• New Economics Foundation (NEF) proposes levying £11.1bn for NHS through reform to National Insurance Contributions (NICs)
  • By abolishing the Upper Earnings Limit on NICs, top 15% of taxpayers will pay their fair share for our health system
  • NEF calls for increased investment in preventative measures to ensure a more efficient health system in the future

The New Economics Foundation (NEF) today proposes a radical, progressive tax change to contribute more than half of the £20bn earmarked for the NHS by the Government by 2023.

Abolishing the Upper Earnings Limit of employee National Insurance Contributions (NICs) would raise £11.1bn per year by 2023/​24, in today’s prices – more than half of the £20bn the government has promised [2].

At present, earnings above £892 per week, equivalent to around £46,400 per year, are charged just 2% in NICs. But the contribution is much higher proportionally for earnings above only £8,400 a year. Contracted employees pay 12% and the self-employed pay 9%.

Abolishing the Upper Earnings Limit would make sure that the richest 15% of taxpayers [3] contribute just as much proportionally to the NHS as everybody else. It raises more compared with freezing the Personal Allowance of Income Tax and freezing all thresholds in NICs – which are options reportedly [4] being considered by government – and is far more progressive.

Alfie Stirling, Head of Economics at the New Economics Foundation, said:

The Brexit dividend is a myth. Desperately needed funding for the NHS can only come from tax rises or borrowing. It’s fair to borrow for investment in the improved health of future generations as this spreads the cost evenly over time. But the majority of extra NHS funding must come from tax rises.

At the moment, high income taxpayers are contributing proportionally less than those who can least afford it. That is fundamentally unfair and needs to be addressed. By asking the top 15% of taxpayers to pay their fair share, we can go a long way to closing the NHS funding gap.”

In addition to raising the £20bn to meet NHS running costs, NEF is calling on government to take a holistic approach to health and social care. We cannot simply fund improvements in healthcare; we need to invest in improving our health. That means funding preventative action, funding social care, and funding public health. Instead of relying only on the NHS finding internal efficiencies, the government should recognise the benefits of taking preventative measures which support a healthier society that puts less strain on the NHS. For instance, diseases closely associated with air pollution will cost the NHS at least £1.6bn between 2017 and 2025 in England alone [5].

Sarah Bedford, Head of Social Policy at the New Economics Foundation, said:

The NHS desperately needs this cash, but the truth is it will not be enough to address the long-term crisis in our health system. By only filling the black hole in the NHS’s finances, all we will be doing is running to stand still.

To secure a decent future for our health system we have to take a much more strategic approach to health in this country. We have to recognise that good health relies on everything from decent housing to clean air, not just on the quality of frontline healthcare. It’s time to put the NHS in its wider context and build a new, more caring economy.”

Notes

  1. The New Economics Foundation is the UK’s only people-powered think tank. The Foundation works to build a new economy where people really take control. www​.newe​co​nom​ics​.org
  2. Revenue estimates for abolishing the UEL are based on NEF analysis of Treasury modelling Direct effects of illustrative tax changes (April 2018)’ and OBR aggregates for GDP growth (Fiscal sustainability report supplementary data series – January 2017) and the GDP deflator (March 2018 Economic and fiscal outlook – supplementary economy tables).
  3. Distributional modelling is based on NEF analysis of HMRC distributional analysis of all Income Tax payers (Percentile points from 1 to 99 for total income before and after tax). NEF’s scenario for fiscal drag’ assumes that all thresholds in NICs and as well as the personal allowance are frozen in cash terms, rather than uprated in line with inflation.
  4. See for instance https://​www​.thetimes​.co​.uk/​a​r​t​i​c​l​e​/​b​l​a​c​k​-​h​o​l​e​-​i​n​-​t​h​e​r​e​s​a​-​m​a​y​-​s​-​c​a​s​h​-​p​l​a​n​-​f​o​r​-​n​h​s​-​l​2​g​p​7xvtt 
  5. For figures on the cost of air pollution to the NHS, see: Estimation of costs to the NHS and social care due to the health impacts of air pollution