Meeting NHS Pressures Is Likely To Require Substantial Tax Increases

If we want a health system that meets our expectations and delivers the quality of service that we are accustomed to, we will have to pay for it
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The NHS turns 70 on 5 July this year. Whilst birthdays are usually a cause for celebration, wide-spread reports of strain on the NHS last winter have led to questions about the quality of service we should expect and the funding that would be required to deliver it. The pressures on the NHS will only grow over the coming decades, as the population ages, the number of people living with chronic health conditions increases, and wage and drug prices rise.

New analysis from the Institute for Fiscal Studies and the Health Foundation, in association with the NHS Confederation, projects how much extra funding would be required to meet those pressures over the next fifteen years, and how that funding could be raised.

Our analysis suggests that just to maintain NHS provision at current levels, UK spending on healthcare would need to rise by 3.3% a year over the next fifteen years, rising to 4.0% a year if services are to be improved. By 2023-24, this would mean spending an additional 0.9% to 1.3% of national income on health. That amounts to an extra £20billion to £29billion in present day terms, or £700-£1,000 per year for each household in the UK. The amount needed will increase over time, reaching an additional 2% to 3% of national income by 2033-34. This is the equivalent to £34billion to £56billion in present-day terms, or between £1,200 and £2,000 per household.

As spending on the NHS has risen over time, the NHS has been able to do more, and do it better. But historically the growth in NHS spending has been compensated for by reductions in relative spending in other areas – most notably defence. That has meant that large tax rises haven’t been required, and the overall size of the state is similar to what it was in the 1950s.

Looking forward, continuing to increase health spending by cutting elsewhere would be extremely hard. The scale of funding increases required is too great, and eight years of austerity mean that there is very little left to cut. There doesn’t look to be much desire from the public for large increases in user charges or for a complete overhaul to the UK model of healthcare provision. Borrowing might be an option in the short term, but isn’t a sustainable long-term solution. Meeting pressures on the NHS will therefore almost certainly mean that we will all have to pay more tax.

Increasing tax by 2-3% of national income is by all means possible. Tax rises of this scale would take the UK tax burden to a high level by historical standards, but we would still raise a lot less in tax than many other comparable European countries – including Germany and France. The government might wish to target any tax rises on particular groups – perhaps the older population, or the rich.

As ever, there is a choice to be made. But if as a country we want a health system that meets our expectations and delivers the quality of service that we are accustomed to, we will have to pay for it.

Elaine Kelly is a senior economic analyst at the IFS

Ben Zaranko is an economic analyst at the IFS

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