Editorial Wednesday 21 May 2014: Having a Field day on NHS funding ideas
Interesting to read in The Observer that moves are afoot by Conservative ministers to bring Frank Field's plan for an NI hike hypothecated for the NHS into the health policy red zone.
The main identified source for the piece is Frank Field.
Field's proposals are for a progressive national insurance base to raise revenue, to be matched by tax cuts. This extra NI contributions would go into a dedicated fund that would be run as a mutual, with elected members negotiating each year's level of contributions.
Frank Field perhaps made his name for trying and failing to get the Labour Party to introduce Right To Buy before the 1979 General Election. When Tony Blair took office in 1997, he tasked Field with 'thinking the unthinkable' on welfare reform. The unthinkable was duly thought; Gordon Brown didn't like the results; and the rest is history. And politics - the rest is politics too.
Money: that's what I want
The subject of NHS funding is, as Toby Helm accurately reports, not un-fraught. He notes that "Conservatives now believe that drastic action needs to be taken on NHS funding, and regret that David Cameron has not proposed some form of NHS tax to underpin his commitment to maintaining the current service free at the point of use. The chancellor, George Osborne, however, is known to be strongly opposed to any move that would compromise a Tory general election message based around the idea of lower taxes, and is said to believe that radical options can be delayed until the next parliament".
The reality of the problem has been neatly outlined by the KIngs Fund's ongoing study of NHS finances and survey of finance directors. Their most recent statement was unambiguously clear about the impossibility of Micawberishly kicking the financial can down the road.
So we have a problem, without doubt. The NHS has achieved brilliantly, in maintaining and in areas improving quality standards while dealing with its tightest consecutive four-year funding settlement ever.
The magic of hypothecation
However, magical powers are often ascribed to hypothecation. (Not to mention the fact that the Treasury hate it because it reduces their room for manoeuvre.)
As it currently stands, 12% National Insurance starts at £8000 (and for some, £6000) - below the new 10% zero rate for income tax is not progressive beyond a certain earnings threshold. And once your earnings go over £42,000 a year, the NI paid on income above that level is at 2%.
NI is of course also paid by an employer: the current rate is 13.8%. And the NHS is quite a large employer ...
Field seems to have correctly identified the anomaly in the lack of higher NI over £42,000 earned income. Well spotted, Frank.
One of the key questions is of course why we still have NI as distinct from income tax. The more complicated a tax system, the worse.
Taxes should be based on ability to pay, and the rich should pay more than the poor. Taxes are best levied on things that are obvious and hard to hide (income, profits, property). Wealth taxes look attractive, but are hard to get right and may lead to people bricking up their windows.
Separate to the argumenmt about using NI, the magical thinking about hypothecation may be politically inflected.
The decline of trust in the Westminster political classes, exacerbated by the Iraq war and the Parliamentary expenses scandal, may have left political leaders feeling they simply can't raise taxes, even in a cause of declared national pride like the NHS, such is the decline in public trust.
They should think again, more clearly. A key lesson from 1997 was that Labour's pledge to stick to Tory spending limits for two financial years delayed their repair of the public sector, and led directly to the 1999 winter crisis. When they announced their 1p tax increase to fund the NHS (levied via NI, to stick to their election promise not to raise income tax), it was actually popular with voters.