I have already referred to an FT editorial published this morning that made welcome comment on the need for NHS reform. Unfortunately it was not so insightful on NHS funding, on which it said:
Opinion polls indicate voters would applaud the extra cash. They are less enthusiastic when asked a general question about revenue increases. Hence Mr Hunt's suggestion that some part of the government's tax revenues could be hypothecated to pay for the new spending. A one percentage point increase in the rate of national insurance contributions, for example, is a lot more politically palatable if it is earmarked for health.
They added:
Economic purists claim that such hypothecation is an exercise in smoke and mirrors. In theory, they may be right. This should not discourage ministers from pressing ahead. Politics is the art of the possible, and the NHS needs the money.
I do wonder for how long we will have to deal with at least four issues that this raises?
The first is that the government can have all the money it desires: it simply has to make it. The idea that a government with its own currency can be short of money is ludicrous, and the FT should know it.
Second, spending on the NHS creates income for people that will provide a great deal of the funding required to pay for the additional services given that we are living in an economy that is a long way from operating at full capacity. There is an economic multiplier.
Third, national insurance is a deeply regressive tax. Why should the NHS be funded regressively and so unfairly?
Fourth, lying to people about tax, as such a supposed hypothecated tax would require, really is not good politics when the whole basis on which tax should work is honesty and trust.
If this is the best the FT can do on tax it has a lot to learn.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
“If this is the best the FT can do on tax it has a lot to learn.” – I’d hazard a guess that this is mostlyjFT journalistic trolling. They know the score – & if they are that stupid then they lack the brains to work in the FT. Well they don’t & they ain’t – so what they say falls into the troll/propaganda category – “yeah we know what we say is a load of cobblers – but hey – we are part of the status quo”.
Which leaves the open question: how long can they hold up this increaingly shaky facade? (tax n spend, corner shop economics, or the utter classic from Thatcher “The state has no source of money other than the money people earn themselves” (she really did say this btw – showing that perhaps there is a medical condition known as a pathalogical ideologue/cognitive dissonance).
I kind of agree, but are you so sure they don’t know the difference between stork & butter? I guess Martin Wolfe does, but the Leader writers and ordinary hacks? If they do, what does it say about journalistic integrity that they can “smile and smile and be a [liar]”?
G Hewitt says:
“I kind of agree, but are you so sure they don’t know the difference between stork & butter? I guess Martin Wolfe does, but the Leader writers and ordinary hacks?”
If ‘leader writers and hacks’ are writing garbage what it does it tell us about the subs and editors that pass it to (what passes these days for) the caseroom ?
Trying to understand what you say about fiscal multiplier effects. Presumably you accept the multiplier is only sometimes more than one?
The multiplier is often more than one
We know that the big myth is that multipliers are low. The oBR fell for that and so thought the impact of cuts would be much smaller than they were
The reality is the multiplier may often be 1 and frequently much higher
The IMF is amongst those who have realised this
Can you please explain how income for people (I assume you mean NHS workers) provides funding required to pay for the additional services?
I understand the concept of the multiplier – they’d have more money in their pockets to spend on goods and services, which in turn puts more money in other people’s pockets, and so on.
But how does it fund additional services (and I assume you mean additional NHS services but I suppose it could mean any public services)?
Am I missing something?
They pay tax
The people they spend with pay tax
They also increase demand: the NHS pushes people into higher paid an more skilled jobs on the whole. That means there is growth
So the economy grows
So more tax is paid.
And so on
It can be argued how much is recovered – I have not time to review that now – biut the fact is that NHS spending is also national income – and we tax that
Thanks. But does that tax actually pay for public services?
No tax as such pays for public services
But is that tax different from any other tax in this respect? No it isn’t
Thanks, but what is the cause-and-effect link between paying NHS staff more and improved service provision? It isn’t in the tax they pay (as you say). So what is it? Sorry to be inquisitive, but I’m missing something.
We pay them more because there are more of them
That helps meet demand
We pay them more if they are more skilled
Ditto
And that also reduces errors
So we have enhanced productivity
And that helps meet demand
I am not sure what else you are asking
If you are saying we pay them more for fun, we don’t
We pay because, in the phrase made well known by advertising, ‘they’re worth it’
I’m sorry to be a pain, but your post says
“spending on the NHS creates income for people that will provide a great deal of the funding required to pay for the additional services”
You appear to be saying it is the income itself that will create the additional services, not the total spending per se to increase capacity.
If it isn’t the tax from the income that creates the additional services, what is it? You are saying it would come from additional productivity. Is that right? My wife is a GP and is already stretched to see as many patients as she can in a working day, with only a few minutes per consultation. Paying her more wouldn’t make any difference. Presumably her experience would be typical across the NHS???
The two are the same thing
The world exists by double entry
And for the record, I am married to a now retired GP. I also know a bit about this. I actually think if GPs were paid more the recruitment crisis amongst GPS might be solved. I think this might increase productivity considerably because she would not be firefighting all day, or referring because she has no time to do anything else.
