ICAS ICAS logo

Quicklinks

  1. About Us

    Find out about who we are and what we do here at ICAS.

  2. Find a CA

    Search our directory of individual CAs and Member organisations by name, location and professional criteria.

  3. CA Magazine

    View the latest issues of the dedicated magazine for ICAS Chartered Accountants.

  4. Contact Us

    Get in touch with ICAS by phone, email or post, with dedicated contacts for Members, Students and firms.

Login
  • Annual renewal
  • About us
  • Contact us
  • Find a CA
  1. About us
    1. Governance
  2. Members
    1. Become a member
    2. Newly qualified
    3. Manage my membership
    4. Benefits of membership
    5. Careers support
    6. Mentoring
    7. CA Wellbeing
    8. More for Members
    9. Area networks
    10. International communities
    11. Get involved
    12. Top Young CAs
    13. Career breaks
    14. ICAS podcast
    15. Newly admitted members 2022
    16. Newly admitted members 2023
  3. CA Students
    1. Student information
    2. Student resources
    3. Learning requirements
    4. Learning updates
    5. Learning blog
    6. Totum Pro | Student discount card
    7. CA Student wellbeing
  4. Become a CA
    1. How to become a CA
    2. Routes to becoming a CA
    3. CA Stories
    4. Find a training agreement
    5. Why become a CA
    6. Qualification information
    7. University exemptions
  5. Employers
    1. Become an Authorised Training Office
    2. Resources for Authorised Training Offices
    3. Professional entry
    4. Apprenticeships
  6. Find a CA
  7. ICAS events
    1. CA Summit
  8. CA magazine
  9. Insight
    1. Finance + Trust
    2. Finance + Technology
    3. Finance + EDI
    4. Finance + Mental Fitness
    5. Finance + Leadership
    6. Finance + Sustainability
  10. Professional resources
    1. Anti-money laundering
    2. Audit and assurance
    3. Brexit
    4. Business and governance
    5. Charities
    6. Coronavirus
    7. Corporate and financial reporting
    8. Cyber security
    9. Ethics
    10. Insolvency
    11. ICAS Research
    12. Pensions
    13. Practice
    14. Public sector
    15. Sustainability
    16. Tax
  11. CPD - professional development
    1. CPD courses and qualifications
    2. CPD news and updates
    3. CPD support and advice
  12. Regulation
    1. Complaints and sanctions
    2. Regulatory authorisations
    3. Guidance and help sheets
    4. Regulatory monitoring
  13. CA jobs
    1. CA jobs partner: Rutherford Cross
    2. Resources for your job search
    3. Advertise with CA jobs
    4. Hays | A Trusted ICAS CA Jobs Partner
    5. Azets | What's your ambition?
  14. Work at ICAS
    1. Business centres
    2. Meet our team
    3. Benefits
    4. Vacancies
    5. Imagine your career at ICAS
  15. Contact us
    1. Technical and regulation queries
    2. ICAS logo request

Tax: How should the NHS be funded?

  • LinkedIn (opens new window)
  • Twitter (opens new window)
Donald-Drysdale By Donald Drysdale for ICAS

2 July 2018

Main points

  • There is much debate about how additional funding might be raised for the NHS.

  • A hypothecated ‘NHS tax’ has been suggested as a possible solution.

  • NHS funding can’t be addressed without considering complications introduced by devolution.

Once the envy of the world, the NHS is increasingly failing to meet demands for its services. Donald Drysdale highlights some of the issues involved in creating a new ‘NHS tax'.

The NHS in poor shape

Britain’s National Health Service (NHS), 70 years old this month, is in dire straits. Most of its services are failing to cope with demand, and there is much speculation about new measures that might be required to raise additional funding for the organisation.

General medical practice is no longer attracting enough newly-qualified doctors, many of whom prefer to seek their careers abroad. Shortcomings in primary health care are placing excessive demands on accident and emergency departments. Staff shortages are crippling hospitals. Health Boards are facing financial collapse.

People have come to expect a lot from the NHS, and new burdens are being added. Traditional ailments from misuse of alcohol and tobacco are now accompanied by growing obesity and drug dependency. With an ageing population, increasing numbers of people are suffering from multiple long-term chronic conditions. Arrangements for social care, particularly for the elderly, fall partly on the NHS and are in disarray.

Government action proposed

In June the Prime Minister acknowledged that taxes would need to rise “in a fair and balanced way” to provide additional funding for the NHS. The Chancellor of the Exchequer has hinted that he would increase taxes on the better off, while also resorting to extra borrowing – though scope for the latter is limited by his deficit reduction plans.

In evaluating ways of raising additional tax to help fund the NHS, the Chancellor will have a range of possible options. For example, he might add (say) 1p or more to the basic rate of income tax, perhaps with greater increments to the higher and additional rates. He might also cut back the rate of relief which taxpayers can claim on pension contributions if they pay income tax at more than the basic rate.

Increases in the standard and/or reduced rates of VAT might be another option, with the extra VAT revenues being used to help fund the NHS.

Alternatively, the Chancellor might increase rates of national insurance contributions (NICs) on employers, employees or the self-employed – or on all three. He might seek to equalise NICs rates by increasing those for the self-employed. He might even raise the upper earnings limit on NICs, or extend employee and self-employed contributions by removing the exemption currently enjoyed by all workers over state pension age.

Another possibility would be a completely new tax – or perhaps the re-launch of NICs – as a hypothecated ‘NHS tax’. The receipts from such a tax would be ring-fenced or earmarked specifically for use against NHS expenditure, rather than the NHS being funded from general tax revenues.

