How to pay for NHS – new system proposed

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Radix Fellow, Prof Stephen Smith, has proposed a new hypothecated tax and other measures to increase NHS funding and to ensure everyone contributes fairly. These proposals are among the recommendations in Patient Value, Incentives and Funding, the fourth in the series of books published by Radix and written by Prof Stephen Smith, former chair of East Kent NHS Hospital Trust, which examines the radical reform needed to fit the NHS for the 21st Century.

The paper recommends five measures which, if implemented, would bring the health and care system up to parity with other leading European countries.

  • The first of these measures is a hypothecated tax, which involves creating a specific tax for the purpose of funding both health and social care. The rationale is that it is appropriate for a hypothecated tax because it is a “public good” and that “individuals cannot be excluded from use”.
  • The second measure is to introduce charges for abuse of the NHS system (for example, repeatedly missing appointments or assaults on staff). The report reveals that £216m is wasted annually due to missed GP appointments and that “around one in 20 [appointments are] wasted annually because patients fail to attend without informing the surgery”.
  • The remaining measures are topping up fees for ‘extra’ hospital services (with cross-subsidising for those with less money), commercialising tax funded innovations and encouraging the use of private healthcare schemes through tax incentives.

The report describes the benefits of hypothecated tax systems that have been shown in other countries, such as Australia, with Prof Stephen Smith explaining that “[The Australian Medicare] social insurance system is a definite strength and one from which Britain can learn”.

Ben Rich, CEO of Radix stated, “The current system for funding the NHS has proven to be disastrous in a number of ways, primarily the fact that it simply doesn’t raise enough money to provide adequate and reliable healthcare to the millions that rely on it.  A hypothecated tax is one of the only solutions that appears to be both realistic and effective in overcoming these challenges”.

Professor Stephen Smith further emphasised “Evidence from around the globe shows that systems involving hypothecated taxes for health and social care have many benefits, including increasing transparency into government spending and ensuring that the resources intended for health and social care are spent there.”

Read Stephen Smith’s riposte to critics here, and the other books in the The Best NHS? series so far by clicking here


  1. SDF says

    A fascinating document offering useful possibilities and yet several important topics do not appear.
    Healthcare, properly provided, is not and never can be a commercial undertaking. The conflicts of interest, the perverse incentives and the moral hazards are insuperable obstacles. Profit is incompatible with patient centred care and optimal outcomes. The clinician must always be the patient’s advocate within the system and never the agent of capital or self interest.
    A simple hypothecated H&SC tax should be augmented by taxes on fats, salt, sugar and alcohol (inter alia) that fully account for all the negative externalities that such factors impose. Taxes on fats, salt, sugar and alcohol should be on a pence per gram basis, charged, respectively, at the point where the materials enter the food chain or leave the factory.
    Care must be taken that those HNW individuals who are so adept at avoiding tax do not escape the H&SC tax.
    Recruitment and retention of clinical staff requires more than higher pay and better conditions. Huge improvements in morale, quality and productivity can be instantly unlocked by reducing the burden of admin/managerialism/box ticking/etc. Time spent away from direct patient contact by clinicians should be limited by contract to, say, 5% of contracted hours. Managerialism itself needs taming – managers do not always know best and are often seen as agents of government diktat rather than having the patient’s interests closest to their hearts.
    The workload that is placed upon healthcare systems has been likened to a pyramid and this can be the basis of a system that redirects scarce funding to higher priority areas. At the base there is a vast amount of small, simple, and low urgency problems that require little more than assessment and advice. Often no treatment is required – simply reassurance. Where simple basic treatment is required, this should be entirely self funded. A schedule of funded and unfunded items can be devised.

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