“Time to reform NHS funding” – Vince Cable

13:00

Today I launched Health and Social Care: Delivering a Secure Funding Future, which offers some compelling answers on how to reform NHS funding. This report was initiated by my colleague, Norman Lamb, who is rightly recognised as one of the most important figures in modern British health policy.

Compiled for the Liberal Democrats by 10 health & social care specialists, including former chief executives of NHS England, the Royal College of Nursing and the Patients Association, the timing could not be more significant given the Conservatives postponed more than 50,000 operations just last month.

Drawing on their recommendations I believe the following plan of action is required.

  • An immediate increase in NHS and social care funding for 2018/19. The funding would not rely on deficit financing or other magical sources, but would be achieved by putting a penny on the pound on income tax, bringing in an estimated £6bn in annual revenue. £4bn would go to the NHS – this sum is in line with the recommendations of NHS England chief executive Simon Stevens. The remainder would be ring-fenced for social care via local authorities.
  • It is impossible to remove politics from the NHS entirely but an independent approach to budget setting would deliver significant benefits. This could be achieved through the establishment of a new body, roughly equivalent to the Office of Budget Responsibility, which would recommend funding requirements over a five-year cycle.
  • Health and social care funding must be combined.
  • The combined budget would be financed by an earmarked health tax. This could be based on a reformed version of national insurance, with the Treasury offsetting annual fluctuations within a five-year cycle. Earmarking of taxes has some well-rehearsed disadvantages. But even those previously strongly opposed, like Lord Macpherson, the former permanent secretary to the Treasury, now accept that in the case of the NHS some form of dedicated tax is necessary.
  • National Insurance would be reformed. I would consider ending the exemption for higher earning working pensioners.
  • The long-term costs of adult social care must be shared equally between the elderly, their families and the state. The Dilnot report, agreed in principle in Coalition, provides a framework together with a cap on costs.
  • A more secure funding arrangement for the NHS and social care is only sustainable if there are efforts to move more treatment from hospitals to the community, including pharmacies and GPs. This requires a wholesale rethink of the tariff system, which incentivises hospital treatment.
  • There has to be renewed emphasis on preventative health measures and social mentoring. The Lib Dems would continue to prioritise mental health.
  • Technology, if properly applied, would ease many of the problems on health care. Medtech has great potential. I have asked for expert advice on the potentially transformative technologies and how they should best be introduced.
  • I urge Lib Dem members to read the report; it forms the basis of what would be an effective, radical, and urgently needed reform of NHS funding.

    * Vince Cable is Leader of the Liberal Democrats

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16 Comments

  • Worthy ideas but I do not see much in there to get too excited about. The art of opposition politics is to capture the public imagination with policies that will benefit the greater good. The above list goes some way to fulfilling the former, but doesn’t really seem likely to achieve the latter. Some of seems quite uncertain – it’s almost like this is a “holding statement” Sir Vince has published whilst ongoing policy work continues.

  • “The above list goes some way to fulfilling the former, but doesn’t really seem likely to achieve the latter”

    Sorry, that comment should have read “The above list goes some way to fulfilling the latter, but doesn’t really seem likely to achieve the former”

  • Some comments:

    1. Overall an excellent report – and my comments/criticisms should be seen in that light. Bringing together experts clearly provides gravitas and credibility and it makes sense for politicians to draw on their knowledge and expertise in a way such as this.

    2. BUT we should be careful about Lib Dem policy being made by non Lib Dem members or the party being “bounced” in to making policy decided by non Lib Dems. The panel only seems to have one (overt) Lib Dem on it.

    3. The report does bring up the need for the Lib Dems to take a more long term view of different types of taxation – Land Value Tax, National Insurance especially for higher earners etc. I would hope that we would go back to proposing and campaigning for a local income tax rather than council tax. I think overall we shouldn’t be afraid of running a modest deficit in the medium term of say between £20 billion – £50 billion.

    4. The panel does not go into much detail on preventative medicine. Actually the Commonwealth Fund rated the UK as the second best of the 11 health systems of developed economies that it looked at http://www.commonwealthfund.org/~/media/files/publications/fund-report/2017/jul/schneider_mirror_mirror_2017.pdf . Clearly diseases such as obesity and diabetes have major impact on costs on the NHS as well as costs to the economy and preventing them means more people living long and healthy lives which must be the ultimate aim of a health service.

    5. “Bed blocking”: From news reports some hospitals are much better at discharges than others – this may be that partly there is much more pressure in say more disadvantaged areas but we need to look at how best practice can be spread and encouraged by an overall framework.

  • David Becket 5th Feb '18 - 3:00pm

    Politicians are not very good at making health policy, and that includes Lib Dems. It is refreshing to see the views of experts from the health services. Much of what they say appears very sensible liberal policy. Rather than complain about being bounced let us look at this as a firm foundation on which to build our policy. At least it might work unlike the last policy Clegg and Co. bounced us in to.

  • David Warren 5th Feb '18 - 3:50pm

    The report doesn’t go nearly far enough so I hope to see a full scale debate on the future of Health and Social Care soon.

    As a carer myself for a number of years I have first hand experience of what is a broken system.

    We need to come up with something really radical.

  • Mick Taylor 5th Feb '18 - 4:38pm

    A solid approach, generally, but I am not convinced of the need for hypothecated taxes. The NI contributions have never paid for pensions or health care. They have simply formed part of the tax take, which has then been allocated by government according to its spending priorities. By all means let’s raise income tax by 1 or even better 2p in the pound and support the NHS and social care, but please don’t pretend that there is a special tax for health. What’s next? A defence tax? A power tax? A pensions tax? Once you start down the road of hypothecated tax you create a climate where governments have little room for radical changes, new ideas or economic management.
    This is where the ‘expert’ panel show their lack of political understanding. They make the easy assumption that a ‘Health’ tax would be spent on health now and for ever. No parliament or government can bind its successors so any hypothecated tax would be a short term palliative at best, a delusion at worst.
    What is needed is a consensus on what is needed to fund the NHS and social care across party lines and an open and clear agreement to fund it now and in the future. Without that, a health tax will simply be a deception.

  • On social care. I would as a minimum implement the Dilnot report – with (at least) one exception.

    The Dilnot Commission recommended a cap on lifetime care costs of £35k. The coalition Government put a cap of £72k in the Care Act but not to be implemented until 2020.

    There is under Dilnot an unfairness. I would implement the cap as say 10% of someone’s wealth between £0 and £325k. The cap would not be increased £32k.

    But large social care bills are a matter of randomness. So there is a strong argument for collective insurance. So I would put on a 10% inheritance tax on all estates between £0 and £325k (with the current exemption for partners). 40% inheritance tax (theoretically) starts above £325k

    1. The worst at £325k pays roughly the same as the cap proposed in the Care Act.
    2. Everyone keeps at least 80% of their wealth to pass on.
    3. The unfairness at around £100k is eliminated where at a £72k cap means obviously 72% of someone’s wealth might go in social care costs.
    4. There is collective insurance for an unpredictable random and potentially very large cost.
    4. It promotes intergenerational fairness as actually it is the next generations that benefit from inheritance. And many older people feel that they have scrimped and saved their whole lives to pass on money to the next generation.
    5. It does tax wealth a bit more which arguably is undertaxed in the country as regards income.
    6. It would allow people to insure if they wanted against the cap they would face.

    https://www.ageuk.org.uk/information-advice/care/dilnot-commission/
    http://webarchive.nationalarchives.gov.uk/20130221121529/https://www.wp.dh.gov.uk/carecommission/files/2011/07/Fairer-Care-Funding-Report.pdf

  • The report states that £4 billion is needed for NHS England plus at least £2.5 billion for the next two years. £2.3 billion is needed for social care by 2020. Increasing all the rates of Income Tax by 1p will raised £6.345 billion. The report quotes the Intergenerational Foundation which estimates that extending National Insurance to those over 65 in work would raise around £2 billion.

    So we could increase all rates of Income Tax and extend National Insurance to the over 65’s and this will nearly cover the first two years of funding for the NHS and the Social Care extra funding needed up to 2020. We would need to raise a further £2.5 billion for the next year plus inflation. If we did this with a new tax on incomes it could be 1p set at incomes say over £26,200 pa (12.8 million people with average earnings of at least £46,627.50) which would raise at least £2.6 billion. Problems might arise if we wanted the extra revenue to increase each year because the threshold might have to be decreased each year so after ten years there would be another ten Income Tax brackets.

