Labour is likely plotting a new tax to pay for its lofty NHS ambitions

Wes Streeting
Labour's shadow health secretary Wes Streeting has so far refused to commit to funding proposals - Leon Neal/Getty Images Europe

Will a Labour government tax us more to meet its promises of greater NHS funding? Sir Keir Starmer’s small steps have so far not revealed which direction they would take us, or how he would fund his expensive commitments.

Thanks to the Conservatives copying some Labour policies on non-domiciled taxpayers and already committing the anticipated revenues, Labour’s promises on NHS expansion are essentially unfunded.

That’s why I’ve explained before that Labour could introduce VAT on private healthcare such as knee, hip and cataract operations, and non-NHS dental or optical treatments.

All in a good cause, of course – saving “our NHS” would be the narrative to sugar coat the financial pain of those easing their physical pains.

Over the last 10 years the number of NHS doctors has increased by 37,700 (37pc) to 139,300 in Oct 2023 and of nurses by 72,600 (27pc) to 340,700 – but such is the poor productivity and climbing demand that Europe’s largest employer is still planning to recruit more.

Yet Labour has promised, in addition to the existing plans for workforce growth, that it will recruit even more staff and fund extra overtime pay. Where will the money come from?

Labour’s shadow health secretary Wes Streeting is a man on a mission; regularly talking tough about reforming the NHS and repeating key phrases to sound serious about the task.

He has attacked the British Medical Association (BMA) for having “defensive attitudes”, claimed he will not allow “producer interests to stand in the way” and argues “we cannot afford to be romantic and misty-eyed about it – this is a service not a shrine”.

And how about this? “What you will not hear me saying in the run-up to the next general election is that the NHS is the envy of the world,” he says. “We know it’s not true, patients know it’s not true, staff know it’s not true – and politicians know it’s not true.”

Squeezing better value for money out of the mighty Brabazon that is “our NHS” is challenging enough and to fund more medical school places and expand the workforce further will take real money – but Streeting remains coy, refusing to commit to funding proposals when asked last month.

How then can he do it? A key political battleground that could hit our earnings and savings is the purpose of National Insurance. The Conservatives have cut National Insurance (twice) and talked-up the idea of abolishing it as a long term goal.

Labour saw this as an opportunity, claiming ending National Insurance contributions would leave a £46bn black hole threatening the NHS and pensions, which it helps to fund.

It has also created space for Streeting to mull over the perennial suggestion in NHS planning of changing its funding model to social health insurance or a hypothecated tax for the NHS.

What might that mean? If we followed the Dutch or German model it would mean allowing competing not-for-profit insurers, whereas France relies on one insurer covering 95pc of the population.

Whether or not social health insurance (SHI) delivers more cost-effective healthcare or better outcomes is disputed by different think tanks, but it does tend to take the political heat out of healthcare.

While some right-of-centre think tanks have considered the idea of adopting the SHI model for the NHS, there have also been advocates on the left who see some merits.

Admirers include the late Frank Field, who campaigned for it, and Peter Mandelson, who has admitted it was considered when Tony Blair raised National Insurance to boost funding for the NHS in 2003.

Creating a special NHS tax need not sacrifice the principle of treatment being free at the point of use, and it could be topped up by general taxation (most overseas schemes are).

The Conservatives are, however, the party least likely to run with the idea for fear of being shamed as dismantling “our NHS”. The only way they could do it would be if they had a huge majority and could deliver a significant and commensurate cut in income tax to compensate for a new, higher NHS-dedicated social insurance charge.

Neither of those are realistic prospects for Rishi Sunak’s Conservatives.

To solve Labour’s funding conundrum Streeting could rebrand National Insurance and then dedicate all revenue from National Insurance contributions to the NHS, maybe calling it the National Health Insurance Scheme, and do the same as Blair by raising the rate by at least a couple of pence so the NHS could receive a funding boost.

This change could be coupled by extending the reach of NIC to include incomes from pensions, investments & property rentals and ending the lower rates for the self-employed to raise additional revenues..

Streeting may yet be the man who will try to tackle NHS funding problems, but he would meet stiff resistance from the left in his party and producer interests unless he could show it would mean far greater funding for our inefficient nationalised healthcare and not lead to privatisation.

He would also have to consider how it might be delivered in Scotland, Wales and Northern Ireland – where devolved responsibilities might reveal more significant opposition.

I fear the most typical British solution is likely to be a bad compromise – a more encompassing and higher national insurance charge, dedicating it to the NHS with the public invited to choose its name and a logo designed by schoolchildren –  but no commensurate reduction in other taxes to compensate for the additional burden.

It would be the ideal way for Labour to disguise the further raising of taxes without the uncomfortable honesty of advocating thruppence on income tax.