As Parliament returns today, our main business will be repeal of the six month-old Health and Social Care Levy. Given that all the main parties are now against the tax, abolition is a certainty. But whilst the levy can be vaporised, the liability of future health costs cannot – rather, our dominant public expenditure item is set to expand on a colossal scale.
We don’t need to wait until Halloween for the Office for Budget Responsibility’s views on this one: in July, they published their estimate of ‘long-term fiscal pressures’ forecasting a rise in spending on health and adult social care from around 10 per cent of GDP today to 17.5 per cent 50 years hence. This leads to a headline prediction of public debt rising to 100 per cent in 2052-53 and a staggering 267 per cent of GDP in half a century. Notably, these predictions were based on the significant tax rises remaining in place that are now being reversed.
So, we may have the immediate challenge of how to find the £17 billion or so accounted for by the levy – with borrowing now presumably discounted – but arguably a much greater task is addressing the expected long- term surge in public debt created by ‘demographic’ costs (primarily healthcare, but also pensions). To those who dismiss the forecasts of ‘experts’ like the OBR – and the markets clearly don’t – its previous estimates of current health spending have been pretty accurate, based on cautious assumptions.
At this point I should declare something of an interest, having indirectly contributed to the Health and Social Care Levy’s short- lived existence. In one of the TV leadership hustings, Tom Tugendhat suggeste that, as Chancellor, Rishi Sunak had said to him in private that the Levy was the “boss’s’ idea” – i.e: the brainchild of Boris Johnson.
In fact, as Sunak’s PPS at the time, it’s not as simple as that. Yes, it is hugely to Johnson’s credit that he was the Prime Minister who actually introduced a cap on social care costs in practice, for those otherwise facing exhaustion of their assets. Yet Sunak knew that this ever-growing liability could not simply be added to the national credit card.
So how to pay for it? A straightforward rise in National Insurance to fund social care was a commonly muted option at the time, but the then Chancellor also received a paper from within his Treasury team advocating a broader ring-fenced tax to cover both the NHS and Social Care. I know, because I was the author.
Rishi took two aspects of my idea: targeting the tax at both health and social care, not just the latter (especially given the huge cost of tackling the NHS backlog); and adopting the proposal that this should appear explicitly on payslips as a hypothecated tax – something the Treasury had historically opposed and which is very far from ‘orthodoxy’.
But let’s be honest, there was no great enthusiasm from any quarter for a tax that could be seen as inter-generationally unfair, and most will view its repeal with a ‘good riddance’ shrug of the shoulders. Personally, I believe a hypothecated levy for NHS spending beyond the agreed envelope from general taxation, and for big ticket items like the social care cap, could have brought greater discipline and transparency to health spending, if fully utilised.
It’s also worth noting that I’ve never received a single email objecting to the new levy since it appeared on payslips in April – I’m not sure discourse on the savings now required to fund its repeal will be so calm. Nevertheless, I must stress such a tax was far from my preferred option; it was just better than either putting off the cap and extra funds for the backlog, or doing so but without being fiscally responsible.
My long-held personal preference would be for a different approach altogether – radical reform of how we pay for healthcar e in this country, and commitment to a truly diverse system with genuine choice at its heart. If the levy is to go, and we are to put health funding on a sustainable course, it is my view that we now need to look at how we significantly expand the independent sector.
This is not ‘privatisation’ of the NHS; on the contrary, such a policy would protect the core public health service – free at the point of delivery – by reducing the almost infinite pressure on its staff. Back in the noughties when we were in opposition and such ideas were knocking around right of centre circles, we faced Tony Blair in all his pomp and the ground was far from fertile.
But today, the situation is arguably transformed. Use of the independent sector has surged because of Covid backlogs with ‘self-pay’ hip and knee replacements rising by 193 per cent and 173 per cent respectively, betwee n the first quarter of 2019 and the same period this year.
Recent polling from IHPN has found that almost half of people (48 per cent) would consider paying privately for healthcare in the next 12 months if they needed treatment. How many would consider such a choice – so beneficial to those remaining on the NHS waiting list – if there were new financial incentives for ‘going private’?
In my view, it should be an explicit goal of Government policy to increase the share of GDP spent on healthcare via non-state provision, bringing us closer to many comparable nations who enjoy better health outcomes on a range of metrics. Without requiring internal reorganisation of the NHS itself, the impact of such incentives would make use of the significant spare capacity that the independent sector possesses, reducing NHS backlogs faster than currently forecast, whilst placing our public finances on a more sustainable footing.
At present, unfunded tax cuts are not exactly flavour of the month. But tax incentives to reduce the long-term public liability of how we fund healthcare would be another matter altogether, as they would go to the very root of our biggest financial headache. It’s hard to think of another policy response that could potentially both improve health outcomes and reassure the markets of our fiscal credibility.