NHS needs £2,000 in tax from every household to stay afloat, report concludes

Institute for Fiscal Studies and the Health Foundation say health service requires urgent increase in government spending

Ben Chu
Economics Editor
Thursday 24 May 2018 10:01
Jeremy Corbyn attacks Theresa May over NHS staff shortages, cuts and privatisation

Taxes will “almost certainly” have to rise over the coming years simply to prevent the National Health Service and social care system from slipping further into crisis, a major new report concludes.

The Institute for Fiscal Studies and the Health Foundation state that the NHS, which has been suffering the most severe fiscal squeeze since its foundation over the past eight years, now requires an urgent increase in government spending in order to cope with an influx of older and sicker patients.

Funding the projected increases in health spending through the tax system would need taxes to rise by between 1.6 and 2.6% of GDP - the equivalent of between £1,200 and £2,000 per household, the experts said.

The two organisations say that state funding growth rate, which has been just 1.4 per cent a year since 2010, will have to more than double to between 3.3 per cent and 4 per cent over the next 15 years if government pledges, such as bringing down waiting times and increasing the provision of mental health services, are to stand any chance of being delivered.

They also say that to finance this increase the government would “almost certainly need to increase taxes”.

“If we are to have a health and social care system which meets our needs and aspirations, we will have to pay a lot more for it over the next 15 years. This time we won’t be able to rely on cutting spending elsewhere – we will have to pay more in tax,” said the IFS’s director Paul Johnson.

The report adds that it is hard to see how this permanent rise in health spending – which would represent 2 to 3 per cent of GDP by the mid-2030s – would be possible without increasing one of the government’s major sources of revenue such as income tax, national insurance or VAT.

The finding comes amid evidence of huge strain on the service and a recent promise by Theresa May to bring forward a longer-term funding regime for the NHS.

There has also been growing speculation that Chancellor Philip Hammond is planning to announce a hike in taxes specifically to increase resources for the health service, perhaps along the lines of Gordon Brown’s National Insurance hike in 2002.

The Conservatives dropped their pledge not to raise income tax, national insurance or VAT at last year’s general election. And Labour promised an extra £11.8bn for the NHS a year by 2020-21, funded by higher income taxes on the top 5 per centof earners.

A recent British Social Attitudes poll suggested majority support for tax increases to generate more funding for the NHS.

As it imposed severe cuts on almost every area of government spending in 2010, the coalition government ensured that the NHS budget was broadly flat in real terms. That policy has been followed by the Conservatives since 2015.

But the increases in resources were not enough to keep up with surging demand, and a 10 per cent cut in state funding for social care has exerted further pressure on the NHS.

The IFS/Health Foundation report, which was commissioned by the NHS Confederation (which represents most of the NHS’s providers and commissioners) was an innovative “bottom up” analysis of pressures on health spending.

Anita Charlesworth, director of research at the Health Foundation, said that the big drivers of rising health costs in her model were an ageing UK population increasingly suffering from chronic health problems. Higher pay for NHS staff and the development of new drugs were also important contributors.

Jeremy Corbyn attacks Theresa May over NHS staff shortages, cuts and privatisation

The population aged over 65 is expected to increase by 4.4 million over the next 15 years, with the over 85 population increasing by 1.3 million.

The signs of strain in the health services have been multiplying in recent months. Accident and emergency waiting time performance hit a new record low this winter, with just 85 per cent of patients seen within four hours.

And the National Audit Office recently warned that local councils are on the verge of financial breaking point due to government cuts, while demand for adult social care has risen.

A chronic shortage of care home places has created large knock-on problems on the NHS as elderly and frail in-patients cannot be discharged on time because they have nowhere suitable to go.

Public spending on health in 2016-17 was £149.2bn, around 7 per cent of GDP. The report estimates that to keep pace with demand this will need to increase to £249bn in today’s money by 2033-34, or 8.9 per cent of GDP.

It says social care spending would need to increase from 1 per cent of GDP to 1.5 per cent over that period.

But the report also stresses that countries such as Sweden, Germany and the Netherlands already roughly devote this share of national income to health and elderly social care

The NHS was founded in 1948 and will mark its 70th birthday on 5 July.

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