The Long-term Sustainability of the NHS and Adult Social Care

Lord Desai Excerpts

Thursday 26th April 2018 Lords Chamber

[Lord Desai (Lab)]

My Lords, it is a privilege to follow the noble Baroness, who has done so much on the health front. I join everyone else in congratulating the noble Lord, Lord Patel, on an excellent report. We have had a very good debate. I think it is right to say that the NHS is a sort of religion in this country—the only religion that everybody has—but, for the same reason, we are always extremely dissatisfied with the state of the NHS. I have lived here for 52 years and not a day has gone by without the NHS being in crisis. We actually love it only if we can see it in crisis; if it ever became satisfactory, we would lose all faith.

I am going to concentrate on an issue that many others have talked about: the funding of the NHS. I have said before that our problem is that as longevity increases, it gives us a longer-living population with more medical needs. But we have also discovered that there are many more dimensions of health than we used to think there were, such as mental health. We are now discovering dementia not only in the elderly but in children. As we discover these problems, the demand for healthcare increases continuously and because we price it at zero, there will always be excess demand anyway. So how are we to fund it?

There has been a back-and-forth argument about national insurance contributions being hypothecated, or not. I asked the Library to do some research for me and it turns out that if we look at the total collection of NICs and the total budget for the National Health Service, for a long time we used to be able to collect more money in NICs than we spent on the National Health Service. Going back over the last 20 years, it found that during the first 10 years, from 1999 until about 2007, the difference between those two budgets was either a small amount of plus—that is, more revenue in NICs than NHS expenditure—or a small amount of minus. The difference was always under £10 billion, so it was possible once upon a time to think of NIC revenue as sufficient to finance the National Health Service. Whether that is done through a hypothecated rise is a separate problem.

What disrupted this happy relationship was of course the crisis of 2008. Once that happened, our NIC revenue stopped growing by as much as our NHS expenditure. We should remember that NHS expenditure had been increased from a slightly lower level to the European level of 8% by Tony Blair in 2003, so our expenditure went up sharply but our revenue from NICs were not adequate to service that. Now, the gap between what we collect in taxes and what we spend on the NHS has gone up to £20 billion. It is quite clear that whether we hypothecate or not, it would be good to keep track of that number. We have to see how we can get more money under NICs, because that happens to be the most convenient tax to play with.

I quite agree with people that there should be no exemption from NICs for people beyond a certain age, if they are earning money. Because we are already going beyond the standard retirement age of 65, anyone earning money in any capacity should pay NICs. I do not see why we should exempt anybody. I have also complained before in your Lordships’ House that the category of self-employment is becoming more and more a category of tax avoidance from NICs. We all noticed how the BBC was advising its highly paid personnel to become companies, because then they would pay much less tax than the ordinary punter was paying. That is outrageous. We really ought to put a stop to this boondoggle and say that self-employment will get no concession. It is no good pretending that those people are really self-employed. Those two things may increase our collection under NICs.

It is not so much about whether we hypothecate, but when budgeting we ought to keep an eye on how those two numbers track each other and at what stage we may need supplementary revenue from other sources, or perhaps even some kind of borrowing programme so that over five or 10 years, the budgets would balance out. It is worth doing it from that longer perspective. We ought to think about funding the NHS in a five to 10-year cycle. That is one suggestion.

My other suggestion is that we have to do something about social care. On taxation, some people have asked why the people who are working and not using the health service very much should pay, while the people who go to the health service and are retired or elderly do not pay very much. The logic of this system is that while you are working, you pay. It is as if you are saving because you will use it when you are elderly—and when you are elderly, the corresponding younger generation will be working and saving. They will be financing your retirement expenses. In economics, that is called an overlapping generations model: in the first part of your life, you work, and in the second part of your life, you consume, but your savings in the first part finance your spending in the second. It is quite fair for working people to pay the tax that finances the medical needs of the elderly. In some sense, they are paying for their own retirement expenditure, as in a social insurance fund. We should be more positive about relying on national insurance contributions than we have been so far.

By the same logic, on social care costs, we ought to say that to the extent that people who have assets, mainly houses, are reluctant to sell them to finance care costs, we ought to rely on inheritance tax, increase it and hypothecate it to social care. I shall not go further because I do not have time.