IFS: Tax hikes will not provide enough funds for NHS

A leading economic think tank has warned the government’s decision to launch a tax assault will not raise enough funds for the NHS in the long run, in brand new research published today.

The Institute for Fiscal Studies said ongoing cost pressures stemming from dealing with the long-term health implications of the Covid crisis will mean the government will have to top-up the NHS’s budget.

Prime minister Boris Johnson hiked national insurance and dividend taxes by 1.25 percentage points this week in a bid to generate money to clear the swelling backlog of NHS work built up over the course of the pandemic and tackle chronic problems in England’s social care system. The measures will come into effect next April.

The 1.25 percentage point NI hike will be broken out into separate health and social care levy.

“The government’s new plans imply next-to-nothing in the way of additional virus-related support after that point, suggesting that the newly announced funding might be insufficient to meet virus-related pressures in the medium term,” the IFS said.

The think tank estimates there could be a £5bn shortfall for the NHS in three years’ time, implying the government will either have to raise taxes again to plug the funding gap or reduce spending on other areas.

The IFS also warned this week the 40-year trend of the NHS breaching its budget suggests the additional money raised by the tax hikes will be “swallowed” up by the health service, with little or no funds left for social care.

Max Warner, a research economist at the IFS, said: “The resources that the NHS will need to cope with pandemic-related pressures over the coming years is a huge known unknown.”

The additional resources for the NHS – £6.6bn next year and £3.6bn the following year – should be enough to cope with Covid-related cost pressures over the next two years.

“But the settlement seemingly allows for almost no additional virus-related spending in 2024–25, making it almost inevitable that these initial plans will be topped up down the line,” Warner said.

The largest areas where ongoing spending will be needed to deal with the fallout of the pandemic include treating patients with Covid and long-Covid, Test and Trace, vaccinations and PPE procurement.

Johnson has been coy on confirming whether the additional funds raised by the new health and social care levy and dividend tax hike will be enough to enable the health system to clear the swelling backlog.

Speaking to BBC News this week, he warned things will likely get worse before they get better in the NHS.