subject to numerous amendments in subsequent years.

    Then we had the so-called “Road Fund Tax”. We know what happened to that.

    In practice NI has become just another tax. Just like whatever replaces it will become just another tax. If you anyone wants to spend more on the NHS then there may be a need to raise taxes to prevent inflation. But let’s keep the two separate. Either the NI system is a good tax and we should keep it or it’s a bad tax and it should go!

  • Lorenzo Cherin 5th Feb '18 - 12:50pm

    This is welcome , but as colleagues such as John here say, is only part of the solution, the problems need greater thought and thus further possible solutions.

    Is national insurance continuing, in other words is this instead of, in which scenario and immediately, pensions need another pot !

    Also, if , and when, as I favour it, you regularly ear mark taxes, expect people to be more proactive in wanting and demanding value for money. If people who are comfortably off, not rich, see a lot goes on the NHS and care, but their service is lousy, they are going to think a good value private insurance policy worth having, or are going to become aware of the better value for money if their NHS service is not improving, which it might not in local areas that vary.

    Some of the reasons for poor services, such as considerable demand, are avoided in this country in the private sector, for two reasons. Firstly, the demand has taken off slowly, people stick with the NHS because they believe in it , and because they are strangely increasingly more likely to see their money spent on immediate satisfaction, where they have extra money. Irresponsibility is hard to judge , and not to be judgemental is better. I dislike the debate in this country, that points at good hard working people who choose to pay for health insurance ahead of extra holidays or luxury items not needed. What I point to , if at all, is hypocrisy, criticism of others, while doing it themselves.

  • Phil Beesley 5th Feb '18 - 2:30pm

    @Peter Martin: “Then we had the so-called “Road Fund Tax”. We know what happened to that.”

    I don’t know. I genuinely don’t know how the external or externalised costs of private and commercial motoring compare with vehicle and fuel tax revenue.

    I agree with your criticism of the hypothecation principle, however.

  • Theoretically no tax is exactly “ringfenced” in that like the national insurance fund – it can be borrowed from or indeed contributed to.

    However… I think people understood the concept of insurance. They would have to contribute privately for pensions, health insurance etc. and is also a justification for taxing those on low incomes as they would have to contribute to private insurance (probably at higher cost).

    Many older people talked about the “paying one’s stamp” for paying NI from the national insurance one used to be able to buy to pay for it and highlighting for example that one had paid for one’s state pension.

    There is also an argument for taxing/charging users of a particular service – drivers/road users through vehicle tax and indeed through petrol duty.

    A hypothetical/earmarked tax is being introduced through the sugar tax which go to fund sport in school.

    At the moment we ARE seeing a earmarked tax for social care – in that councils can add a specific extra social care precept to the council tax that can be spent only on social care. And as the report says council tax is one of the most unfair taxes. There is a strong argument therefore to transferring social care to national taxation (and to prevent postcode lotteries) and the social care council tax precept to a health and social care precept.

  • A hypothecated health tax ? as Nye Bevan said, admitted: “The great secret about the National Insurance fund is that there ain’t no fund.”.

    I’d be happier if we tackled the Paradise papers dodgy dodgers.

  • Phil Beesley 5th Feb '18 - 5:51pm

    Michael 1: “There is also an argument for taxing/charging users of a particular service – drivers/road users through vehicle tax and indeed through petrol duty.”

    Explain how current taxes work. Where the money goes.

    “A hypothetical/earmarked tax is being introduced through the sugar tax which go to fund sport in school.”

    Well it’s a tax on the poor — who shouldn’t give sweets to their kids, because they are intended to be priced out. For the wealthy, it is a minor financial inconvenience.

  • Peter Martin 5th Feb '18 - 7:21pm

    “The great secret about the National Insurance fund is that there ain’t no fund.”.

    There ain’t ‘cos there can’t be! Postage Stamps are an IOU of the Royal Mail. The Royal Mail can’t collect a whole load of its own stamps and save them up for a rainy day. Neither can Tescos save up their own shopping vouchers, or a cinema save its own tickets. No-one can save up their own IOUs in any meaningful sense.

    Pounds are just issued IOUs of government. Tax vouchers essentially. Government just can’t save in the way everyone else can.

  • Phil Beesley 5th Feb '18 - 8:17pm

    @Peter Martin: “Government just can’t save in the way everyone else can.”

    How true. If I want to borrow money, the lender looks at me and says “er, Mr Beesley”. If the government wants to borrow, the lender brings out a calculator for the long term loan.

    So why haven’t governments borrowed directly for capital projects rather than investing in PFI? Why didn’t government use its financial muscle to get the best deal?

    And have we created a system where nobody is prepared their neck out?

  • Phil Beesley 5th Feb '18 - 9:06pm

    Ten thinkers close to the top end of Health Care Management (whatever that means) wrote a paper.

    It isn’t a paper that grew up — by sharing thoughts, by a bunch of fellow thinkers in middle management. (Not consulted.)

    It isn’t about what non-management people think. (Not consulted.)

    It is a paper about how top people think how to raise money to carry on what they are best able: spending other people’s dosh.

  • “Explain how current taxes work. Where the money goes.”

    The best explanation as always was given by Sir Humphrey in Yes, Minister when he said “Governments don’t decide what to spend and then raise the money. They raise as much as they can and then spend it.”

