Square Deal on the NHS

By Nick Boles, October 19, 2017

The NHS occupies a rare position in British public life. It is loved. The highest accolade that most government agencies can aspire to is indifference – a lack of complaints is the best indicator that an organisation is performing well. The NHS is different. People complain about it a lot, but they do so in a way that reveals their deep attachment to it. When, in August 2016, the Lincolnshire hospital trust announced the ‘temporary’ closure of Grantham A&E at night, the community I represent was outraged. Grantham people are usually long-suffering, slow to anger, and ready to accept bad news with a resigned shrug. Not this time. Over 3,000 people joined the first protest march in torrential rain. Over 7,000 joined the second. In my seven years as the town’s MP there has never been an issue that provoked such strong feelings among so many constituents.

As for me, I am biased. The NHS has cured me of cancer, not once but twice. On both occasions, I received outstanding care which must have cost tens of thousands of pounds and I didn’t pay a penny. Nobody even mentioned the cost of any of the treatments that I was receiving. If you are seriously ill, knowing that you will get the treatment you need without having to worry about the cost is a source of great comfort at a time of acute stress. The NHS has been my saviour. I will do anything in my power to ensure that its essential promise to the British people – that they will receive high quality healthcare when they need it and not have to pay – is sustained for future generations.

The unique place that the NHS holds in our hearts is reflected in our politics. Every party that has succeeded in electing people to the House of Commons is firmly committed to the NHS as a universal service funded by the taxpayer. When fringe parties flirt with moves to a different system, they quickly feel the heat from voters and either abandon the idea or are duly crushed.

That political parties should reflect the will of the voters is a sign of a healthy democracy. But the uniformity of this commitment has stopped an open debate about how we can strengthen the NHS and secure the funding it needs for the long term. As a result, the NHS runs the risk of lurching from one funding crisis to another without having the time and space to grapple with the fundamental challenges it faces. Having benefited as much I have done from the NHS I am happy to propose a Square Deal on Health which would put the NHS on a secure footing for the foreseeable future.

As people live longer and the country becomes more prosperous, it is inevitable that we will need to spend more money on treating people who are sick and caring for the elderly and infirm. Every advanced nation faces the same rising demand for healthcare and for what policy wonks call ‘social care’: the help with routine tasks like washing, getting dressed and preparing meals that is given to people who are unable to look after themselves. There will always be room for greater efficiency in the provision of health and social care. The government is right to demand productivity improvements in exchange for greater funding. But we would be foolish to delude ourselves that we can meet the legitimate demands for high-quality care without spending more money.

Currently, we spend 7.3% of GDP on publicly-funded healthcare and a further 1% GDP on publicly-funded social care (1). (The precise division between the two is muddled by the Better Care Fund which transfers resources from the NHS to local councils to help fund social care.) The taxpayer is therefore currently spending 8.3% of national income on the public provision of health and social care. In 2014, an independent Commission set up by the King’s Fund recommended some reforms which would extend the free provision of social care to more people. They argued that we would need to spend 11-12% of GDP on the public provision of health and social care by 2025 (2). Even without any changes in the level of care provided at taxpayers’ expense, the Office for Budget recently projected an increase in spending on public health and social care to 9% of national income in 2026 and 12% in 2046 (3).

Nothing in politics is more predictable than this: there will be intense and relentless pressure for more public spending on health and social care for many decades to come. No spending review or efficiency drive is going to make it go away. Future governments, of every party and persuasion, will face the same problem.

The Department for Health will continue to sit like a large cuckoo in the Treasury nest, hungrily demanding ever more money and pushing other public services ever closer to the edge. The whole debate about priorities will be skewed as one Chancellor after another tries to square the circle of overall control of public expenditure with the NHS’s constant need for more.

There is a solution, a Square Deal, which would give the NHS what it needs while removing it from running financial battles in Whitehall. The NHS should be given its own, standalone funding stream. Taxpayers ought to know how much it costs to enjoy the right to free healthcare. Political parties should have to set out clearly their plans for the NHS, and explain what implications they will have for the funding that will be sought from taxpayers. This conversation would take healthcare outside the general debate about overall levels of public expenditure, taxation and borrowing. It would become possible for a political party to argue for substantial cuts in public expenditure and promise tax cuts off the back of them, while accepting that public funding for healthcare needed to rise. A government’s ambitions for spending on schools, or housing or defence would no longer be overshadowed by the requirements of the behemoth that is the NHS.

To create a separate funding stream for healthcare, it would be much easier to take an existing tax and hypothecate it, rather than introduce a wholly new tax and adjust existing taxes and charges to compensate. There is an obvious candidate: national insurance. National insurance was originally designed as a way of securing contributions from working people in exchange for rights to unemployment benefit and the state pension. But the contributory principle has been steadily eroded. National insurance is now little more than a payroll tax.

Payroll taxes paid by employees and employers are already used by countries like Germany and the Netherlands as the principal source of revenue to fund health services. One of the advantages of using payroll taxes to fund healthcare is that it gives people a much clearer idea of how much their access to healthcare is costing them.

I propose that in future National Insurance should be renamed National Health Insurance. It would be paid into an independently constituted National Health Fund which would not be allowed to spend its money on anything other than the provision of care. Everyone in work would be required to pay National Health Insurance. The Treasury would be required to make a separate contribution to the National Health Fund of an amount representing the notional contributions of people of working age, who are either unemployed or unable to work because of disability, illness or other circumstances (the so-called ‘economically inactive’). This would remind people that while the right to free healthcare is universal it relies on the hard work of the British people and the success of British employers for its funding. It would reinforce the idea that people of working age have a moral obligation to work unless they are unable to do so.

In 2015/16, public sector spending on health reached £140 billion (4) while UK-wide national insurance raised approximately £114 billion (5). In the third quarter of 2017, 1.4 million people in the UK were unemployed (6) and 8.9 million were ‘economically inactive’ (7). Together they made up 26% of the working age population. This implies that the Government’s contribution to the National Health Fund on behalf of the unemployed and the economically inactive would amount to £30 billion a year (in 2015/16 money). The total revenues of the National Health Fund would there be £144 billion a year (in 2015/16 money), which is roughly what would be needed to maintain current funding levels.

In practice, we will almost certainly need to increase the amount of funding for healthcare over the next 10 years. The government should consider reforming the existing, absurdly complicated, system of National Insurance rates. Self-employed people should make a contribution to National Health Insurance that is similar to the contribution made by (and on behalf of) employed people on similar incomes. People who continue to work past the state pension age should also be expected to make contributions to the National Health Fund. The King’s Fund’s Commission recommended that they should be expected to pay a contribution of 6% (compared to the 12% main contribution rate for people of working age) (8). We should also bring unearned income within the National Health Insurance net so that all in society (including pensioners with an investment income) are making a fair contribution to the cost of high quality healthcare.

The transformation of National Insurance into National Health Insurance would need to take place throughout the UK. But the devolution settlement for Scotland, Wales and Northern Ireland could easily be preserved by the creation of separate National Health Funds for England, Scotland, Wales and Northern Ireland, and the division of the proceeds from the UK’s National Health Insurance according to a formula agreed with the devolved administrations (and based, presumably, on their shares of current NHS spending.) In time, a future government might choose to transfer the setting of National Health Insurance rates to the devolved administrations so that each nation spends the revenues raised from its own population. But, since such a move would be likely to leave the devolved administrations with a substantial funding shortfall, I doubt that there will be much appetite to move in this direction soon.

Professor Richard Layard has suggested that, at the start of each Parliament, following an election in which the level of NHS funding will have been debated, the Government would establish a five-year budget for the National Health Service and fix the rates for National Health Insurance contributions for the Parliament (9). At the end of the Parliament if economic activity had been stronger than expected the Fund might have a surplus that could be returned to the Treasury. Similarly, if receipts had fallen below expectations, the Treasury would need to assume its debts. His proposal has won support in unlikely quarters. Despite the Treasury’s long-standing opposition to hypothecation, its former Permanent Secretary, Sir Nick Macpherson, backs the idea arguing that this would make it possible for the NHS to plan for the long-term, and might help make the tax increases that will be necessary more palatable to the public (10).

