NHS reforms!

The Guardian today had an article by Andrew Lansley, the current Health Secretary, arguing that the NHS will collapse without reforms. Let’s imagine that he’s correct. The problem I have then is what this implies. We spend 8.4% of GDP on healthcare. In the US it is closer to 19%, while in Germany, France, Switzerland, and many other European countries it is around 11%. We aim to provide universal coverage, free at the point of use, for the entire population. We also try to do so by spending at least 20% less than many other comparable countries. It is therefore quite possible that it is no longer possible for the NHS to continue providing this, given their level of funding.

If Andrew Lansley is indeed correct, what is the solution? He is claiming (as is David Cameron, Nick Clegg and Shirley Williams) that they can continue to provide universal coverage, free at the point of use, as long as the NHS is reformed in the manner proposed. Given the huge opposition and the involvement of the private sector (who will quite rightly need to make a profit) this seems highly unlikely. What seems much more likely is that the publicly funded NHS will provide a basic level of healthcare to everyone, but to get world-class healthcare some form of privately funded insurance-type scheme will be introduced. Overall our healthcare spending will rise to an amount similar to that spent in other European countries with 80% (covering basic healthcare) provided through public spending and the other 20% coming from private contributions. This 20%, however, would amount to about £20 billion, or about £300 per person per year. Given that more than half of all households have annual incomes of £25000 or less, this is probably an amount that many families couldn’t afford. This will almost certainly mean that a large fraction of the population will have to make do with basic healthcare, while the wealthiest top up the system to maintain a good standard of healthcare for themselves.

Basically, Andrew Lansley either thinks that he is so clever that he can reform the NHS (with much opposition) in such a way as to provide world-class healthcare for the entire population (free at the point of use) for 20% (or more) less than most similar countries, or he knows what is going to happen and is quite happy to reform the system so that the wealthy maintain their healthcare while a large fraction of the population have a reduced level of healthcare, or he’s an idiot. The latter two would be my guess.

Mansion tax

There’s a report in the Guardian that the Liberal Democrats are willing to consider scrapping the 50p tax rate in exchange for a mansion tax. I’ve written before about why the 50p tax rate should remain and why I don’t believe it has any impact on investment and entrepreneurship. I’ve also had a bit of an issue about taxing wealth. To a certain extent this is money that has already been taxed. I will admit, however, that if wealth is accumulating then some form of wealth tax may be necessary to maintain public spending. My main issue is that I don’t see how they can sensibly implement a mansion tax.

What they seem to be proposing is a 1% or 2% tax on houses with values above £1 million or £2 million. Straight away it seems that this will be another example of what seems to be known as “cliff edge”. If they implement the tax at £2 million and your house is worth £1999999 you pay nothing, but someone with a house worth £1 more could pay £20000 a year. These type of boundaries always seem nonsensical to me. Furthermore, do you pay the tax if your house is worth more than £2 million or if your equity in the house is more than £2 million. If its the former, then someone who has just bought a house worth £2 million by putting down a £200000 deposit and borrowing the rest will be effectively taxed at 10% of their realisable wealth. If the latter, then anyone with a house worth less than about £3 million would never let their equity rise above £2 million. They would be better off borrowing £1 million against their house at a rate of 4 % and putting this in a savings account than paying 2 % tax on the value of their house.

What would make more sense to me is to change the council tax system so that you pay an annual council tax that is some small percentage of the value of your house. In fact, this is what was the case when I was living in the US. We paid, I think, 1% of what we paid for the house. The rate could also increase smoothly with house value. Starting at about 0.25% and rising to 2% for houses with values in excess of £2 million. The problem, I suspect, is that council tax is a local tax, while the proposed mansion tax would go to the treasury. If council tax were to change to some percentage of the house value, I suspect that it would need to be centralised and then redistributed, something that is probably politically difficult. I still think that the proposed Mansion tax is a bad idea, although some form of wealth tax may well be necessary.