James E says:
“… but what is the cause-and-effect link between paying NHS staff more and improved service provision? ..”
Obviously a balance has to be achieved, but good wage levels….
…indicate respect for employees which in turn is good for staff morale and promotes a positive attitude to work. It’s all very well nurses getting boxes of chocolates from grateful patients’ relatives, but that doesn’t pay the rent.
….encourages staff retention. To have experienced staff at any level drift off in to better paid work when you’ve invested in their training and development is wasteful of financial resources and a dreadful waste of human capital.
….staff retention in turn reduces the negative effects of staff churn. Some movement through promotion and changing specialties is beneficial, but too much is disruptive.
…employed staff are considerably cheaper than temporary agency staff and I think I’m right in saying, that at all levels employed staff would prefer to be working with colleagues who ‘belong’ rather than are just passing through. Much more likely to be able to develop a good cooperative team ethos that way.
…besides which, and all the other reasons that current practitioners could list, why should we expect people to work for shite wages? Ultimately, poor wages are bad for everybody and bad for the economy.
…
All correct
More pay would enable more staff to be recruited which would also help with retention (staff are leaving because they cannot stand the stress), and reduce the agency bill, which would free up money to actually be spent on providing care instead of enriching the agencies. Of course several Tories have fingers in the agencies and so are reluctant to do anything about this, much like they are landlords and seem unable to consider passing any legislation about accommodation being for for habituation or increasing security of tenure.
“Economic purists claim that such hypothecation is an exercise in smoke and mirrors. In theory, they may be right. This should not discourage ministers from pressing ahead. ”
” In theory they might be right..”
In practice they are right, but let’s not let evidenced based research get in the way of privatising the NHS. And this is from the FT ? God help us.
Richard,
You are 100% right in your desire to improve the NHS. But the bottleneck won’t be the money: as you have often demonstrated, the government could print and pay out as much money as it wanted. I see the bottleneck as being the fact that the economy is close to full capacity already:
https://tradingeconomics.com/united-kingdom/unemployment-rate
And I am pretty sure that the unemployment lines don’t contain large numbers of GPs, surgeons, radiographers etc, etc, all itching to work in the NHS. Skills, and as Andy Crow points out, the NHS being an awful employer are the limiting factor, not the number of £10 notes going round.
I am completely persuaded that the multiplier is often greater than 1. However, that cannot be true permanently. If it was, we could simply increase spending without limit. So there must be a time when it falls below 1. Are we at that point? That is the question, and it’s the hard one.
I think 5 million people are under employed
No they’re not all doctors but massive numbers have skills they do not use because austerity made their jobs impossible and they quit
We have the potential
Staff are taking early retirement / leaving to emigrate or go into private work because the stress has got too much. So there are more people who could work in the NHS if work conditions improved.
Staff leaving is creating more stress, and so we are heading towards collapse of the NHS, as the Tories planned.
I Googled “how to pay for the NHS” and “does tax pay for the NHS”. I wasn’t exactly inundated with knowledgeable articles. There was one from this site and loads on hypothecated taxes, even Nick Macpherson in an FT article from February warmed to the idea, while “two brains” Willetts (maybe one brain was hibernating) in a blog on the Resolution Foundation site said that because the “boomers” had grabbed all the sweeties it was time to for them (us?) to pay for the NHS through a wealth tax (not in itself a bad idea for a tax) or “we will face a choice between changing our approach to taxation, or cutting access to the NHS….we need a well-funded welfare state capable of helping us in our old age and we should help pay for it rather than expecting our hard-pressed children and grandchildren to bear the whole burden”.
There seems, if Google results are indicative, a momentum building behind an NHS tax of some kind.
Eventually I came across (Nuffield Trust Chief Economist) John Appleby’s article in the BMJ in which he called this momentum “a zombie idea” and said that “the most significant problem with an NHS tax is that it puts the (tax) cart before the (spending) horse” and added that what is need is a political decision to spend more on the NHS.
But it looks like a hard road to hoe.
I have had a draft article with the BMJ for months on this issue but I really do not think they get it
Richard “And for the record, I am married to a now retired GP. I also know a bit about this. I actually think if GPs were paid more the recruitment crisis amongst GPS might be solved. I think this might increase productivity considerably because she would not be firefighting all day, or referring because she has no time to do anything else.”
That’s a simple answer to a more complex issue… At average £100K pa GPs are paid enough…It’s the lack of respect, infrastructure investment and devaluation of the job that’s causing the problem. Maslow was correct….
The problem appears to be rooted in cultural shifts (social media et al) , lack of trust in “leadership” (justified) and a focus on money as the single arbiter of success (or that money can fix anything)
Aside from that thank you for the blog. I’m learning a lot and apologise if I wandered off topic.
Don’t worry
GPs are leaving because there job is impossible because of a lack of resources