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The politics of NHS funding and taxation in the new parliament

Yesterday, I heard Steve Richards, political editor of the Independent, give a fascinating talk to NHS leaders in Manchester on the politics around the NHS in the government which helped sharpen my thinking on next week’s Budget.

Steve argued that, during the election campaign, the Conservative Party made a pledge to find an additional £8 billion for the NHS to demonstrate its commitment to the service. He also said that the promise not to increase income tax, national insurance contributions and VAT was made in the expectation that it would be a bargaining tool in negotiations to form a coalition in the event of a hung parliament.

With the Conservatives having unexpectedly won a majority, the government is faced with the challenge of fulfilling both of these commitments and making further cuts in public spending to deliver its promise to eliminate the deficit by 2018/19. One way of squaring the circle would be to delay the injection of additional funds to the NHS until later in the parliament in the hope that extra spending can then be funded from the fruits of economic growth. Support for this interpretation can be found in the Conservative Party’s manifesto commitment to increase public spending in line with GDP as the next election approaches.

The obvious difficulty in doing this is that the NHS needs additional funds sooner rather than later to deal with growing deficits. As we have argued in our Budget briefing, financial problems are now endemic among NHS providers with even the most prestigious and well run hospitals forecasting deficits. This has been reinforced today by David Bennett’s warning that foundation trusts are currently predicting an overspend of almost £1 billion this year. The social care system is also under huge pressure, with growing numbers of people unable to access publicly-funded care and support.

If promised spending increases do not materialise soon, and ministers insist on the NHS regaining control of its finances, then urgent action will be needed. The rub is that, with so much of NHS spending going on staff, it will be impossible to balance budgets without reducing headcount, including among clinical staff, with the risk of compromising patient safety and the quality of care.

It is at this point that Steve Richards’ other insight into the politics of the NHS comes into play. He argued that Health Secretary Jeremy Hunt had come back to the health department to continue the work he had started before the election on safety and quality and to demonstrate to the public that the NHS really is safe in the hands of a Conservative government. The challenge then is that cuts in staffing may reverse what happened before the election when providers went on a hiring spree in response to the Francis report and the Care Quality Commission’s new inspection regime, and when the coalition government in effect condoned the overspending that resulted.

This poses a personal challenge for the Health Secretary given his own commitment to improving patient care. It also brings into sharp relief differences within the government between the Treasury with its agenda on deficit reduction and No.10 which, like the Health Secretary, is concerned first and foremost with reassuring the public that the NHS will be there for them when they need it. This is where the government has seriously boxed itself in by making a promise during the election not to increase taxes which, if Steve Richards is to be believed, it did not expect to have to keep.

Standing back from the detail, the political and fiscal challenge is how to deliver three seemingly incompatible commitments: deficit reduction, no headline tax rises, and increases in NHS funding to secure its future. In view of the importance of the NHS to the public, changing the timetable for deficit reduction or increasing taxes to enable NHS funding to rise early in the parliament may come to be seen as the least worst way out of the bind the government finds itself in. The alternative of declining standards of care and more explicit rationing of services would seriously undermine the prime minister’s ambition to govern for one nation and to lay to rest the charge that the NHS is not safe in the hands of the Conservatives.