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The Progressive Policy Think Tank

Put 1p on National Insurance to secure the NHS and social care, say former Labour and Tory ministers and IPPR

New plan would deliver £350m a week for the NHS by 2022

The Government should raise National Insurance contributions by 1p in the pound from 2019 to secure the NHS and social care in this parliament, say former ministers and the think tank IPPR. The change is part of a package of measures for a long-term funding settlement for the NHS and secure funding for social care. 

The plan comes from eminent surgeon and former Labour Health Minister Professor Lord Darzi and Chairman of UCL Hospital and former Conservative Health Minister Lord Prior, who are working with the progressive policy think tank IPPR.

The tax hike would be necessary to meet a new, long-term funding settlement for the NHS. The former ministers and IPPR say that the NHS needs at least a 3.5% increase every year—and properly funded social care—if it is to provide good quality care, meet the demands of an ageing population, and embrace technological change.

The plan would deliver more than £350m a week extra for the NHS by the time the UK’s transition out of the EU is complete, compared with funding at the time of the Brexit vote in 2016 — but achieved through the increase in National Insurance contributions, rather than by redirecting existing UK contributions to the EU.

Under their proposal, the NHS budget would be guaranteed to increase at least at 1.54% over and above overall growth in the economy — the average rate it has grown at from 1960 to today. This would allow the NHS to plan long-term investments to improve quality and access to care.

The plan would also address the crisis in social care by properly funding the current system. Spending would increase from £17bn today to £21bn by the end of the parliament — a £4bn rise. This would prevent further deterioration in state-funded social care which has seen 27% fewer people receiving state-funded care since 2010 despite rising needs from an ageing society.

Raising National Insurance contributions by 1p in the pound from would raise an additional £12bn a year by 2021/22, matching the additional financing requirements of both the NHS and social care. The changes would be phased in, with a 1p rise for employers in 2019/20 followed by a 1p rise for employees in 2020/21.

Lord Darzi, Lord Prior and the IPPR also back recent proposals to ask the older generation to contribute a little more to health and care costs by continuing employee National Insurance Contributions past the State Pension age for those that remain in work. These changes – along with a 1p increase to the rate for the self-employed – would be introduced in 2021/22 under the plan.

The long-term funding proposal comes from former health ministers Lord Darzi and Lord Prior as part of their review of health and care with the IPPR ahead of the 70th anniversary of the founding of the NHS.

Top NHS surgeon and former Labour Health Minister Lord Darzi said:

“The 70th anniversary is a time to recommit to the NHS by funding it properly and for the long term.

We can secure the NHS and social care for the future by asking everyone to contribute a little more in National Insurance—it is a small price to pay for a more civilised and caring society.”


Chairman of UCL Hospital and former Conservative Health and Business Minister Lord Prior said:

“We need an end to the ‘feast and famine’ cycle of NHS funding. Our proposal would provide the NHS with the long-term funding settlement that it needs to be fit for the 2020s

A modest increase in National Insurance is a small price to pay for the security that the NHS and social care provide to families in this country.

The nation’s health is the nation’s wealth and this plan will help our life sciences sector flourish in the 2020s in the face of strong headwinds from Brexit” 

Tom Kibasi, Director of IPPR, said:

“We have cross-party support for boosting NHS and social care funding, delivering more than £350m extra a week for the NHS by 2022, and a realistic plan to pay for it.

The Government now needs to step up to guarantee properly funded NHS and social care and honestly confront the need to raise taxes to pay for it.”

The former ministers and IPPR will publish their comprehensive reform plan for the NHS next month, ahead of the anniversary of the founding of the NHS on 5th July

ENDS

CONTACT 

For further details, please contact IPPR Head of News and Communications David Wastell on 07921 403651 d.wastell@ippr.org.

INTERVIEWS

Lord Prior, and Tom Kibasi, Director of IPPR, are available for live interviews on request. Lord Darzi is also available for pre-recorded interview today.

NOTES  

Professor Ara Darzi holds the Paul Hamlyn Chair of Surgery at Imperial College London, the Royal Marsden Hospital and the Institute of Cancer Research. He is Director of the Institute of Global Health Innovation at Imperial College London and Chair of Imperial College Health Partners. He is an Honorary Consultant Surgeon at Imperial College Hospital NHS Trust. Professor Darzi has been elected as an Honorary Fellow of the Royal Academy of Engineering; a Fellow of the Academy of Medical Sciences and in 2013 was elected as a Fellow of the Royal Society.

He was knighted for his services in medicine and surgery in 2002. In 2007, he was introduced to the United Kingdom’s House of Lords as Professor the Lord Darzi of Denham and appointed Parliamentary Under-Secretary of State at the Department of Health. Upon relinquishing this role within central government in 2009, Professor Darzi sat as the United Kingdom’s Global Ambassador for Health and Life Sciences until March 2013.

Lord Prior was Parliamentary Under Secretary of State at the Department for Business, Energy and Industrial Strategy from 21 December 2016 to 27 October 2017. David previously served at the Department of Health as Minister for NHS Productivity from May 2015 until December 2016. He is a Conservative member of the House of Lords.

