Hypothecated health tax brings risks, King’s Fund warns

29 May 18

Creating a dedicated ring-fenced tax to fund the NHS could undermine other public spending areas, the King’s Fund health think-tank has warned.

Committing to a hypothecated tax for health and social care may be part of the answer to the NHS’s funding problems “but on its own it is unlikely to be enough to guarantee a more stable future”, its report, published today, said.

The report examined the arguments for and against a hypothecated tax and concluded the debate was finely balanced.

Hypothecation was “an attractive idea [that] could end up back firing unless the risks are tackled” leading to “even greater public mistrust of politicians”.  

One of the risks of hypothecation was the loss of flexibility, which could result in “sub-optimal decisions” on other public spending priorities.

Over the last two parliaments, local government and the criminal justice system have received bad settlements compared to the NHS, overseas aid and pensions, the King’s Fund noted.

If a hypothecated tax were introduced there would need to be “some independent, non-political input” into setting the budget for health and care, it added.

The King’s Fund has previously called for an Office for Budget Responsibility-style watchdog for health.

Advocates of a ring-fenced health tax say the certainty it offers could put an end to the cycle of “boom and bust” funding for the NHS, which has been in place for the past 70 years.

Last month, analysis of a British Social Attitudes survey revealed that 61% of respondents supported tax increases to fund the NHS.

Hypothecated taxes can improve citizens’ understanding of the cost of public services, according to supporters of hypothecation.

Julian Le Grand, professor of social policy at the London School of Economics, told PF: “I increasingly think hypothecation is the only way forward.

“But it should be done properly, with no blurring at the edges.

“No channelling of surpluses into other areas of public spending; no topping up of deficits by other taxes.”

Niall Dickson, chief executive of the NHS Confederation, which represents organisations across the health sector, said: “It is not our role to dictate the detail of fiscal policy, however we would not seek to obstruct any means of raising additional health and care funding - so long as it is fair and transparent.

“We urge the government to consider all available fiscal options in as much detail as possible.”

Last week, a report by the Health Foundation and the Institute for Fiscal Studies acknowledged the need to increase tax to sustain health care spending.

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