Effective and universal health provision is a crucially important feature of any society that claims to be both democratic and humane. In the UK we are justly proud of our National Health Service and support its mission to provide high quality health care to all, free at the point of delivery.
It’s interesting to reflect that when the NHS was first established many people, including doctors, saw it as a threat to individual freedom. Thankfully those days are long gone, and nowadays the vast majority of us UK citizens see the NHS as part of our birthright—and are grateful for it.
However, as the capabilities of the NHS have expanded, due in large part to advances in technology, so have its costs. According to the NHS website, when it was launched in 1948 the NHS budget was equivalent to £15 billion at 2017 prices (£437 million in 1948). By the year 2015/16 this had risen to ‘around £116.4 billion’—very nearly an eight-fold increase.
Of course, this doesn’t mean health provision as a whole has increased by a factor of eight, since there has always been, and still is, a substantial private sector. But it does mean that nearly eight times as much is provided free at the point of delivery.
The qualification ‘at the point of delivery’ is important. NHS provision is clearly not free—it has to be paid for somehow. ‘Around £116.4 billion’ is certainly a lot of money, and it is therefore both natural and reasonable to ask whether we can ‘afford’ it.
Who pays for the NHS?
According to the NHS website funding for the NHS comes ‘directly from taxation’. Taken at face value this would mean that we, the taxpayers, pay for the NHS via our taxes. This attractively simple explanation is somewhat wide of the mark though. When something is said to be paid for ‘from taxation’, what is actually meant is that (1) the Government provides the funds, using newly created money, and (2) the Government ultimately sets the amount it has paid against the tax it receives.
But let’s break this down a bit further. NHS funding comes from the Government; it most definitely does not come directly from taxation, even though the NHS website says it does. How could it? We pay our taxes to the Government, not to the NHS. The notion that somehow some of this money is diverted to the NHS (or to any other worthy cause), plausible as it may sound, is simply not what happens. Neither does the Government put the money somewhere safe and then pay it to the NHS as funding.
What actually happens (and what creates the illusion that the NHS is funded ‘directly from taxation’) is that when the Government does its accounts, it compares the amount it has spent on the NHS (and everything else), against the amount it has received from taxation. If it finds it has spent more than it has received (which, in the nature of things, it generally has) it then engages in an accounting operation that it inaccurately calls ‘borrowing’ to make up the difference, which it equally inaccurately calls a ‘deficit’.
The whole operation is sometimes referred to as ‘balancing the books’, but even this term is misleading because what actually balances the expenditure is the creation of the money by the Government. This is not taken into account for the disconcertingly simple reason that accountancy has no way of representing the creation of money, since in normal circumstances (i.e. unless you’re the government) it can’t happen. If this were taken into account the books would balance, there would be no ‘deficit’ and no perceived need for ‘borrowing’
How much can we afford?
Really this is a question of resources, not of financing. As long as there are more people willing and able to train as—and to become—nurses and doctors, the government can afford to pay them to do so. The money the government deploys to this end simply goes into, and stimulates, the economy when the nurses and doctors spend it. In the end some of it returns to the government in the form of taxation—and is destroyed (not re-used), while some of it remains in the economy as private (i.e. our) wealth.
Similarly, money that the Government spends on machinery, infrastructure, and other material resources ends up the same way, as the engineers and other workers who produce those resources spend their salaries. As long as there are engineers and workers willing to do the work the Government can afford to pay them.
To put it another way, the Government can always afford the money—the question is whether we (the people) can, and are willing to, afford the resources.
The intentions of people calling for ‘an extra penny in the pound’ taxation to pay for increased NHS funding are entirely laudable, but it really wouldn’t help. The only effect it would have would be a mild downward pressure on the economy, reducing, not increasing, the Government’s tax receipts by (about) one percent. But that’s another story. And tax receipts are irrelevant anyway.