IPPR is the UK’s pre-eminent progressive think tank. Our mission is to open up opportunity, power and prosperity to everyone through conducting rigorous research and generating big ideas. With more than 40 staff in offices in London, Manchester, Newcastle and Edinburgh, IPPR is Britain’s only national think tank with a truly national presence. 

www.ippr.org

TABLES AND METHODOLOGY                

Figures in tables are in £ 000’s (thousands) except where percentages

Funding Requirements for the NHS and social care

Component

2018-19

2019-
20

2020-21

2021-22

2022-23

2023-24

2024-25

2025-26

2026-27

2027-28

2028-29

2029-30

IPPR NHS Spending Projections

125,575

129,977

134,551

139,332

143,509

148,065

152,940

158,183

163,780

169,731

176,046

182,651

Annual year-on-year growth rate %

3.51

3.52

3.55

3.00

3.17

3.29

3.43

3.54

3.63

3.72

3.75

Incremental NHS funding required from tax rises

3,502                                            

6,801

9,815

12,104

14,512    

17,046

19,723

22,553

25,548

28,719

32,065

Social Care Demand Pressure Projections (from Health Foundation)

19,517

19,971

20,724

21,436

22,171

22,933

23,720

24,535

25,428

26,353

27,312    

28,306

Incremental social care funding required from tax rises

1,127 

1,635

2,082

2,536

2,976

3,414

3,845

4,324      

4,808

5,297

5,804

Total NHS and social care incremental funding required from tax rises

4,629                                                              

8,436

11,897

14,639

17,487

20,460    

23,568

26,878

30,356

34,016

37,869





Funding requirements for NHS and Social Care against revenue from National Insurance changes

Component

2019/20

2020/21

2021/22

Total NHS and social care incremental funding required from tax rises

4,629

8,436

11,897

1% rise in employer National Insurance

4,763

9,529

11,894

1% rise in employee National Insurance

Apply Employee National Insurance above State Pension Age

Result

134

1093

(3)

NHS funding growth rates

Period

Average year-on-year growth, %

2019/20 to 2021/22

3.5

2022/23 to 2026/27

3.3

2027/28 to 2029/30

3.7

2019/20 to 2029/30

3.5

NHS funding increases compared to 2016/17 baseline

£m

2017/18

2018/19

2019/20

2020/21

2021/22

2022/23

Total spend above 16/17 NHS TDEL

2,575

3,075

7,477

12,051

16,832

21,009

Weekly spend above 16/17 NHS TDEL

50

59

144

232

324

404

Funding requirements for the NHS: methodology

The funding baseline for the NHS is TDEL agreed for 2018/19, comprising both RDEL and CDEL for NHS England and other NHS bodies including Health Education England. This is then increased by using the OBR’s projections for real GDP growth through to 2030 plus an additional 1.54% (the long-run rate of funding growth above GDP growth from 1960 to 2015).

Further funding is then provided to close the gap in access standards between current performance and the standards set out in the NHS Constitution and to enable the NHS to invest in productivity improvements for the future. This increases from £900m in 2019/20 to £1,800m in 2020/21 and £2,700m in 2021/22, where it will be 2% of total expenditure. Thereafter this investment is sustained at 2% of total expenditure through to 2029/30. 

This achieves a 3.5% average funding growth in this parliament; 3.3% average funding growth from 2022/23 to 2026/27 and 3.7% average funding growth from 2027/28 to 2029/30 for an average 3.5% rate of growth over the entire period. This rate of funding growth assumes NHS annual productivity growth remaining at its long-term historic average.

Incremental funding to be sourced for the NHS and social care

For 2019/20 and 2020/21 the incremental funding requirement to be found through taxation is based on the difference between the Spending Review settlement and the funding requirement for the NHS.

For the period 2021/22 to 2029/30, the incremental funding requirement to be sourced from taxation changes is based on the difference between the funding requirement for the NHS and the forward projection of the existing Spending Review TDEL settlement for 2020/21 using the OBR’s forecasts for real GDP growth to 2029/30.

Social care funding requirements are based on modelling from the recent Health Foundation analysis alongside their report “A fork in the road: Next steps for social care funding reform”. Incremental increases in funding are based on the difference between demand pressures and spending projected from 2019/20 using OBR forecasts for real GDP growth.

Changes to National Insurance

In our modelling, we increase all rates by one penny in the pound. We do not adjust earnings limits and thresholds beyond planned increases. This has a proportionately larger impact on the marginal rate paid by high earners than people earning below the upper earnings limit, meaning our proposal is progressive. It also has a disproportionately larger impact on the marginal rate of the self-employed; however, the self-employed already pay a much lower percentage of their profits and earnings in national insurance than employees and employers, and we therefore judge this small narrowing to be reasonable.

By increasing these rates by a penny, by 2021/22 the increased expenditure we propose for the NHS can be met. We would exceed our proposed increases in expenditure in 2019/20 and 2020/21, and so we propose a phased introduction of the higher rates, only introducing increases in self-employed (Class 4) NICs and NICs for those above State Pension Age in 2021/22. This would give businesses and individuals time to adjust to the new rates.

Our proposed phasing is:

- 2019/20: Increase employer NICs rates

- 2020/21: Increase employee NICs rates

- 2021/22: Increase the self-employed NICs rate and introduce employee and self-employed NICs for individuals over State Pension Age

Our figures are calculated using IPPR’s tax benefit model. This is a micro-simulation model that uses data from the Family Resources Survey to model income, tax and benefits, accounting for key macroeconomic conditions and policy changes, in a given year. Our modelling does not account for demographic change between now and 2021/22. NICs changes are modelled at the UK level, but our estimates of NICs receipts are for England only; we estimate this using the OBR’s disaggregation of tax receipts by nation which estimate that 86.2% of NICs receipts are raised in England. An increase in employee and self-employed NICs rates has a small effect on benefit entitlements. Our estimates for revenue raised are net of additional spending on benefits.

Type of rate

Current %

Proposed %

Employee rate above primary threshold, below UEL

12

13

Employee rate above UEL

2

3

Employer rate above Lower Profits Limit, below Upper

13.8

14.8

Self-employed rate above Upper Profits Limit

9

10