I have written before on why we do not need hypothecated taxes to fund the NHS.
A slightly theoretical version of the argument is here.
A more accessible one, addressing why national insurance should not be raised to fund the NHS, is here.
The essence of the argument is threefold.
First, spending comes before taxation, and not the other way round. To, therefore, ask where the tax comes from before doing more spending is to ask the wrong question as to funding.
Second, spending creates the capacity to pay more tax. The reasons should be obvious and yet apparently they are not. New government spending is, of course, someone's income. It is not poured into a black hole to be lost forever more. That means that some comes straight back in tax. And yet more comes back because the recipient of the extra income also spends, and so tax is paid, and so on. It is quite likely that over time new spending pays for itself.
Third, to link an income stream to a spending commitment is dangerous. That's because in that case the ability to spend is artificially constrained by what happens to that income stream. However, it's rare that there is any relationship between the demand for health spending and the economic activity that results in tax paid. The danger is, then, rationing by the back door, which many on the right would love.
Hypothecation is bad in principle. It's especially dangerous for the NHS where the ability to treat people should not be artificially constrained by bad economics.
It really is time that this idea was seen as economic nonsense designed to undermine the NHS, because that is what it is.
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It is great to have something like this to help us understand and critique the idea of hypothecated tax for the NHS. Many thanks for doing this. But, I think there was an editing error in the following sentence as it does not make sense the way it is worded:
“Third, to link an income stream to a spending commitment is dangerous because then the capacity to spend is constrained by what happens to that income stream but the need most government spending is not directly linked to any one economic activity that results in tax paid.”
Could it be re-worded so its meaning is clearer?
thanks
Louise
Louise
Greetings, and thanks
I will take another look
Richard
Louise
“but the need for any government spending……….
The wonder of the English language is its redundancy. We do not have to be 100% accurate with our words to be understood.
Sorry
Should have said ” the need for most government spending…….
If we’re going to hypothecate taxes, let’s also hypothecate tax cuts. For example, cuts in corporation tax can be renamed the “Silicon Valley Subsidy” (but this would imply they paid corporation tax LOL), the remittance basis could be renamed the “Oligarch Subsidy”. The IHT nil-rate band could be called the “Silver Spoon”.
Oh what larks we could have coming up with lots of wonderful new names. Come on everyone, there’s a game to play here. I’m sure you can come up with far more and better suggestions than me.
That made me laugh
This may reach the blog tomorrow morning
Please supply more….
By putting in a hypothecated tax…. its just the next step towards privatisation. Lets say on our wage slip, we see an amount taken each month – “NHS funding: £300”, or whatever….
Then, this has put in to peoples mind that we pay for the NHS out of our wages… its no longer free, its there. The next step is to invite private companies to compete with this, so we can reduce our NHS bill, and replace it with “Virgin Health” for better/ cheaper service….
Well, so the theory goes but both you and I know , in reality, it will end up much more expensive.
John Major’s Patient’s Charter was deeply pernicious in this way
It made the patient a consumer, demanding of their pound of flesh
It corroded the whole ethos of the NHS
Hypothecation is greatly encouraged by the tax summary which talks about ‘how your tax was spent’. It is pure state propaganda.
http://www.progressivepulse.org/economics/the-subterfuge-of-the-tax-return
I agree Peter
Small state propaganda at that
Hypothecated taxes create “consumers” for public goods. Once you become a consumer and believe that you are paying personally for services the consumer feels that personal rights are created and usage increases because of a culture of direct payment for services. Similarly a system of insurance does the same thing because having a specific payment for a service means the individual will use that service even when not strictly required because they have paid for it. Insurance and health providers love this idea because it means that more money is poured into health services which is why in the US far more is spent on health than comparable with the NHS.
The beauty of the NHS is that it creates a culture of public good for those who need the service not one of use because of a personal right created via a direct payment by me either by an insurance policy or an hypothecated tax.
Those on the political right who insist that a grown up conversation is needed as to how the NHS will be funded are solely seeking to impose private enterprise doctrine. The most efficient means of funding the NHS has to be through central government funded by all. Any other system of funding has to involve a transfer of benefit from those less able to afford it to those able to pay. An insurance system will reduce the funding pool and force those unable to pay to “choose” a lower level of cover a choice no one can legitimately make because they lack the knowledge as to what illnesses they may need to cover in the future. Their doctrine supports the growth of inequality and the preservation of existing privilege. The privatisation of the pensions system via auto enrolement excludes those who are unemployed and benefits those with higher incomes compared to those on lower incomes. The creeping privatisation of the health system will do the same.
Agreed. Thanks.
Simon Grey says:
“The beauty of the NHS is that it creates a culture of public good for those who need the service”
Not arguing with that and I think it’s valuable and far too good to lose.
There have been some interesting quirks to get round, however, like the temporary fashion for replacing healthy teeth with dentures. I suspect this was driven as much by dentists as by patients. I have little doubt that the fashion for cholesterol reduction is largely driven by the pharmaceutical industry and facilitated by reducing time GPs actually spend with patients. Quick fix needed – give the patient some smarties. With measurable results albeit of dubious value. Ditto antidepressant medication except it’s not reliably effective, so ironically that’s a win for Pharma too because there’s always another brand to try.
Privatisation would not make the process cheaper or better – evidence of spending on Health care in the US indicates the contrary. And the US doesn’t even approach comprehensive cover in poorer districts.
