History and logic show that an NHS tax is a bad idea
The terrible idea of an NHS tax is back on the agenda. Healthcare professionals want a special levy to cover the cost of an ageing population. The chairman of the House of Commons health select committee, Sarah Wollaston, supports “a hypothecated health and care tax paid by those over 40 and with income from any source above a set threshold”.
Ministers and Conservative backbenchers are said to be warming to the proposal. The Lib Dems have been blathering on about it for as long as anyone can remember. But it remains one of the most fraudulent notions in politics.
A hypothecated tax is a tax set aside for a specific purpose. For example, the television licence fee directly funds the BBC. In theory, it is possible to run much of the government on the same principle, paying for education out of VAT receipts, policing out of excise duties and so on.
The trouble is that that would make spending dependent, not on what was needed, but on what the tax yield happened to be in any given year. If the NHS were funded out of a hypothecated levy, its budget would rise during economic booms and contract during downturns, when the tax-take falls.
Given that the NHS is, in practical terms, excluded from spending constraints – its budget expanded under Thatcher, Major, Brown, Cameron and May, and nearly doubled under Blair – it is almost certainly better off under its current model.
Supporters of change say that they don’t want pure hypothecation, but a top-up payment. Instead of funding the NHS wholly out of a separate tax, that tax would supplement its existing budget. But nothing could stop the Exchequer deducting an equivalent sum from general spending.
Such substitution has happened with every notionally ring-fenced tax in history. Vehicle tax was meant to be set aside for roads, for example, and national insurance for healthcare and social security. In both cases, the money raised was treated as general revenue.
Indeed, studies from the United States suggest that, although hypothecated taxes always push up the overall tax take, they often lead to a reduction in spending on the thing they were supposedly reserved for.
Many hypothecators are quite brazen about the real purpose behind this proposal. Nick Macpherson, who was the senior Treasury official until 2016, and whose support for the idea kicked off the current debate, says: “I wouldn’t want to finance the NHS out of hypothecated taxes, but we can use some smoke and mirrors to get people to agree to a tax increase.”
Yep: that’s how governments generally behave. In his book What Everyone Needs to Know about Tax, the accountant James Hannam shows that all taxation is dispersed and disguised: dispersed in the sense that lots of small charges add up to a huge bill, and disguised in the sense that various concealed fees hide the size of that bill.
Hypothecation is nothing more than a sneaky way to push the bill up even further.
For a certain kind of European, Americans are always wrong. When they intervene, they are trigger-happy cowboys; when they don’t, they are irresponsible shirkers. Those who have spent the past year decrying Donald Trump as an isolationist are now, without missing a beat, calling him a warmonger. Their current hate figure is John Bolton, the President’s clever and courteous new national security adviser.
You can see why they don’t like Bolton: he is a patriotic and Anglophile Eurosceptic who argues that supranationalism is incompatible with democratic liberty. Indeed, he and I spent part of the evening of the Brexit vote together at the Vote Leave HQ.
Bolton is much more of a foreign policy hawk than I am (“notorious hawk”, as The Guardian puts it). But even those of us who opposed the Iraq invasion should surely admit that it is better to have an engaged United States than an introverted one.
For decades, American leadership has been repaid, as Rudyard Kipling prophesied, with “the hate of those ye guard”. Still, look at the alternatives. I would rather live with America’s occasional errors of exuberance than see any of its current rivals step into its place. FOLLOW Daniel Hannan on Twitter @DanielJHannan; at telegraph.co.uk/opinion