    And they raise it as sneakily as possible – I notice income tax because it tells me on my pay slip. I notice council tax a lot because it comes as a nasty bill (and it is probably no coincidence that central government doesn’t like local government). I don’t notice employers’ NI because no-one tells me or VAT because I don’t have to had over a separate payment to pay for my chocolate bar.

    But… there is a role for some “more earmarked” taxes than others – NI, for example. And it has specific characteristics paid by employees and employers during their working lives for specific benefits – that they would be paying private insurance for – pensions, unemployment benefits. And universally (whether poor(ish) or a millionaire) for a universal benefit – both get the same state pension. Even if the Government has sneaked some away from the NI fund.

    There was more of this hypothecation of NI on the massive complications that were additional NI payments versus the state earnings related pension and second state pension and opting out of this and additional NI payments.

    There are some clearly hypothecated taxes – council tax, the sugar tax, TV licence. NI to some degree.

    Hypthecation also happens to a degree with the parties’ election manifesto when they (except the Tories) produce costings and say they will introduce x new tax to pay for y new spending commitment. And obviously to a degree with the budget each year when the Chancellor makes his sums add up (or not!).

  • Peter Martin 7th Feb '18 - 10:14am

    @Mark Valladares,

    Normally we all yield to expert opinion. That is if we have any sense. If an expert tells us a bridge is unsafe we accept the inconvenience of its closure for any necessary repairs. If experts say the build up of CO2 in the atmosphere is leading to climate change we have to be pretty stupid or pigheaded to doubt that. If a doctors tells us we have a health problem etc etc

    I would make just one exception to this general rule. That is with economists. Whereas nearly every other discipline manages to reach a consensus, economists don’t. A consensus doesn’t mean that there is no debate and argument but it does mean that there should be a moving together in general thought afterwards. Not so with economists. They don’t even try. So it really doesn’t mean anything at all to say you’ve recruited a panel of economists and they think such and such a proposal is good idea. If you’d recruited a different panel they’d have been highly likely to say just the opposite.

    Economists, or at least most of them, blew their credibility when they failed to sound a loud and clear warnings that the introduction of the euro was a stupid idea. Then they didn’t issue warnings that the level of private debt was building up to dangerous levels and that a crash could ensue. Instead they’ve concentrated on the neoliberal narrative that public debt is the main problem and we had the 2008 crash anyway.

    There’s probably too much politics involved in economics to expect anything different. It just means we are all on our own and we have to figure these things out for ourselves without the benefit of so-called expert opinion. Having said that, there is expert opinion out there but it has to be the right expert opinion.

  • Peter Martin 7th Feb '18 - 2:11pm

    @ Michael 1

    “Governments don’t decide what to spend and then raise the money. They raise as much as they can and then spend it.”

    Amusing though this might be, even Sir Humphrey doesn’t get it right. He should have said something like:

    “Governments don’t decide what to spend and then raise the money. They spend as much as they can and then try to cover as of their spending with taxation revenue afterwards.”

    The point being that spending has, for government, as the currency issuer logically, to precede the collection of taxes.

  • @Peter Martin

    I speak, my honour, in defence of economists and economics! There are many shortcomings in economics by its very nature but much also to take from it and its expertise.

    Economists (and other social scientists) do not have the ability to run multiple experiments – available to physicists or indeed double blind multiple trials against a placebo for those testing a new drug.

    On forecasts, most people do not condemn climate scientists on global warming because, for example, this Thursday was colder or January or indeed a specific year. But there is a strong element of a failure to differentiate between “weather” and “climate” in economic forecasts. A growth prediction of 2% for this year may be wildly out – due to a shock or recession. A prediction of an average 2% yearly growth over a decade is likely to be more accurate.

    There is obviously a massive interaction between economics and politics. Politicians will pick economists they particularly agree with (as they may do with climate scientists!). But in addition whether a economist is a monetarist or a Keynesian may define their political world view or vice versa. Much may have changed from what a economist actually said and what is reported after the filter of the politicians and the media.

    It is worth noting that even with physics there is a lot of debate and disagreement at the forefront of the science with many widely held theories on the underlying interpretations of quantum mechanisms. Not all of these will be found (if we are able) to be true. Mistakes are made – such as the finding a few years ago that particles were travelling quicker than the speed of light.

    This does not mean that it is wrong to take anything from physics or physics experts or much from economics or economics experts despite being a more imprecise and controversial science.

  • Phil Beesley 8th Feb '18 - 12:41pm

    @Mark Valladares: “They’re called “experts”, a much-derided term these days, and your response perhaps sums up many of the problems our country now has.”

    My criticism was aimed at the limited scope of the paper and its contributors. As a plan to keep the NHS afloat in rocky times, it is probably better than others we will be offered.

    Don’t take this as an attack on the discipline of management, but “top managers” are generalists rather than experts. “Experts” or expert practitioners exist in different roles within an organisation; the best chef is rarely the right person to run a restaurant, and it might be a waste of expertise to do so. Optimising the number of tables on the restaurant floor requires different sets of knowledge.

  • Phil Beesley 8th Feb '18 - 4:04pm

    @Mark Valladares: “so what do you propose to do and why?”

    My answer, often, is that I do not have a clue.

    It is not a get out clause. I’d just like to talk with different people with different ideas.

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