Business ethos seeks ‘productivity’ gains. Faster patient turn round and throughput, less practitioner contact time. The ethos is wrong, the market profit motive doesn’t apply despite a series of governments trying to pretend it does. We can afford healthcare and we have the slack in the labour market to staff it.
If there was any real danger of the sort of ‘backlash’ referred to in another thread, a mob would have torn Jeremy Hunt to shreds by now. And a good few of his predecessors I think.
The NHS is a conglomerate of “independent” trusts each one charged with delivering a service within an allocated income resource. The fact that it is impossible to predict demand means that the production of an annual deficit is almost inevitable.
The attempt to break even leads to payments to creditors being delayed as liquidity issues arise and to short sighted cuts being implemented which then lead to greater expense further down the track.
Borrowing is then increased year after year. A finance charge (a public capital dividend) in respect of the borrowings is then levied upon the Trust. The fiction is then maintained that borrowings can be repaid, in other words that a Trust can produce a yearly surplus on a long term basis.
The concept of hypothecation needs to be seen against this background. How does a trust allocate a specific line of resource for, say, midwifery where an annual deficit is unavoidable.
The whole NHS structure is bogus
Making the N in NHS local is a fraud
Pretending there is indepependence is a fraud
Depending needs vary widely is bogus: the knee is the same the country over
And accounting for 200 trusts is a massive fraud and cast on front line services
And why all do this? It only can be to create the opprtunity for privatisation
“Pretending there is independence is a fraud”
It’s certainly disingenuous. Since the budget is determined centrally and metrics are decreed centrally independent control is constrained to such an extent as to be approaching Orwellian newspeak.
“[Pretending] needs vary widely is bogus: the knee is the same the country over”
Not quite so sure about this, Richard. Health outcomes vary greatly in proportion to socio-economic factors. So provision needs to reflect this. I suspect it does so currently by rationing and waiting times rather than responsive provision.
“And accounting for 200 trusts is a massive fraud and cost on front line services”
I’m not entirely sold on this either. Ignoring the fact that there is potentially more work for more people (accountants) , there is the matter of ‘ownership’. The further accountability is from spending the less responsibility is engendered. The foundation Trusts in many (some) cases work well in fostering a sense of ownership. My biggest fear was always that by localising, the intention was to create bite sized commercially attractive units. It would not have been out of character for this to be in the Blair/Brown game plan. The initial intake of staff (medical, administrative and managerial) were all imbued with the NHS public service philosophy, but the upcoming generation are getting that bred out of them making the Trusts increasingly fragile. Senior board level are rewarded with private sector perks like generous money purchase pension schemes. ‘Mouths stuffed with gold’ ring any bells with anyone ?
It is not necessarily the cheap way to provide NHS services, but I think we are agreed that doing it on the cheap is not the aim nor is it necessary.
“And why do all this? It only can be to create the opportunity for privatisation”
I suspect so. And the principal beneficiaries will be the financiers particularly in the health insurance field, with income guaranteed by compulsory schemes topped up by government. It will cost just as much as doing it by direct government spending – in fact it will logically cost more because in addition to provision of health services it will also need to pay shareholders profits. And/or the service will be less good or less comprehensive.
Andy
Of course need is not the same: some areas need more of some things for socioeconomic reasons. But that does not need a trust to recognise the fact
And I have to say that ownership is a moot point: by who? Not by the patients (99% of whom will not know the name of their trust and think there is an NHS). Or staff, who are mainly alienated by Trust processes. So by whom? Not even local politicians.
So I think my thesis stands
Richard
Andy.
Trustees are managing a fiction.
They cannot pay creditors on time.
They cannot repay accumulating loans.
They cannot put together a reserve policy in line with charity commission guidelines.
They cannot produce accurate income and expenditure projections.
They cannot discharge their fiduciary duties.
“……some areas need more of some things for socioeconomic reasons. But that does not need a trust to recognise the fact”
I think, (I think I know) there are considerable advantages in a more localised system, but we’re drifting away from the topic.
Neither a very centralised nor a more distributed system will have any chance of success if the funding is inadequate.
I fear hypothecation will be seen as a ‘good idea’ and I agree wholeheartedly that it isn’t.
Understand the points made (though I think a degree of fleshing out and counter-points may be worthwhile) but what was the rationale for the original introduction of NI? Was that not hypothecated at the beginning with the idea that it was ring fenced for health and unemployment benefit? Is it not still unavailable to be syphoned into the general taxation pot?
There are a lot of things once thought appropriate that aren’t any longer
Hypothecated taxation is one of them
It bel9ngs to another age.
Like NI cone to that
KeithP says:
Things I wouldn’t disagree with, but I suggest that (probably) all these shortcomings are to do more with starvation of funding than any particular managerial/operational factors.
The system is designed to fail through lack of funding. Recent funding announcements are a sticking plaster to keep the system (and the government) staggering along for a while, whilst pretending to be a solution.
I cannot see this as anything other than a temporary postponement of the thrust towards privatisation. Additionally I recognise the suggestion made above that hypothecation may be a neat move to make the process more palatable to the public. It will anyway at best only be a bit of top up – there is no assurance that money not hypothecated will not continue to be quietly withdrawn.
Tory governments consistently say they can be trusted with the NHS and consistently demonstrate the opposite. And they consistently get away with it.