NHS boost: questions raised by May’s £20bn-a-year proposal
Financial Times
Delphine Strauss
Theresa May insisted her promise of an extra £20bn a year for the NHS by 2023 would be funded by a “Brexit dividend”, as well as by asking the country to contribute more. In fact, an analysis of the prime minister’s options suggests that taxpayers could end up footing the entire bill — unless the government abandons its fiscal targets.
Is there any Brexit dividend?
No.
A cornerstone of the Leave campaign was the claim that Britain could spend an extra £350m a week on the NHS by redeploying the money it sends to Brussels.
In reality, since this figure did not include the UK’s budget rebate, or the funds it receives through EU programmes, the putative net saving is at most £150m a week.
But no new money will be freed up in the period up to 2023, because the government will still be making payments to Brussels, under the divorce settlement sketched out last December, and it has also committed to replacing EU funding for British farmers, researchers and poorer regions for a period after Brexit.
Even on this simple arithmetic, Mrs May’s claim of a Brexit dividend therefore fails, because “over the period, there is literally zero available,” said Paul Johnson, director of the Institute for Fiscal Studies. Moreover, the figures — set out by the Office for Budget Responsibility in March — do not factor in additional costs the government may need to shoulder as a result of Brexit, such as new customs controls or setting up new bodies to replicate the work done by EU agencies.
Far more important, though, is the OBR’s forecast that Brexit will weaken the UK’s public finances by some £15bn a year, or almost £300m a week. “Payments to the EU will fall, but tax revenues will fall more,” Mr Johnson said, adding that this was, in effect, the government’s own position, since it adopts the OBR’s forecasts.
How else can the boost for the NHS be funded?
The government cannot increase borrowing to this extent unless it abandons its fiscal targets: its stated aim is to reach an overall budget balance by the middle of the next decade and, the IFS notes, it is already heading for a deficit of £21bn in 2022-23.
To find the money by cuts to other public services would be “totally incredible,” Mr Johnson said. The NHS has been protected from the full force of austerity, with health spending rising from 26 per cent of total spending on public services in 2009-10 to 30 per cent today. The Treasury’s forecasts assume that day to day spending will fall by a further £5bn over the next five years, but it is under intense pressure to find more money for defence, when a review of Britain’s capabilities concludes next month, and to relieve the acute strains on local authority budgets, police and prisons.
Higher taxes are the only remaining option.
What could this mean for taxpayers?
Mrs May said the country would be “contributing a bit more” to fund the NHS increase, but gave no details of who would end up paying higher taxes.
An IFS online calculator suggests that if the full £20bn came from taxation, it would cost £706 a year per household. Mr Johnson said it was roughly equivalent to adding 3 pence to income tax, national insurance or value added tax.
Rather than changing these headline rates, however, he said more obvious options for the Treasury might include cancelling planned cuts in corporation tax, or freezing tax-free allowances for higher rate taxpayers.
Philip Hammond, chancellor, has struggled to push through much more modest tax increases. His attempt last year to increase national insurance contributions for the self-employed would have raised a mere £145m a year, but he was forced by No 10 to scrap the measure after an outcry over the impact on “white van man”.
Is this money enough to solve the NHS’s problems?
No. The increase is significant, but it still falls short of the minimum that economists think necessary to ease the immediate strains on the system.
The annual real-terms increase of 3.4 per cent applies only to NHS England; it represents a smaller increase of 2.9 per cent in the Department of Health’s total budget for England. Leading think-tanks argue that annual increases of 4 per cent a year in the medium term, with more in the short run, are needed to see even modest progress on priorities such as waiting times or improved mental health provision.
Restricting the funding boost to NHS England could be presented as a means of focusing resources on care at the frontline. Mrs May said the government wanted “to make sure that the money is spent wisely…in the interests of patients”.
But Sally Gainsbury, senior policy analyst at the Nuffield Trust, said it made no sense to ignore equally acute presures on capital spending, training and public health programmes. There would be no new money for buying new hospital equipment; training new doctors and nurses; or plugging a £1bn backlog in “high-risk maintenance”, where buildings and machinery were in such bad repair that operations were being delayed and wards closed.
A bigger concern is that the funding boost will initially be enough only to meet urgent financial strains, not to improve the quality of healthcare.
Ms Gainsbury said it implied a cash increase of £6bn in the next financial year, which would be barely enough to bail out hospitals that are in deficit, fund the recent pay deal and meet the cost of recent changes to pension rules.
Even more worrying, she added, was that the overall package appeared to be unfunded. “Do we end up with a 10-year spending plan that we find out half way through is unaffordable for the country?”
How does this increase compare with historical trends in NHS funding?
Health spending has risen by an average 3.7 per cent a year in real terms since the NHS was founded. Over the past eight years, spending growth of 1.4 per cent a year has been slower than at any time in the service’s history. Adjusted for the growth and ageing of the population, it has been a negligible 0.1 per cent a year since 2009-10.
However, pressures on the NHS are exacerbated by the swingeing cuts in councils’ spending on social care — which has fallen almost 10 per cent since 2009-10. The government found an extra £2bn last year to avert a crisis in the sector, but has yet to explain how it plans to make the system sustainable in the longer term.
https://www.ft.com/content/a66bd826-7215-11e8-b6ad-3823e4384287
