Hypothecated funding for health and social care: how might it work?

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Hypothecation – the earmarking of a tax to be spent on a specific area of public expenditure – is back on the political agenda. All the major parties seem agreed that a longer-term and sustainable settlement for NHS expenditure – and quite possibly one for social care as well – is now desirable. Hypothecation is being debated, across the political parties and by other think tanks, as one of the routes by which the money for that could be found. 

There are strong advocates and equally strong opponents of hypothecation. This short paper examines both sides of the argument. It seeks to set out the problems hypothecation is meant to solve, and the conditions under which it might do so, and provides a brief history of hypothecation in the UK. 

Key messages 

  • Evidence suggests strong public support for raising taxes to increase funding for the NHS as long as the money is spent as promised. Hypothecation therefore offers a potential way to increase funding for the health service.  
  • There are two key objectives for hypothecation in relation to health and social care spending: first, to help overcome the current funding crisis and second, to end the cycle of boom and bust in funding that has been such a recurrent problem over decades. 
  • Hypothecation is complex and the difference between partial and full hypothecation is critical. The former only looks to top up current levels of spending, whereas the latter looks to set the budget as a whole. 
  • The challenge to using partial hypothecation is that it does not provide a long-term solution to the boom and bust in health and care spending. Full hypothecation may be part of the answer, but on its own it is unlikely to be enough to guarantee stable funding. 
  • If full hypothecation is used there needs to be a way to break the link between one year’s tax revenues and spending, possibly through the creation of a ’fund’ that can move money between years. Full hypothecation also needs to be supplemented by a degree of independence in setting health and care spending and the tax rates needed to finance it. 
  • Getting full hypothecation to work would be a complex task and should not be undertaken lightly. Its advocates need to demonstrate how it will be an improvement on current funding arrangements – an attractive idea could end up back-firing unless the risks we have identified are tackled.  

Comments

Mathew Wills

Position
Postgraduate Student,
Organisation
University of York
Comment date
29 May 2018

I'd suggest that there is a need to separate health and social care here.

While the NHS cycles from "boom to bust" it is a popular core welfare state institution protected by social solidarity and widespread public expectation of programme receipts ... and the five year moving average funding increase has always been positive. Hypothecation may not help much.

These welfare state core protections do not, however, extend to social care and the bust to chronic underfunding cycle of social care is the result. A focal national funding institution for social care with hypothecated funding might not protect funding against economic cycles ... but it would help with political cycles and would be unlikely to deliver worse outcomes than the last forty years of funding via general and local government taxation.

Mark Trotter

Position
Health and Social Care Sector Support,
Organisation
Mark Trotter - Tender Writing
Comment date
29 May 2018

Hypothecated Funding is at best "a leap of faith". The NHS and Social Care are systemically flawed and the more money thrown at them the more money they will require and because of the emotional investment the more they can demand.

Higher tax revenue does not resolve the issue, new hospitals will not cure the funding problems. The issues with acute and emergency care begin with society and a failing Primary Care system. GP's spent many years demanding greater control and when they got it immediately told the country "we can't function without more money".

So money is the driver, society believes it is getting good value for money but a simple evaluation of resource management in the health sector demonstrates that the only part working at capacity is the volunteer carers.
So don't think that hypothcated funding will resolve this problem - it can't unless so many other things change.

An argument against hypothecated funding is structured around the cause of admissions, for example an elderly steps from a bus on to a badly maintained pavement, this results in a fall, broken hip and long term hospital care - best the resolution would have been prevention, repair the pavement but that revenue is being used to care for those who fall and break their hips.

The UK can't afford the system so simplify it.

Pearl Baker

Position
Carer Independent Mental Health Advocate & Adviser,
Organisation
Indepemdent
Comment date
29 May 2018

It is important to understand that education forms part of our 'infrastructure' , yet research shows that 72% of rural secondary schools are missing a science laboratory, these students are our future. The poor state of our pavements result in many injuries, often requiring Hospital admissions. I agree with the previous comment, first you have to 'fix' what needs fixing, before we speak about how we generate more funding for Health and Social Care.

The National Audit Office has REPORTED to this Government, that 'The Department of Health and Social Care is not doing enough to support a sustainable social care workforce' LA spent 5.3% less on care in 2016-17 compared with 2010-11'

National Audit Office 'report from the Comptroller and Auditor General. February 2018 Adult social care workforce in England
Key facts. 1.34m was the estimated number of jobs in 2016-17 2009 was the last time a national workforce strategy was published by the DOH 6.6% was the vacancy rate for jobs across the care sector in 2016-17

£16.8 billion: is the sum of £14.8 billion of net current expenditure on care by local authorities and £2.0 billion allocated from the NHS through the Better Care Fund in 2016-17

27.8% : was the turnover rate across all care jobs in 2016-17

£7.50: was the median pay per hour for a care worker in the independent care sector in 2016-17

11.3%: was the vacancy rate for registered managers in 2016-17, the highest vacancy rate in care.

16%of registered nurses in 2016-17 who were non-British European Economic Area nationals rate in care.

2 million: was the Centre for Workforce Intelligence's 2014 principal projection pf the demand for full-time equivalent jobs in adult social care by 2035.

The Summary: Most care is provided unpaid by family or friends.therefore the number who might need to buy their own care, rely on informal care, or have their care needs unmet.

One of the nine priorities in its Shared Delivery Plan: 2015 to 2020 published in January 2016, was to make sure the health and care system workforce has the right skills and the right number of staff in the most appropriate settings to provide consistently safe and high quality care. The Department has an objective to integrate health and social care more closely by 2020.

The National Audit Office REPORT 2018 raises more questions, that this 'hypothecated' Report.

I am denied Carer status by West Berkshire Council, who labelled me a 'vexacious' complainer, because i dared to question why my son has no Care or Support yet remains under Section 117 free aftercare. The family provide everything. This REPORT states without Carers, those in the same position as my son who has become (invisible) to the system will receive no Care or Support.

The Kings Fund have to start looking 'deeper' into what is going wrong and where, taking into account the National Audits Office latest REPORT, including what is included in the 'infrastructure' that goes much deeper than just roads.

The National Audit Office is an independent Parliamentary body in the United Kingdom which is responsible for auditing central government departments, government agencies and non-departmental public bodies. This is where the calculation should start.

Grant Kelly

Position
Retired GP,
Comment date
01 June 2018

Hypothecation is a double-edged sword. It will enable the population to feel good about the tax they are paying but it is likely to introduce all manner of gaming into the tax system at the Department and Ministerial level - who pays for what from what tax, etc. - more so than already exists. The idea that there will be a sudden outbreak of honesty, openness and transparency as a result of hypothecation seems most unlikely.
Hypothecation also misses the point. The NHS doesn't have a proper job description and so can never plan for what it has to spend except in a population level way. That doesn't help the hospital in debt or the closing GP surgery.
Defining what the NHS will, (or rather won't) do is always tarred with the brush of 'Rationing' and therefore deemed unacceptable, yet that is the only way in which the funding problems can be dealt with in an adult manner. Until this is confronted by honest explanation to the public that it cannot provide everything they would like, hypothecation remains just another way of pushing water uphill.

Michael Bruce

Comment date
01 June 2018

It's a pity that the writer has not thought/researched more deeply about the role and function of taxation in a modern economy. Rather than accepting the present Government assertions that we in the UK can't afford a properly funded health service, he would point out the a sovereign government that issues it's own currency can never run out of that currency. Austerity is a political choice and discussions of hypothecation are just another red herring that distracts attention from the real issues. Those readers who want to understand what role taxation really plays in the financial system should read up on Modern Monetary Theory.

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