Cabinet minister hits out at ‘NHS tax’

A cabinet minister criticised Health Secretary Jeremy Hunt’s idea of an NHS tax as a ‘bad thing’ last night.

Liz Truss, who is the deputy to Chancellor Philip Hammond, said health spending should be funded from general taxation like other public services.

Her remarks expose the splits at the top of Government over how to raise more money for the health service.

Theresa May wants to raise NHS spending – on top of funding increases already announced. But there is disagreement between ministers over how to provide the cash.

Mr Hunt is thought to back a so-called hypothecated tax covering NHS spending, meaning all revenue from a particular levy would be directed to the health service.

But critics say the idea does not ensure the NHS gets the right amount of cash, because income from different taxes vary year by year.

Health Secretary Jeremy Hunt has proposed an 'NHS tax' to fund the service

Liz Truss, who is the deputy to Chancellor Philip Hammond, said health spending should be funded from general taxation like other public services – but Health Secretary Jeremy Hunt has proposed an ‘NHS tax’ to fund the service

Details are expected to be revealed in the Budget this autumn, but ministers may also announce more money to coincide with the health service’s 70th anniversary in July.

Miss Truss, Chief Secretary to the Treasury, said of hypothecated taxes: ‘They are a bad thing. If you had a hypothecated tax in the late 2000s, and we got the economic downturn and National Insurance receipts went down, that would have meant less money for the NHS. I believe in an NHS funded from general taxation.’ She told The Daily Telegraph: ‘We have already put extra money into the NHS – £6.3billion at the Budget.

‘We have allocated extra money for nurses’ pay and other employees because we are achieving contract reform and productivity improvement.

How Brown tried it before

In 2002, Labour chancellor Gordon Brown said he was raising taxes specifically to boost funding for the NHS.

But the way he did it – and where the money ended up – differed from the Tory plans under discussion.

Rather than creating a dedicated NHS pot of cash, he put a penny on National Insurance, raising the rate paid from 10 per cent to 11 per cent for earnings of £4,615 to £30,420, and introduced a 1 per cent rate for any earnings above this.

Labour said this brought in £8.2billion extra a year, which was meant to secure the future of the NHS.

In reality, it went into the general NI pot, which also pays for other public services. So there is no way of tracking whether every pound raised by the 2002 NI increases helped the NHS.

‘But what is incredibly important is that we don’t spend money we don’t have. We have had a big effort to get the deficit down over the last eight years. We don’t want to throw that away. It is important we get economic growth before we spend more public money. Otherwise we’d end up raising taxes and that would be bad news for an economy which is growing.’

Asked if pensioners who work should pay National Insurance to fund the NHS, she added: ‘This is not a policy the Government has at all. Those people contributed throughout their lives and it is a good thing people work beyond retirement age.’

Mark Littlewood, director-general of the Institute for Economic Affairs think-tank, said: ‘Taxes don’t work for the NHS.

‘In theory, the UK already has a hypothecated tax in the form of National Insurance, with a percentage earmarked for the health service. But in reality there is no relationship whatsoever between the amount raised and spending on the NHS.

‘Spending on a particular service should not be driven by how much a tax raises.’

Mrs May signalled there would be extra billions when she gave evidence to a committee of MPs last month. The PM said the NHS ‘cannot afford to wait’.

Mr Hunt called for a ten-year health service spending deal to end the ‘feast or famine’ of the past two decades – with the possibility of a ring-fenced tax.