Opinion: Federalism and hypothecation do not mix

I was dismayed to read in Mohsin Khan’s recent piece calling for an NHS contribution that the leadership is, again, considering an NHS tax.

How history repeats itself. Ten or so years ago, when working for the Welsh Party, I opposed plans for what the Federal Policy Committee was then also referring to as an NHS contribution. My contention was, and remains, that a commitment to a Federal UK is not compatible with hypothecated taxation.

Whilst taxes are collected at a UK level, spending priorities are determined by devolved institutions. In our devolved context, any claim that a tax is truly hypothecated is simply dishonest. We could not guarantee that a centrally collected NHS tax would be spent on the NHS in Wales, Scotland or Northern Ireland.  It is impossible to require a particular portion of taxation to be spent in the devolved nations on specific areas without requiring them to do so by law.  This would laugh in the face of the liberal principle of subsidiarity and is clearly a non-starter.

If this is the case, could a hypothecated NHS tax be applied in England only? Not in my view. Even if you set aside the logistical nightmare of collecting differing taxes in different parts of the UK, it would do nothing to address the significant health inequalities between England and the rest of the UK. If anything, it would widen the gap.

Prior to devolution, we got away with it. Who can forget our penny on income tax for education?

It was our flagship policy in the 1997 election. It was a simple and populist policy that we were clearly identified with, an electioneering dream, you might say.

Hypothecation has had its day. We cannot let the pursuit of eye-catching policies get in the way of constitutional reality. The UK has moved on since 1997, and so must we.


* Energlyn Churchill is a pseudonym. He is a Welsh Liberal Democrat. He is active in his local party and serves on a Welsh Party committee. He blogs at Towards Gunfire.

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  • Allan Heron 3rd Sep '14 - 1:33pm

    What we have is not federalism. Hypothecation is not inconsistent where the taxes raised are solely within the area where it is to be spent. But it can’t be in our current devolutionary system.

  • Phill Roberts 3rd Sep '14 - 2:07pm

    Would hypothication work in a fedaral System and Local Taxation?

  • Stephen Donnelly 3rd Sep '14 - 10:31pm

    Tail wagging the dog. The is no problem in collecting different level of taxes in different parts of the UK and there is no reason why we cannot have localised income tax.

  • David Ellams 3rd Sep '14 - 10:43pm

    I am not overly keen on hypothication, and I can see how it is potentially incompatible with the current constitutional settlement, but surely not with federalism? Surely the parts of a federal UK could raise local hypothecated taxes if they wished to?

    Presumably, it would also not be inconsistent with a settlement in which the devolved legislatures all had tax-raising powers. Westminster could legislate for a local hypothecated tax for England only (on top of UK-wide non-hypothcated taxes), whilst leaving it to the devolved legislatures to decide whether to follow suit? They would be accountable to their electorate (and not to Westminster) for any increased health inequalities. I accept that it might be a logistical nightmare to collect, but no more so than any tax differences caused by devolved taxation powers.

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