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Tax rise for NHS can’t be put off much longer

Newspaper article

Over the past 50 years we’ve pulled off a pretty remarkable trick. We have spent an ever growing fraction of our national income on the welfare state in general, and on health in particular, without apparently having to pay for it. The tax burden, at about 34 per cent of GDP, is not substantially higher now than it was half a century ago. The same is true of total government spending. As a fraction of national income it’s much the same as it was in the mid-1960s.

When you look at what’s happened to defence spending over the same period you get a good clue as to how we’ve managed this. As recently as the 1980s it accounted for one pound in ten of government spending. It’s down to less than half that now. We’ve also stopped spending money on building houses, and low interest rates are keeping down the costs of servicing government debt. All this has allowed us to double health spending as a fraction of national income, and increase spending on other parts of the welfare state, without us having to pay any more for it.

Even since 2010, a period during which health spending has gone up more slowly than at any time since the NHS was founded 70 years ago, we have carried on doing much the same thing. Most other public services have not enjoyed even the slow spending growth that the NHS has had. They have suffered real, often substantial, cuts. The result is that, relatively speaking, health spending has been more favoured than ever before. It has gone up as a share of public service spending more quickly even than it did in the early 2000s.

Providing healthcare is now far and away the biggest thing the government does. It accounts for more than 7 per cent of national income and nearly a fifth of all public spending. And it’s hard to see how those numbers are going to do anything other than get even bigger. The number of people over the age of 65 is going to grow by more than four million over the next 15 years, and the number over 85 by well over a million. The number of people of working age will grow much more slowly. At the same time the prevalence of chronic health conditions is rising, as is the cost of drugs. We will have to increase the pay of doctors and nurses at least in line with pay increases across the economy. Only a productivity miracle will allow us to continue providing the sort of health service we have come to expect without spending a good deal more on it.

We shouldn’t rule out the possibility of productivity increases. The NHS has done better on that front in recent years because it has had to live within tighter budgets. But cuts have been sharpest in exactly those areas that are most likely to drive long-term productivity growth — investment in equipment and spending on primary care. If these cuts continue in the face of spending squeezes the danger is that the system will become even less efficient, not more.

So the likelihood is that we’ll need to spend another couple of per cent of national income on health within the next 15 years.

That’s a lot, but it’s not an unusual rate of growth, especially coming after eight years of relative famine and especially given the ageing of the population. What’s different this time, though, is that it is hard to imagine paying for it the same way we have done in the past. This may be a failure of imagination on my part, but I don’t see the tens of billions of pounds in other areas of public spending that can be diverted into the NHS. Pension spending, the next biggest element of the government’s budget, will rise with the number of pensioners. Social security benefits for the working age poor are already being cut a lot. Defence spending is no longer there to raid. I can’t see billions wasted in schools. Further education, local government and the justice system have been cut, cut and cut again.

In the short run the government can choose to borrow more, but that’s not an option in perpetuity. So it looks like we will finally be faced with the stark choice that we have sort of managed to avoid for the past 70 years: are we willing to see the tax burden rise to fund growing demands on the welfare state?

Within government there is a more immediate dilemma about how much to put into the NHS over the next few years. That choice will be influenced not only by the needs of the NHS but by the uncertain economic climate, concern in the Treasury over the size of the national debt, and the demands of other spending departments.

It ought also to be influenced by a vision for the longer term. As well as reacting to today’s pressures we need to prioritise investment spending to support future provision. We certainly need to stop raiding capital budgets to patch up current provision. Most urgently we need a long-term strategy for training, recruiting and retaining the right mix of doctors, nurses and other specialists. Without that we have no hope of meeting future demands. As we mark the NHS’s 70th birthday in a few weeks’ time we need to be preparing for the future as well as celebrating the past.

This article was first published by The Times and is reproduced here in full with permission. Paul Johnson is director of the Institute for Fiscal Studies. Follow him on @PJTheEconomist.