Tuesday, 28 September 2010

Postponing Council Tax Revaluations

The coalition government’s decision to defer any council tax revaluation for the duration of this parliament comes as no surprise. Politicians meddle with existing taxation arrangements at their peril. The fiasco, in the 1980s and 1990s over the implementation of poll tax (or community charge) is an indicator of what can happen. The shift from the rating system to the poll tax inevitably resulted in large scale winners and losers. As is life, the winners pocketed their gains while the losers protested vigorously. Add the tax losers to those who were against the poll tax in principle and very quickly you have a mass protest which rocked the government.

A revaluation of property values could have had a similar effect with some streets or individual properties going up a band with others coming down a band as a consequence of changes in the relative values of properties. Once again those who go down will probably keep quiet while those who go up will protest. The government is going to have enough on its plate over the next few years what with the state of the economy and the cutbacks in public spending. Why shoot itself in the foot by creating yet more hostility and protest by initiating a council tax revaluation.

Some may argue that postponing such revaluations is unfair because it means that a person’s council tax is based on property valuations which are well out of date. This may be true but one could also argue that property valuations are not a fair or progressive basis on which to raise tax revenue given that they have no link whatsoever to ability to pay – one of Adam Smith’s cannons of a good tax system.

Others argue that avoiding a revaluation will bear hardest on the poor. However, Wales had a revaluation in 2005 and it is claimed that the hardest hit were those on the lowest bands, A to C with something like two-thirds of the increases occurring in those bands. This might be thought to have hit poorer people harder than richer people but then, as I have already said, value of property is not necessarily an indicator of income, wealth or ability to pay.

Presumably we can’t go for ever without a property revaluation but, clearly, we aren’t going to get one for five years or so. Who knows – maybe by that time the government will have developed the vision to completely refashion local government finance in such a way as to have greater local discretion and accountability. Somehow I doubt it.

Tuesday, 14 September 2010

What would Aneurin Bevan say: An end to a tax funded NHS?

When the NHS was created in 1948 it was the jewel in the crown of the post-War Labour government. Since that time many people have continued to see it as a beacon of civilised society where health care is free at the point of consumption and where access to health care is largely based on clinical need and not ability to pay. Thus the NHS contrasts very positively with other healthcare systems, most notable the USA, where 15% of the population are uninsured and a further 35% are underinsured or fear losing their health insurance.

However, the success story of the NHS often blinds us from considering whether it can continue unchanged into the future particularly with regard to it being a public service funded almost entirely from taxation. The ‘founder’ of the NHS, Aneurin Bevan, is often quoted as stating his expectation that once the NHS was founded and people’s health status improved that NHS expenditure would fall. Clearly this is not the case and NHS expenditure has grown enormously over a 60-year period.

While we may now look back on Bevan’s comments as na├»ve, we must remember that he couldn’t have anticipated the impact of: artificial joint replacements, organ transplants, high technology diagnostic equipment, highly complex and expensive cancer drugs, genetic screening and therapies or the impact of people adopting very unhealthy lifestyles and risk behaviours.

The Wanless report published in 2002 was commissioned by the then Chancellor of the Exchequer Gordon Brown. It is sometimes portrayed as part of the titanic Brown-Blair battle as to whether public services, such as health, could continue to be provided from general taxation with only limited reform (Brown) or whether major overhaul and modernisation was needed (Blair).

Wanless outlined three main future scenarios for the NHS involving different levels in the required growth of NHS funding. The most ambitious scenario, involving the lowest (but still high) level of growth in NHS funding, required major improvements in NHS productivity and a major change in population lifestyles and an acceptance that people should take increased responsibility for their own health. Wanless subsequently concluded that the NHS should continue to be funded from general taxation albeit at higher levels.

Unfortunately, NHS productivity has declined and only limited progress has been made in population attitudes to their own health. Many would argue that we have failed to achieve the least ambitious Wanless scenario let alone the most ambitious.

Let’s fast forward to 2010 and see where we are now. Firstly, the demands for NHS services are estimated to grow at 4-5% per annum. Secondly, the NHS, although ‘protected’ from the worst of the public expenditure cuts, is still faced with the challenges of producing large-scale efficiency improvements. Thirdly, the UK economy is only expected to produce limited economic growth each year and so the scope for additional NHS funding through growth is limited. Fourthly, the population shows a lack of appetite for tax increases.

In the light of these circumstances and the early lessons from Bevan and Wanless surely we have to question whether the NHS can continue to be funded almost solely from general taxation.

Three main alternatives present themselves:-

Charges – The health policy group ‘Doctors for Reform’ has argued that many NHS patients are routinely seeking paid options to top-up their NHS entitlement in order to access new kinds of care, faster access and higher quality. Thus, the service can no longer be regarded as free at the point of consumption. They subsequently argue that the incidence of such co-payments is so haphazard and inequitable to the poor that it would be better to address the issue head on and introduce a more uniform and fairer approach to top-up payments for all patients.

Earmarked taxation – polls suggest that while there is resistance to increases in general taxation there would be support for the introduction of a tax where the proceeds of the tax were dedicated to the running of the NHS. With such a tax the cost to an individual would probably be linked to ‘ability to pay’ rather as for income tax.

Health insurance – a more radical option would be to restructure NHS finance completely and move towards a health insurance model where people (or the government in some cases) would pay monthly insurance premiums. In line with the principles of insurance, premiums could be linked to risk such that people adopting unhealthy lifestyles would pay more thus providing a financial disincentive to such behaviours. The planned introduction of GP commissioning in the English NHS might well lead to greater involvement by private health firms in supporting GPs in the commissioning process. Several firms are already active in the UK in an advisory capacity and would welcome the opportunity to get more involved in operational commissioning. This private sector involvement might possibly be seen as a first step towards developing a health insurance model for funding the NHS perhaps along the lines of the US health maintenance organisation.