Social care

The idea of funding the NHS through a hypothecated payroll tax to be known as National Health Insurance begs the question of what would happen to the funding of adult social care. There is a natural linkage between the two because the lack of publicly-provided social care pushes up costs in the NHS, for example when a patient cannot be discharged from hospital because the local Social Services can’t find a bed in a care home or haven’t managed to arrange carers to deliver support at the patient’s home. But there is also a crucial difference between the two services. The NHS is a national service, funded by central government, and provided for free to anyone who needs it. Social care is a local service, funded by local government, and provided based on complicated assessments of both need and the means to pay. I do not claim to know what is the right answer for the long-term funding of social care. But it is a nettle we need to grasp and that is why I support the idea of a NHS and Care Convention being set up to design a new settlement that can command cross-party support. Its task would not be made any harder by the establishment of a separate, standalone funding stream for the NHS. It might in fact make it easier to bring the commissioning of health and social care together if the public’s share in both services were paid for by the National Health Fund.

Improve universal services like the NHS

Elsewhere in this book, I have been dismissive of the idea of a Universal Basic Income, through which adult citizens would receive a monthly grant from the state, sufficient to cover their basic needs and paid to everyone irrespective of their wealth or income. I stand by this view. But, as our economy grows and Britain becomes richer, I do believe in a Square Deal for our citizens, in which the universal services that are offered to everyone free of charge constantly develop and improve. In that way, we can give people the confidence that everyone is sharing in the benefits of Britain’s growing prosperity.

 

Notes

(1) Institute for Fiscal Studies. 2017. Green Budget. Available at: https://www.ifs.org.uk/uploads/publications/budgets/gb2017/gb2017ch5.pdf

(2) Commission on the Future of Health and Social Care in England, The King’s Fund. 2014. A new settlement for health and social care. Available at: https://www.kingsfund.org.uk/sites/default/files/field/field_publication_file/Commission%20Final%20%20interactive.pdf

 

(3) Office of Budget Responsibility. 2017. Fiscal Sustainability Report. Available at: http://cdn.budgetresponsibility.org.uk/FSR_Jan17.pdf

 

(4) The Health Foundation. 2017. Health and social care funding explained. Available at: http://www.health.org.uk/node/10302

 

(5) Office of Budget Responsibility. 2017. National insurance contributions. Available at: http://budgetresponsibility.org.uk/forecasts-in-depth/tax-by-tax-spend-by-spend/national-insurance-contributions/

 

(6) Office for National Statistics. 2017. Unemployment. Available at: https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/unemployment

 

(7) Office for National Statistics. 2017. Economic Inactivity. Available at: https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/economicinactivity

 

(8) Commission on the Future of Health and Social Care in England, The King’s Fund. 2014. A new settlement for health and social care. Available at: https://www.kingsfund.org.uk/sites/default/files/field/field_publication_file/Commission%20Final%20%20interactive.pdf

 

(9) The British Medical Journal. 2017. Is it time for a dedicated tax to fund the NHS? Available at: http://eprints.lse.ac.uk/69781/1/Layard_Head%20to%20head%20is%20it%20time%20for%20a%20dedicated%20tax_published_2017%20LSERO.pdf

 

(10) Macpherson of Earls Court, Lord N. 2016. Some thoughts on health spending and hypothecation. Available at: http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/nhs-sustainability-committee/longterm-sustainability-of-the-nhs/written/43310.html

 

 

 

 

 

 

 

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14 Comments

  1. Brian Reynard says:

    Excellent well thought out article on the NHS/Social Care and Funding. I listened to Nick Boles on the Derbyshire progamme (11 Jan), this was the first time I had heard a Tory politician state that the NHS needed more funding (despite the monies already allocated). Mr Boles is a breath if fresh air when his views compared with the defensive and depressing repeat of statistical comments by PM and Mr Hunt.
    I don’t think Mr Boles pretends to have all the answers, however his suggestion re National Health Insurance sure as hell makes a lot of sense. I would like to think the PM and Mr Hunt will read the Boles article on the NHS, and to request the various current agencies involved in the NHS for comments as to whether his proposals will go towards setting up a long tem sustainable plan for the NHS.
    Please don’t ignore this proposal or kick it into the long grass. I suggest Mt Boles has come up with a suggestions that makes the light at the end of the tunnel much brighter.

  2. Christine Corker says:

    I think this is an excellent idea. I do feel however that a lot of fault lies with the Trusts that run the NHS. Some of them are sorely mismanaged and this is not the fault of Government but of those in the executive positions who run the Trusts. If there is one Trust which is performing exceptionally well then others should be following their example. There are now too many chiefs and not enough Indians in the NHS. No wonder the public are incensed by the exorbitant pay that these executives take home.

  3. Hugh Staunton says:

    Hurray! Almost all of my thoughts (renaming NI to be NHI; contributions by all (it is ridiculous – but thank you! – that as a still working pensioner, I no longer pay NI).

    But, Nick, you do not go far enough.

    We need the so-called ‘economically inactive’ to have the opportunity of contributing, but also to make contributions more ‘enjoyable’. It is said – sorry, no evidence – that the majority of people who play the National Lottery; ‘the Health Lottery’ and ‘the Postcode Lottery’ are the lower earners of our society. They – and why not? – hope for a windfall to take them out of their actual or perceived poverty.

    HMG should nationalise the National Lottery and require the Health Lottery to change its name. It would then become ‘the National Health and Social Care Lottery’; a proportion of the profits would still accrue to the administrators, but the bulk of them – contributions would be capped at £1 per ticket so as to encourage volume – would go into the hypothecated NH Fund, thereby reducing the need for NHI contributions to keep on rising so fast.

  4. Ray Wootten says:

    Dear Nick,
    A good idea in principle however you fail to say what will happen to those residents who are receding their state pension or those who are contributing and looking forward to retiring. Are we going to cast them aside?

    I agree that more funding is needed but the NHS bureaucracy needs to be cut, with some many organisations having a say funding goes down the drain. Take a look at Lincoln over 3000 staff at this one Hospital. Add the CCG,s Modern,CQC,NHS England and members of the board money and time wasted.

    There is also a need to examine those who make appointments both local doctor surgeries and hospital outpatients and fail to attend. I also add health tourists to these costs. As a County Governor at Peterborough Hodputal I was informed of a case where a patient from abroad was treated and could not be discharged for weeks as funding was not agreed.

    Your work and efforts to support Grantham Hospital Campaign groups is much appreciated and I personally thank you.

    Like you my life has been saved on three occasions by the NHS and we moved to Grantham 14 years ago from Leighton Buzzard, a town of similar size yet with no Hospital. Our children were born in Milton Keynes 14 miles away and our nearest hospital in Bedfordshire was at Luton and Dunstable 10 miles away. Lincoln Hospital is 35 miles from Grantham and this has caused considerable distress for residents financially and in time.

    Going back to your ideas, and many residents feel that foreign aid should be cut and directed to the NHS. I know that you disagree with this but it is a popular view.

    Thank you

  5. Woman-on-wheels says:

    Frankly that’s the best idea I’ve heard for a long time. I too owe my life to the NHS. Two lots of open-heart surgery, and a mastectomy. The majority of my working life I was self-employed but payed full NI stamp. NHS stamp fund is another matter, it would mean that ALL employed WOMEN when married will still have to pay in full as they should. I believe the reason that the self-employed pay reduced NI is because they do not have the same benefits of state-funding as those that are employed by an employer. If you want the self-employed to pay in full, then they should have the same rate of state funding for maternity, sickness, injury and other odds and ends and benefits. However, Everyone without exception should be liable for NHS payment from their income/s as tax is still paid on income even when retired. The only reason not to pay NHS fund is if ones income is too low to pay any tax.

  6. Jean & Terry Freeman says:

    We wholeheartedly agree with your proposal. Also the bursary for nurses should be reinstated and nurse apprenticeships brought to the fore. Also incentives for any youngsters wanting to work in any capacity in Health and social care should be encouraged. It must say something when applications for RAF nurses is oversubscribed, obviously because their training is paid for!

  7. Janina KT says:

    At last a sensible debate is beginning. The population at large are infuriated that there can be no discussion about the NHS without party-political point-scoring. We would like to bang all our MP’s heads together and say, “put the interests of the people before your prejudices”. The NHS is just about the most valuable part of British life – it cannot be beyond the brains of this country to find a way to make it viable. Good luck with this initiative.

  8. David Bowdrey says:

    Hello,
    While I agree with your arguments there is one big detail that you seem to have overlooked. At present the self-employed pay higher contributions than do employed folk (ignoring the employer contribution). What would be the result of a uniform contribution were a National Health scheme introduced? The present NI scheme has a fairly broad brush approach to income levels (perhaps that’s why self-employed pay a higher rate; it’s assumed that they ‘fiddle’ their earnings!). A new NI or National Health scheme may need to be setup along the lines of Income Tax but with no, or minimal, ‘allowances’.
    Knowing bods in the NHS, more directly in A&E, serious consideration should be paid to the type of patient using A&E (more particularly the ‘accident or emergency’ that takes them to A&E).
    Moreover, comparisons are often made to different systems throughout Europe. Ours is the only one where it’s totally free (apart from the parking) at the point of need.
    Agreed that something needs to be done, and your approach answers most of the ‘flaws’ in the present system, however, we seem to continually miss the mark by having so many well paid administrators and too few poorly paid nurses. We need to train more nurses (at Government expense), medical specialists and doctors. As I understand it, thanks to recent pay rises, nurses in Spain earn more than similarly qualified nurses in the UK! (The UK has few French or German nurses in its NHS hospitals.)
    Regards,
    David

  9. Will says:

    No no no no no. If you increase payroll taxes only the employed pay. We already have a perverse situation where pensioners have a greater income, after housing costs, than non pensioners.

    You’re proposing that we all now pay for their NHS care as well?

  10. John Chambers says:

    I am fed up of the different parties scoring points off one another over the NHS. It should not be a political football. Rather, all parties should work together.
    Also, more money should be put into good health education. The NHS has become the National Sickness Service rather than health service. In the long term I am sure a lot of money could be saved by avoiding people having to go into hospital at all. At present it seems very little is put into promoting good health through good diet and exercise.

  11. Trevor Boxer says:

    Thanks for your Square Deal notes on the NHS.
    I agree with every word and have been thinking on similar lines for a while.
    I thinks a separately funded NHS Insurance, ring fenced and dedicated solely to the NHS, is a better way of management than the political football it is at present. If the funding budget can be taken out of party politics, so much the better. A free vote or an independent panel, similar to the Bank of England Monetary Policy Committee that sets the interest rate could be considered.

    However, I think you may need to go further. The NHS seems almost to encourage people to abuse their bodies, thinking that the NHS will put things right. I suggest the NHS Insurance should be the standard sum for people who lead reasonable lives, but a much higher amount (e.g. twice the standard sum) for those who abuse smoke, drink, and drugs etc. Otherwise, if the abuser only wants to pay the standard sum, then any illness related to the abuse would not be covered under the NHS.

    Regarding on-going care, before the 2017 election, the Conservatives proposed that people pay for their old-age care with equity if it was greater than a certain amount. This seemed very reasonable to me, but for some reason it was called by the media a “dementia tax” and that phrase set a lot of people against it. How that can be reconsidered without raising the stigma of dementia tax, I do not know, but I do believe that care in old age should be paid for by the person being cared for, if there is sufficient equity available (i.e. cash, shares, investments or property, UK or overseas).

  12. I agree in principle but why is one of the biggest health providers in the world paying the highest prices for equipment and drugs. On LBC this morning someone who presumably worked in the NHS was saying that they pay £90 for something which costs £20.
    Either this is total incompetence or laziness because public money isn’t treated with the respect it would be if it was a privately owned well run business (not advocating privatisation by the way).
    Or it’s a deliberate policy to transfer public money into private hands. I’m not against that in principle but it’s got to be the same value for money a private business would expect. I’ve been hearing the same thing for the last 30 years about waste in the NHS and its appears to be no better now, and until that’s resolved I think it can’t be a case of through more money at it.
    Another example of this is the armed forces and companies like BAE who are absolutely ripping the government, tax payer and the country off. I also think as long as our MP’s have directorships or do consultancy work for such companies the public will never have confidence that their money is being spent wisely, so by default won’t back increases in NI or tax.

