TaxPersonal TaxTax to finance NHS upgrade vetoed

Tax to finance NHS upgrade vetoed

Tony Blair and Gordon Brown have vetoed a proposal by health secretary Alan Milburn to finance the NHS through a special earmarked tax, but have admitted indirect taxes may have to rise to pay for improvements.

The prime minister and chancellor firmly squashed the hypothecation proposal as ‘unworkable’. They also ruled out any increase in income tax, but not a rise in other indirect duties such as VAT or National Insurance Contributions.

These facts emerged early this week after days of confusion over how the major increase in funding for the NHS, promised by Brown in his pre-Budget report last week, would be paid for.

Milburn put forward the idea as controversy raged over the possibility of tax increases to pay for the NHS – this after Brown said general taxation was the only way to finance it.

A day after Brown’s pre-Budget statement to MPs, Blair stunned the chancellor by pledging to match Europe’s average health spend as a proportion of GDP.

This produced immediate claims of a ‘black hole’ in government finances to pay for this increase. NHS spending of between Pounds 1Obn and Pounds 17bn will require an income tax rise of between three pence and six pence in the pound.

Following this, the Treasury and Downing Street spent the past week backtracking on any open ended commitment to match rising health spending in Europe in the long term – especially as any rise in the proportion of the UK GDP spent on the NHS would automatically increase the European average health spend.

But confusion over how the increase will be paid for continues to rein.

The chancellor has not ruled out tax rises to pay for the NHS, but government sources have made it clear that income tax rates will not rise to pay for it with indirect taxes such as VAT and NICs set to increase if necessary.

And Sir Derek Wanless, author of the report in NHS funding, contradicted Brown’s claim that his report ruled out all other forms of financing, other than direct taxation.

Links

PBR: Taxes may rise to fund NHS

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