National Comment Comment

NHS funding needs to become more sustainable

William Hart explains the new increase in our National Insurance is not an efficient way to meet NHS and social care requirements.

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The increase in National Insurance to help fund the NHS and social care is needed. However, we need to find a sustainable way of funding these services if we want to keep world-class healthcare in our country.

With increasing waiting lists for vital NHS operations and the lack of care staff in nursing homes there is a clear reason for this increase in NI. This is especially the case in the short term to try and alleviate some of the pressures that have been placed upon the care sector over the past 18 months.

The 1.25 percent increase in NI will take effect in April 2022. From April 2023 a social care levy will be introduced to replace the increase in NI. It is estimated that these taxes will bring in £12 billion per year to help fund care. A key difference between next year’s NI increase and the social care levy is that working pensioners will also contribute to the levy.

However, neither the increase to NI nor the social care levy are the most efficient or fair way to fund our care system. These taxes most affect the young and individuals on lower wages as they pay a greater proportion of their salaries towards NI payments than those on higher wages. An individual earning the average basic rate salary of £24,100 will face an annual increase in NI contributions of £180 whilst an average higher rate taxpayer earning £67,100 will face an increase of £372. Even though the higher rate taxpayer will contribute more monetarily, the basic rate taxpayer will be hit with an increase that taxes a greater proportion of their salary, with an increase of 0.75 percent compared to the higher rate increase of 0.55 percent.

Whilst the social care levy is a fairer tax than NI, as the burden is shared between more taxpayers, it is still not the best option for the long-term funding of the care sector. The levy is essentially NI under a different name. This means that individuals who do not take a salaried income will contribute less than those who do, even with the 1.25 percent increase in tax on dividends payments. The NHS needs £10 billion next year to help clear the backlog according to a recent report from the NHS Confederation and NHS Providers. Social care is to see little of the money raised, at least in the short-term.

Additionally, a recent report from the Institute for Fiscal Studies raised caution about the funding of care from these tax increases. Their report highlighted that the NHS’s budget would have to be firmly stuck to if the funding of social care is to be viable, however, they noted that historically “NHS spending plans are almost always topped up.” They warned that the NHS could “permanently swallow up” the additional money raised with the tax increase. The increase in funding for care is clearly needed. However, it looks like the increases will still not be enough to relieve the healthcare system of its pressures.

This should lead us to think of other ways to fund health and social care in this country. A possible alternative to the tax increases announced would be to adopt a more European style system for healthcare which is funded through compulsory social insurance. A clear example to follow would be Germany, where employees pay seven percent of their salary into the social insurance scheme, with contributions matched by employers, similar to NI. Those on high wages, the self-employed and civil servants (around ten percent of the population) are required to pay into private medical insurance but use the same facilities as the rest of the population. Healthcare is provided by independent organisations who compete for patients. This system helps bring greater power to patients as well as a high quality of care as providers look to attract, and keep, patients.

This would be a radical change to our health system as we know it today. However, it would be a wise choice for a sustainable approach to the issues of future healthcare funding. Services would remain open to all, with those who are unable to pay into the social insurance scheme subsidised by those who do. This means that there would not be the worry about large medical bills and mounting debt that blights the American healthcare system. Neither would there be any additional costs to pay for care as they would be covered by the insurance scheme. It is important to realise that there is a different approach to healthcare funding that is not the monolith of the NHS with its great levels of bureaucracy.

If the clapping and cheering from the first lockdown are to mean anything of our support for our healthcare workers, then we need to accept that we will need to pay more of our income into a dedicated scheme to pay for our care.

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