    @ Michael 1

    An interesting idea. Assuming that we want to reduce the threshold to £325,000 for children inheriting as well. If we were going to support people paying something towards their social care then it might be better to tax the initial £325,000 at 10% and reduce it by the amount a person has paid towards their social care with their individual cap being 10% of their wealth up to £32,500. If a person leaves their home to their spouse then this inheritance tax would be payable when the spouse dies.

    Please can you explain why it is OK for someone not to pay anything for their medical care but they have to pay something to their social care which they only need because of a health issue?

    However, I think it would be OK for someone living in a care home to contribute most of their weekly income (maybe up to 90%) towards their accommodation and food costs (I wonder what it is at present?).

  • @Michael BG

    “Please can you explain why it is OK for someone not to pay anything for their medical care but they have to pay something to their social care”

    At one level clearly it is inconsistent. The first reason is that we are currently in a mixed economy situation at the moment and you have to start with where you are starting from!

    Secondly it is more acceptable to have “co-payments” – that the state decrees that there should be a (very reasonable cost) level of care. But if you want to go into one care home over another that may be costs more than that then it should be your choice and you pay the additional amount. This is less acceptable in the health system where it tends to mean a two tier system.

    Some within the Lib Dems and LDV believe that more charges, co-payments etc. are the solution for the NHS and obviously other developed economies have greater models of mixed payers as supposed to single payer within their health care systems.

    Dilnot felt that it would be more sustainable to have some individual payment.

    Dilnot also hoped that a market would develop for insurance up to cap.

    Older people (and he proposed that younger people etc. should have all their social care needs met without a cap) have the ability to take responsibility for their later care needs (if it is capped). A sliding cap would also mean that those on moderate means and with moderate assets could insure for a moderate cap.

    It allows some sharing of the burden between individuals and the state. There is always a controversy over this but in general individuals have to bear some of the burden of “bad” random events that come along to them.

    As to your first point that if say you have had £10k social care costs and an inheritance tax liability of £32k then you would only have to pay £22k inheritance tax. I did first think about this – but:

    It is essentially a tax of 10% on the first £325k of inheritance – in that you either pay it all in inheritance tax or you pay it split between between social care and tax. You may or may not want this but it does away with some of the points Dilnot thought desirable (as above).

    But “splitting it” does firstly have new taxation stream. Secondly I think that people will find it acceptable to pay a tax that specifically goes on sharing the burden.

    It does, as I say, maintain some of the features that Dilnot thought desirable (see above) and also leave some personal responsibility.

  • @ Michael 1

    Thank you for your long reply. I suppose I do sort of accept that you have to start from where you are. It depends on what we mean by social care. If we mean social care in the home which Social Services have decided a person needs then any extra care would have to be private and paid for by the patient. If we are including care home provision then using some of the patient’s income to pay for the accommodation and food costs makes perfect sense because if they were in their own home they would have costs for these items.

    I accept your point that if you only have assets worth £100,000 a fixed cap is unfair while a percentage with a maximum is fairer.

    However, as lots of care homes are private it should make no difference how much the care home charges if Social Services have decided to use them and pay their fees. However, there may still be private care homes which a person has to pay totally for because Social Services will not pay their rates, and this I think is fine.

    It seems that it is not straight forward to decide what should be paid for by the state and what should be paid for by the person.

    I not see it as “fair” under your scheme, if I have understood it correctly, that a person who needs social care has to pay 20% of their first £325,000 of assets, while someone who didn’t need social care only has to pay the 10% tax. At least my suggestion means everyone has to pay the same proportion.

    I am not convinced that having private insurance is the best solution as it seems that insurance coverage is more likely to be taken out by the richer people and not by the poorer people. Therefore the poorer might still under your scheme end up paying a higher proportion of their assets in tax and for care.

  • OnceALibDem 6th Feb '18 - 9:04am

    “This could be achieved through the establishment of a new body, roughly equivalent to the Office of Budget Responsibility, which would recommend funding requirements over a five-year cycle.”

    How is this significantly different from the NHS Forward View which was a 5 year plan published in 2014 (by the NHS itself) for the funding and efficiency savings that were intended to go together in a sustainable funding model. AFAIK it’s not been seriously disputed and I thought that in broad terms the funding it asked for had been delivered.