Hypothecation

Hypothecation could be applied in different ways. It could be ‘hard’, with revenues from the NHS tax placing a strict limit on NHS spending, or a ‘softer’ method might be taken with a looser relationship between the two.

Hard hypothecation would be very difficult to apply, while a softer approach would likely be obfuscated by party political smoke and mirrors. An article by Paul Johnson of the IFS, published in The Times on 22 January 2018, set out some of the difficulties which hypothecation would bring.

Any attempt to tie NHS spending rigidly to revenues from a particular tax would be doomed to failure. For example, if NICs were hypothecated to NHS spending, expenditure on the NHS would have to be cut in a recession, or NICs – which are effectively a tax on jobs – would have to be raised. Either course would almost certainly be sheer folly.

Devolution

NHS funding can’t be addressed without considering complications arising from devolution.

The UK Government is responsible for the NHS in England. However, responsibility for NHS services in Scotland and Wales rests with their respective devolved administrations, and the same would be true for Northern Ireland were its Assembly not currently suspended.

If the Chancellor were to increase income tax rates, these would apply to all income of taxpayers in England and Northern Ireland. In Scotland where the Scottish income tax applies, and in Wales where the Welsh rates of income tax will apply from April 2019, Westminster’s increased income tax rates would not be levied on earnings, pensions or property income – but would apply to savings and dividend income.

These regional variations would make income tax a blunt instrument for raising additional NHS funding. While adjustments would be made to the block grants paid by Westminster to fund public spending in Scotland and Wales, the Scottish Parliament and the Welsh Assembly might, or might not, choose to follow Westminster and increase their income tax rates.

If VAT rates were raised, devolution would also impact on the end result. From April 2019 receipts from the first 10p of standard rate VAT and the first 2.5p of reduced rate VAT in Scotland will be assigned to the Scottish Government, with an appropriate adjustment to the Scottish block grant.

If the Chancellor were to increase rates of NICs, which are reserved to Westminster and apply to all UK employers and earners, and perhaps extend these to workers over state pension age, the burden would be spread across all UK employers and the entire working population in what might arguably be an equitable way. However, this ‘NHS tax’ would have a knock-on effect in boosting the block grants by sums which the devolved administrations would not be obliged to spend on the NHS, but could spend in any way they chose.

Social care would need to be addressed separately. England, Scotland, Wales and Northern Ireland have their own specific systems of private and publicly funded social care, with differing policies and priorities, funded in varying degrees by the NHS and by local authorities.

Generally, as a result of devolution, there would be an absence of clarity. Taxpayers would not necessarily understand which NHS services they were funding, and the resulting lack of accountability would be undesirable.

Weighing up the options

If a long-term cure for the NHS finances could be found, it would likely involve substantial increases in funding, painful cost-cutting, or swingeing reorganisation measures – and very possibly a mixture of all three.

Votes matter to minority governments. Voters don’t like tax rises but might be persuaded that the NHS is a particularly worthy cause, so politicians could be tempted to dress up a tax hike as a hypothecated NHS tax. For the reasons I’ve outlined above, it is unlikely to prove a satisfactory solution.

We may not learn more until the Chancellor’s annual Budget in November, when uncertainties around the terms of Brexit are more likely to be top of the Westminster agenda, so perhaps the ailing NHS will get no more than a sticking plaster at that stage.

Article supplied by Taxing Words Ltd

Edinburgh_Skyline_Winter

ICAS and devolved tax powers

By Donald Drysdale for ICAS

11 January 2018

Edinburgh_Skyline

Scots to pay more tax than expected

By Donald Drysdale for ICAS

20 February 2018

2022-11-mitigo 2022-11-mitigo
ICAS logo

Footer links

  • Contact us
  • Terms and conditions
  • Modern slavery statement
  • Privacy notice
  • CA magazine

Connect with ICAS

  • Facebook (opens new window) Facebook Icon
  • Twitter (opens new window) Twitter Icon
  • LinkedIn (opens new window) LinkedIn Icon
  • Instagram (opens new window) Instagram Icon

ICAS is a member of the following bodies

  • Consultative Committee of Accountancy Bodies (opens new window) Consultative Committee of Accountancy Bodies logo
  • Chartered Accountants Worldwide (opens new window) Chartered Accountants Worldwide logo
  • Global Accounting Alliance (opens new window) Global Accounting Alliance
  • International Federation of Accountants (opens new window) IFAC
  • Access Accountancy (opens new window) Access Acountancy

Charities

  • ICAS Foundation (opens new window) ICAS Foundation
  • SCABA (opens new window) scaba

Accreditations

  • ISO 9001 - RGB (opens new window)
© ICAS 2022

The mark and designation “CA” is a registered trade mark of The Institute of Chartered Accountants of Scotland (ICAS), and is available for use in the UK and EU only to members of ICAS. If you are not a member of ICAS, you should not use the “CA” mark and designation in the UK or EU in relation to accountancy, tax or insolvency services. The mark and designation “Chartered Accountant” is a registered trade mark of ICAS, the Institute of Chartered Accountants of England and Wales and Chartered Accountants Ireland. If you are not a member of one of these organisations, you should not use the “Chartered Accountant” mark and designation in the UK or EU in relation to these services. Further restrictions on the use of these marks also apply where you are a member.

ICAS logo

Our cookie policy

ICAS.com uses cookies which are essential for our website to work. We would also like to use analytical cookies to help us improve our website and your user experience. Any data collected is anonymised. Please have a look at the further information in our cookie policy and confirm if you are happy for us to use analytical cookies: