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

Lord Taverne Excerpts

Thursday 26th April 2018 Lords Chamber

[Lord Taverne (LD)]

My Lords, like everyone else who has spoken in the debate, I was most impressed by this very important report. I shall confine myself to funding. I believe we should scrap national insurance contributions in their present form. NICs no longer fulfil the purpose for which they were designed. First, the public do not understand them. They believe NICs pay for the NHS, but in fact only 5.3% of NIC receipts go directly to the National Health Service. The rest goes into the general pool of tax receipts for a variety of welfare benefits. The NHS is overwhelmingly paid for out of general taxation. Next, NICs are now the biggest source of taxation after direct taxes. That too is not generally known. They are a very regressive and inefficient tax on jobs.

Thirdly, everyone now agrees that health and social care are interdependent and should be amalgamated, but a new integrated service desperately needs a new source of funding. Under the present system, while demand, for well-known reasons, rises inexorably faster than GDP, the projections are that the amount of GDP spent on health and social care is set to diminish. I quote paragraph 186 from the report:

“The OBR projects, based on current spending plans, that UK spending on health and care as a percentage of GDP is due to drop from 7.4% in 2015-2016 to 6.8% in 2020-21”.


That is unsustainable and intolerable. We already have the lowest spending of any country by GDP. We spend less than anybody else.

That is why I could not agree more strongly with the report’s conclusion that we should have an independent body, such as an office for health and care sustainability. I, perhaps naively, contemplated such a body as having a rather more ambitious role: that it should have civic as well as professional representatives, and should produce a comprehensive budget, funded by the new system of health and social care contributions—a fair system based on ability to pay.

I discussed with the IFS the reasons for the Treasury’s objections to hypothecation and to such an independent body. First, it limits the flexibility of the Government to allocate public spending most efficiently. This is not an objection to be lightly discarded or ignored because we have more and more hypothecation—for defence spending, overseas aid and many others. Flexibility in the Treasury’s control of public spending is important. Next—this point has not yet been made—at times of recession demand will increase. The last thing needed is a decision by a commission or anyone else to raise contributions to meet rising demand. My answer was that the same problems face Governments. “Yes”, I was told, “but Governments can borrow”. My answer was, “Why not give the independent commission the power to borrow?” “Yes”, was the answer again, “but this can lead to reckless borrowing by an unaccountable body”. That is a function that perhaps only Governments should exercise. As a former Financial Secretary, I see the force of those objections.

There are two answers to this. The first was very strongly argued by a noble Lord. The overriding force is the fact that the public are prepared to pay if they believe proceeds go to a good cause. That is not a reason why they should be bamboozled, because Brown’s extra penny on NICs was popular, but the public did not realise that four-fifths of it did not go to the NHS but to the general pool of tax receipts. However, there is no doubt that a good cause will be strongly supported, if necessary by more taxation.

We also have something to learn from the Dutch experience. The Dutch, of course, have a very different system. They administer social and health care through private insurance companies, which provide a strictly regulated service. I would of course keep our National Health Service. What is relevant is that the Dutch insurance service is paid for by a compulsory national insurance premium based on ability to pay, which is in essence no different from the new hypothecated health and social care contributions I mentioned. As I understand the system, the premium is fixed by an independent body with wide representation, which is responsible for deciding an integrated total health and social care budget. I will have to look at the Dutch body again to see exactly what its powers are, but it seems to have successfully navigated the problems raised in my discussions with the IFS.

The Dutch system of health and social care is possibly the best in Europe. It is the most expensive, but it is popular because it is fair and money is seen to be spent on a good cause. In fact, the high taxation is a very good example of the dictum of the famous American judge, Oliver Wendell Holmes, who said that taxes are the price we pay for a civilised society.