Some of the options, all unpleasant, for raising money for the UK Health Services. Tax reform – “fishing for funds” in the Economist

Doctors and Nurses are equally sanguine about the future of their health services. They are usually honest, and can see the long term problem. The public citizen, led by their politicians and the media, does not see anything other than the short term results – waiting lists and treatment deficiencies, exclusions of cancer patients, and mental health problems that they do not understand. CEOs, Chairmen and other board members have insight, but never get to peak out openly. There are no exit interviews for board members, and no way for feedback if there were. The “chiefs” are waiting for their gongs, which will arrive if they keep their mouths shut for long enough. …. One option the Economist has not considered is for co-payments, overt rationing along the lines of New Zealand. Higher taxes will likely be regressive, but they have to hit the “average” wage earner, as those poorer will not contribute, and those richer will avoid and evade taxation. Whatever and whenever we choose, it will be a better solutions than America’s. At least means related co-payments could address deserts based rationing slightly…

See the source image


Fishing for funds. Wanted: radical proposals to fill Britain’s giant fiscal hole – what are the options? – Politicians are slowly facing up to the fact that higher taxes are needed The Economist 17th February 2018

ALMOST every morning Britons wake up to another alarming story about their threadbare public services. Since 2010 the state has endured its biggest financial squeeze on record, and it is beginning to show. The National Health Service is battling a “winter crisis”. Social care is not keeping up with the ageing population. The number of rough sleepers has almost trebled. Prisons are short of guards.

The government’s fiscal watchdog has issued sobering forecasts. Its calculations suggest that to put the public finances on an even keel over the long term, tax rises or spending cuts worth around £80bn ($111bn), or 4% of GDP, will be required. Further cuts are a non-starter, since there is little fat left to trim. Some right-wing MPs see the foreign-aid budget as ripe for a shakedown, an idea that has gained traction following a scandal at one big charity (see article). Yet even abolishing aid entirely would get Britain barely one-sixth of the way towards its target (see chart 1).

So politicians are slowly coming round to the idea of higher taxes. “There’s quite a strong argument that fiscal policy ought to change,” Nick Timothy, who once did most of the prime minister’s thinking, said recently. “While the NHS needs reform, it also needs more money.”

Broadly speaking, a government can tax three things: income, consumption and wealth. Economists like taxes to be simple and to avoid unintentionally distorting behaviour. Where should the government cast its net?

Start with taxes on income. At first sight they are an obvious target for revenue-hungry politicians. They are progressive (ie, those on higher incomes pay more). And Britain looks overdue for a rise. Since the 1970s income taxes have fallen as a share of the total (see chart 2). The basic and higher rates of income tax, as well as the corporation-tax rate, have been slashed. Britain now raises far less in income taxes, broadly defined, than the average OECD country.

The Labour Party wants that to change. It would raise corporation tax from 19% to 26% and jack up taxes on those earning above £80,000 a year. It says such policies would yield around £25bn, a large chunk of what Britain requires. Yet it is not clear that the tax system needs a big extra dose of progressivity. It is already about as redistributive as the OECD average, reducing pre-tax income inequality by about one-third. And beyond a certain point, progressivity conflicts with efficiency. Rich folk work less, make bigger contributions to their pensions (which enjoy favourable tax treatment) or leave the country. The Institute for Fiscal Studies (IFS), a think-tank, says that Labour’s higher taxes on personal incomes may raise less than hoped—and perhaps nothing at all.

A better approach to taxing income might involve broadening the base. Since 2010 the tax-free personal allowance has risen from £6,475 to £11,500. Reducing it to £10,000 would raise some £9bn a year. The Liberal Democrats have proposed adding one percentage point to all rates of income tax. That would yield around £6bn.

But any move to raise taxes on income has a cost. Research by the OECD suggests that income taxes, more than those on consumption and wealth, strongly discourage people from working, cramping economic growth. This implies that Britain’s relatively low income taxes are a strength, rather than a problem to be fixed.

Higher taxes on consumption might, therefore, be considered. Some want extra levies on socially damaging activities such as unhealthy eating and pollution. In April Britain will introduce a “sugar tax”, which should raise some £500m a year. A “climate-change levy”, a tax on energy use by businesses, already exists. Doubling all environmental taxes would raise perhaps £14bn. It would also make Britain greener.

To raise serious money, though, politicians could turn to VAT, which is levied at 20%. It looks ripe for reform. With a plethora of carve-outs—for food, children’s clothes and much else—Britain’s VAT covers only about half of what the average person buys. That makes it the seventh-leakiest VAT in the OECD.

Different VAT rates are designed to help the poor afford essentials. But it is a costly way to do so, as the rich benefit from the exemptions, too. A bold reform would be to extend VAT to nearly all spending, which might be enough to fill Britain’s fiscal hole. By itself it would be regressive, not to mention politically poisonous (newspapers’ outrage over VAT on baby food would be matched only by their fury at VAT on newspapers). So the government would need to help the losers. The IFS reckons that it could get rid of most VAT carve-outs, compensate the poor (say, by boosting benefits) and still have a lot of money left over.

Going after the grandparents

Increasing wealth taxes, levied on everything from property to financial assets, may be a more palatable option. A housing boom, intergenerational inequality and the need for more health and social care have given rise to a feeling that old, rich people ought to pay more.

Some say that the wealthy already pay enough. Britain raises more of its overall tax take from wealth taxes than any other OECD country. But look at it another way. Wealth taxes tend to be the most growth-friendly. By historical standards, Britain’s wealth looks undertaxed. Since the 1970s, as house prices and equities have soared, total household wealth has risen from three times income to eight times. Taxes on that wealth relative to GDP have remained steady, however. Council tax, one of the biggest wealth taxes, is based on property valuations from 1991. Rich people often pay less than poor. Buckingham Palace attracts a council-tax bill of £1,400 a year, around the same as some flats in Bradford.

Basing council tax on up-to-date values would be a start. Other forms of wealth could also be tapped. Cancelling a proposed loosening of the inheritance-tax regime is one idea, though it would not raise much revenue.

A land-value tax is another option. An annual levy of 0.5% might fill almost a third of the fiscal hole. Such a tax would be hard to avoid, since land cannot be hidden or easily substituted. The evidence also suggests that it is landowners, rather than renters, who bear the burden of such a tax.

Today, no prime minister would dare to implement these radical ideas, least of all the timid, distracted incumbent. But the fiscal logic is brutal. If Britons want good public services, they will need to pay more. Real tax reform is coming sooner or later.

Addressing the “black hole” in the health budgets – wait for political denial.

Health is closely correlated to Wealth – If you are poor you get no choice (Wales), and live a shorter life, but if you are rich, or born abroad, you live longer and you do get choice! So much for equity…

A new generational contract:

See the source image


This entry was posted in A Personal View, Patient representatives, Political Representatives and activists, Rationing, Stories in the Media on by .

About Roger Burns - retired GP

I am a retired GP and medical educator. I have supported patient participation throughout my career, and my practice, St Thomas; Surgery, has had a longstanding and active Patient Participation Group (PPG). I support the idea of Community Health Councils, although I feel they should be funded at arms length from government. I have taught GP trainees for 30 years, and been a Programme Director for GP training in Pembrokeshire 20 years. I served on the Pembrokeshire LHG and LHB for a total of 10 years. I completed an MBA in 1996, and I along with most others, never had an exit interview from any job in the NHS! I completed an MBA in 1996, and was a runner up for the Adam Smith prize for economy and efficiency in government in that year. This was owing to a suggestion (St Thomas' Mutual) that practices had incentives for saving by being allowed to buy rationed out services in the following year.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s