    A hypothecated tax is fine but if health spending need increases at a faster rate than tax revenues (in this case wages) rise then the tax rate itself would need to increase year on year as well.

  • Mike Taylor wrote
    “The NI contributions have never paid for pensions or health care. They have simply formed part of the tax take, which has then been allocated by government according to its spending priorities.”

    This is incorrect the National Insurance fund balance and movements is reported separately to general taxation. occasionally general taxation is used to support the NI fund.

    The NI contributions used to make a contribution to the NHS are deducted by HMRC prior to the balance being paid into the NI fund.

    the last report to Parliament can be read here – https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/652655/National_Insurance_Fund_Accounts__Great_Britain__-_2016_to_2017.pdf

    Last financial year NI payments contributed £23.4bn.

    NHS England has a budget of £122bn, is the proposal to fund the £100bn currently met from general taxation to the NI fund, in fairness many people already believe their NI contributions fund the NHS.

    This will entail more than just getting over 65s to pay NI, the shift is massive, has anyone done any further modelling of the increases required in NI and the corresponding reductions for council tax and income tax, so peope can get a better feel for how the shift to a dedicated NI/health tax will effect them

  • @Michael BG

    Thanks for your further comments.

    Sorry I didn’t mention that Dilnot (which I was proposing) had a high THRESHOLD of £100k.

    A number of things to simplify things.

    Accommodation and food costs are paid for out of income currently (AIUI) but income includes benefits such as housing benefit. So, we also are only talking about CARE costs not “HOTEL” costs – accommodation and food. Help with care is subject to income so if you have a bigger pension you will have to fund some of the care costs (but lets ignore that in this).

    There are also two different mechanisms with Dilnot. A THRESHOLD (which exists at the moment) and a CAP.

    The current THRESHOLD is currently in England – £23,250 in assets and savings. So if you have £33,250 before you have to spend £10k on care before you get help. Someone with a house worth £100k would have to spend £76,750 on care before they get their care paid for.

    Dilnot proposed an addition mechanism of a CAP which he recommended to be £35k. He also recommended that the THRESHOLD was raised to £100k.

    It can be seen where the UNFAIRNESS is in the CURRENT system. Those with assets above £23,250 who have to deplete their assets down to that.

    Having a HIGH cap also depletes people’s assets down. With a cap of say £72k as Dilnot was AMENDED to in the care act, someone with £100k would also get through 72% of their assets potentially.

    But IF you set the CAP low at say £35k and a high THRESHOLD then it becomes a fairer system. Someone with assets of £100k would now pay nothing. £101k – £1k etc. The worst would as a percentage would be £135k. After that the cap would kick in.

    BUT there remains how to pay for this – the (low) cap and much higher threshold. I would therefore propose an inheritance tax of 10%. This maintains a principle of collective insurance for those that are unfortunate enough to suffer bad random events of very large care costs.

    For more on the current system see https://www.moneyadviceservice.org.uk/en/articles/means-tests-for-help-with-care-costs-how-they-work

  • @Stuart

    24% of NI contributions went to the NHS. So we could have three taxes as of now –
    income tax, national insurance and health and care tax. We reduced NI by 24% and kept health funding the same there would be no change

    You, me and all other lower wage earners below pension age pay that towards the 20% of the NHS paid for by NI.

    Pensioners, on investment income and higher earners (whose marginal NI is capped at 2%) do NOT. It does not seem fair as they all use the NHS but are only paying for some 80% of it! Perhaps their waiting times should be lengthened by 20% and others shortened by 20%???!!!!!

    It seems fairer to set a health tax across all these categories of people – and of course NI can also be reduced for those paying it.

  • Peter Martin 6th Feb '18 - 6:41pm

    “the National Insurance fund balance and movements is reported separately to general taxation. occasionally general taxation is used to support the NI fund”

    It may well be that the government plays various games with just what happens when a pound is collected in taxation and what happens when it is collected as National Insurance. It practice it doesn’t matter. Effectively it just goes into the shredder or the digital equivalent. Government collecting its own issued money is just like a theatre collecting its own issued tickets.

    It is often said that the US Fed neither”Has” Nor “Doesn’t Have” Dollars. It’s the same for the BoE and by extension the UK government which owns it.

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