John Glen MP and Jeremy Lefroy MP: NHS spending should be paid for by ring-fenced NI contributions

John Glen is MP for Salisbury and Jeremy Lefroy is MP for Stafford

Over the last few weeks there has been some debate around a return to the ‘contributory principle’ for welfare. We believe this is a valuable idea: recovering the sense of ‘social insurance’ that originally formed the basis for government welfare provision. The first area in which this could take place would be the NHS.

The NHS is unique among public services given the scale of universal health provision. Healthcare costs have, in recent years, been rising well above the rate of inflation and this trend is expected to continue. Health spending as a proportion of GDP has doubled within a generation, and will be a continuing demand on the public purse. Achieving a stable funding solution for the NHS is vital. British people rightly value the ring-fencing of the NHS budget – which this government has protected in real terms.

However, it is difficult to have a mature public debate when the facts are not widely known or understood. We need to be fully transparent about the cost of delivering a high quality universal health service, provided for free at the point of delivery, and not duck the reality of the cost pressures which exist.

In order to address this, we propose that the NHS and social care should be funded entirely by National Insurance (NI) contributions. This is financially realistic. In 2010-11, £97.7bn was paid in UK NI contributions, a shortfall of £23.3bn against total UK NHS spending. This gap would entail a rebalancing between NI and income tax, which would need to be done carefully and gradually to ensure that the lowest paid do not lose out. Social care costs, which currently stand at £14.7bn, could also be incorporated at a later stage.

We are moving towards transparency with the introduction of personalised annual tax statements. These proposals are more ambitious: they aim to de-politicise health spending permanently, to bring transparency around the funding, and encourage public debate over contributions and affordability.

First, having a ring-fenced NI contribution for the NHS would mean that we could talk about lower taxes without any implication of a threat to the health budget. It would protect NHS funding in the government budget, de-linking it from taxation. With the health budget secured, political debate could begin to move beyond a sterile reflex of ‘what about frontline services’ whenever lower taxation is proposed.

Second, these proposals would give greater public transparency in the costs of the NHS. When public services are financed through general taxation, there is rarely any wide understanding of the real cost of provision. If the cost of the NHS were to change significantly, this would be clearly seen by an increase in the required NI contributions, and would give fresh impetus to finding savings and ensuring cost-effective, quality provision.

Third, paying an ‘insurance premium’ (linked to ability to pay through tax, rather than medical risk) to cover the cost of the NHS would recover the idea that provision is not a right, provided without apparent cost by the state, but rather a valuable public service paid for by individual taxpayers according to means.

These ideas may be met with a concern that we propose to move towards a USA-style insurance system. But the reality is that ring-fenced contribution to the NHS reaffirms the value the country currently places on a universal healthcare system, free at the point of delivery, according to need and not ability to pay. Nor is this scheme a ‘blank cheque’ for the health service: careful cost control and efficiency savings are still vital.

There are some who say that the direction of travel is towards rolling up the administration of NI and income tax. This would bring benefits of simplification, but would not exclude the opportunity to reform the way in which the health service is financed and perceived.

Tying NHS funding to NI contributions would recover the ‘contributory principle’ that should be underpinning welfare provision, begin to depoliticise NHS funding, and lead to greater transparency. All of these are vital if we are to bring clarity to NHS funding and how much it costs to deliver quality healthcare in this country.