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).
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.
(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