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The Progressive Policy Think Tank

Let's talk about tax (and why the NHS needs it)

The idea of an 'NHS tax' is gaining ground – as it should. It's the only way to both sustain the NHS and reduce the deficit.

Until now there has been no great NHS crisis of the kind we saw in the 1990s but that might change soon – especially if coming winters are severe. Although the coalition has just about kept its promise to maintain the NHS budget in real terms, the service is used to annual increases of 4 per cent, and for good reasons. The cost of caring for our ageing population, the spread of chronic conditions and expensive new treatments mean that flat budgets are unprecedented. Unless the NHS gets a cash injection soon, few voters will really think it has been 'protected' at all.

Realistically, the chancellor won't be able to find extra funds by cutting other Whitehall budgets even more deeply. George Osborne's decision to ringfence the NHS, schools and aid budgets means that annual cuts to unprotected departments are already set to be an untenable 7 per cent. There is only one way that deficit reduction and a stable NHS will be maintained: tax rises.

Both Labour and the Lib Dems have promised some kind of mansion tax but at most it will raise £2 billion a year and each wants to give that revenue away in tax cuts elsewhere.

A more certain way of boosting revenue would be a dedicated NHS tax or national insurance increase. A 1 per cent increase in one of the NI rates could bring in about £4 billion each year and if the proceeds were dedicated to the NHS it could be popular. This funding could be uprated every decade, to meet the predicted pressures on the NHS.

That is the view of the Labour backbencher Frank Field, who has urged his party's policy review to embrace the idea. Ed Miliband will be wary of promising any tax increases for ordinary voters whose living standards are still being squeezed. But if the public is sceptical about tax increases in general, it is supportive of those used to finance the NHS.

Any 'NHS tax' should be introduced alongside the increased integration of local health and social care service budgets. It makes little sense to protect headline NHS spending while squeezing local government budgets that fund care of the elderly. Nor can the NHS expect immunity from further productivity drives. But an NHS tax plus community-based services that prevent more elderly people needing hospital care might be one of the big ideas that the next election needs.