Outlining the decision, taken as the NHS celebrates its 70th birthday, Theresa May said the increased funding, which marks an average 3.4% uplift per year overall, is designed to secure its future.
The funding will be front-loaded with increases of 3.6% in the first two years, which means £4.1bn extra next year. May said this long-term funding commitment means the NHS has the financial security to develop a 10-year plan, to be published later this year.
During the announcement, May made clear that some of the additional money would come from money the government will no longer spend on the annual membership subscription to the EU after Britain has left, or the so-called ‘Brexit dividend’ cited during the referendum campaign, along with increased borrowing and tax rises.
She also made clear that taxpayers will need to contribute ‘a bit more in a fair and balanced way’, saying ‘the government will listen to views about how to do this and the Chancellor will set out further details in due course.’
It is unlikely that details of any tax increases will be revealed before the Autumn Budget, but the decision to raise rates or thresholds is likely to prove controversial.
George Bull, senior tax partner at RSM, pointed to the HMRC’s latest tax gap figures, published last week, which put the overall annual loss to the Treasury at £33bn, of which £8.5bn is attributed to tax evasion and the hidden economy, and suggested that improving collection rates would result in more funding available.
‘The Prime Minister, the health secretary and the Chancellor of the Exchequer must explain why they are rushing to impose new taxes, in a “fair and balanced way” we are told, on honest taxpayers when £8.5bn is lost to dishonest taxpayers through tax evasion and the hidden economy.
‘What’s fair about that? Surely it would be fairer to give HMRC more resources to bear down on tax evasion and the hidden economy in the same way that it has successfully tackled tax avoidance?,’ Bull said.
Bull also highlighted potential issues because taxes have been partially devolved to Northern Ireland, Scotland and Wales. Where funding is provided to policy areas falling within devolved competencies, such as the NHS, there would ordinarily be Barnett formula consequentials.
‘However, if additional funding for the NHS is based on new rates or bands of income tax, the Government will face some difficult negotiations to avoid further constitutional unrest. It would not sit comfortably with taxpayers in Scotland, Wales or Northern Ireland if their income tax was seen to be funding NHS England, or indeed if resulting Barnett consequentials implied that English taxpayers were indirectly funding health services in other parts of the UK,’ Bull stated.