    Thanks Nick for the chance to comment.

  13. Kevin Moss says:

    Nearly 50,000 elderly people are currently in hospitals and have been there for more than a week. (half of all hospitalised patients). Many of these could (should) be looked after in a care situation, and this includes everything from round the clook nursing to occasional intervention with specific issues. This otherwise excellent set of proposals continues the entirely artificial split between “health care” and “social care” which surely would never arise if a system was being invented from scratch. This split inevitably results in tensions,large scale waste and distress for the mainly elderly ill. Social care and health care must be funded from the same pot.

  14. Nick, I agree with much of what you say, particularly the importance of including unearned income in whatever system funds the NHS, but here are a few points to consider:
    – Whilst I see the reason for wanting to identify the “premiums” being paid by workers for themselves and by the state on behalf of the economically inactive, there is a danger that this sets up an “us and them” conflict so that in future there may be pressure for “them” to receive a more basic set of services than the one enjoyed for by “us” who pay our own way. The name “National Health INSURANCE” emphasises this principle that only those who pay are covered. A worker who pays just £1 per week in NI clearly isn’t covering the true cost of their own care, but your scheme would not draw attention to the subsidy they are receiving from the higher earners.
    – Even if this is not your intention, there is a widespread suspicion that the Conservative party has a long-term plan to privatise the NHS, so including the word “insurance” in the name simply adds fuel to this fire. If you don’t really intend the workless to receive a lower service or be forced to pay at some point in the future, then it is probably not helpful to draw attention to the cost of taxpayer subsidy or call this an “insurance” scheme. Better to simply abolish National Insurance and introduce a National Health and Care tax at 13p on the pound.
    – Another problem with the insurance name is that those on the higher incomes may feel they are putting in more than they are getting out. Indeed at the moment, whilst most workers pay 12% of their marginal income, earnings over £43,000 are only attract a 2% NI premium. This is hard to justify when poor households on Universal Credit face an effective tax rate of 63-80%. If we are going to find enough funding to support the NHS, those with the broadest shoulders will have to bear a bigger burden; the same % rate should apply to all income above the minimum threshold.
    – You have explained how hypothecating NI and adding a top-up for the workless will provide sufficient funds for the NHS, but you haven’t explained how the treasury will fund this top-up. You need to face up to the fact that in order to provide more money, someone will have to pay more tax (this is why I favour removing the upper earnings limit and increasing the basic rate by 1p)
    – As others have pointed out, there is currently a mismatch between the safety net offered to employees and the self-employed. You may need to do more to close this gap before you can ask the self-employed to make a bigger contribution (or else give them a discount elsewhere).
    – I haven’t quite “gamed out” the scenarios for the post-election budget setting which you described. I like the idea of a guaranteed 5 year funding plan, but I would argue that any surplus should be rolled over to the next 5 year plan (enabling a lower tax rate) rather than simply being swallowed up by the treasury. This would be seen by many as the chancellor “stealing” from the pot, undermining the principle of hypothecation.
    – You haven’t said what would happen if an economic downturn leads to a shortfall between the NI raised and the NHS funding which has been promised. Does the fund accumulate a deficit which has to be paid back in the next funding period? Or does the treasury raise taxes elsewhere, leaving the NHS debt-free at the end of the period?
    – Can the NHS borrow from the treasury for capital investments? We don’t want to see private finance being introduced.

    Finally, take care not to accidentally take the credit for other people’s ideas. I’m sure your plan is to build a cross-party consensus, but this requires trust which can be undermined if others feel you are stealing their ideas in order to boost your own profile. I’m not suggesting this is the case, but on BBC Any Questions today it was said that “Nick Boles has suggested putting a penny on income tax to fund the NHS” when clearly this is a Lib Dem suggestion. You will need to actively seek out and correct these misleading statements.

    All the best

    Colin Martin
    Cornwall Councillor for Lostwithiel

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