UK Budget Sees Massive Increase In Health Spending

by Jason Gorringe, Tax-News.com, London

18 April 2002

In an uncompromising return to the 'tax and spend' policies which lost the UK's Labour party the 1992 election, Chancellor Gordon Brown yesterday abandoned Britain's pretensions to be a low-tax economy, taking a major step towards the social democrat model of an exclusively state-financed welfare state. So after six years of stealth taxation which saw the UK's taxation level rise by 1.5% of GDP, Gordon Brown has 'come out' as a traditional socialist, putting up taxes by up to £8.3bn a year, and putting at risk, some would say throwing away, the gains so painfully won by Margaret Thatcher's Tory administrations in the 1990s.

In order to bring health spending in Britain into line with the European average as a percentage of GDP, the chancellor promised to increase spending on the National Health Service by £40bn a year by 2007-08. Next year NHS spending will rise to £72.1bn, with the real increase in annual spending doubling to 7.4% over five years.

Opponents say that it isn't the amount of money being spent that is wrong with the NHS, but the model. This lurch to the left won't fix the problem, they say, because the failure of the NHS is due to the absence of competition, which other European countries achieve through allowing citizens to choose between alternative health insurance providers. The divide between the UK's public and private health sectors remains as complete as ever, with private health insurance limited to private provision, and compulsory public health taxation being squandered on a broken system.

To pay for the health spending increase, National Insurance contributions (social taxes) will rise from next year by 1p in the pound for employees, employers and the self-employed, raising more than £8bn a year in extra revenue. 1 penny doesn't sound much, but raises the combined rate of social taxes by more than 10%.

Other key features of the Budget included:

• GDP growth forecast for 2002 maintained at 2-2.5% but increased to 3-3.5% for 2003;
• Additional taxes on North Sea oil companies;
• £2.45bn in tax credits for families with children;
• Personal allowances frozen;
• Higher taxation for UK-based foreign banks;
• Small companies' corporation tax rate reduced from 20% to 19%, with a zero rate for the first £10,000 of profit;
• VAT concessions for an estimated 700,000 small businesses, including flat rate payments and abolition of automatic fines for late payment;
• Duty incentives for sulphur free fuel;
• Plans to introduce a road user charge for lorries;
• 100% capital allowances 'green' investment;
• Higher direct payments to schools for investment in buildings and equipment;
  

The Chancellor forecast a Budget surplus of £3bn this year and for the surplus to remain in the £7-9bn range for the next four years. Public borrowing this year is set to be £11bn, rising to £18bn by 2005.

In his House of Commons speech, Mr Brown said: "I believe it is right that when everyone - employees and employers - benefits from the insurance provided the National Health Service, everyone who can should make a fair contribution." He added: "We have made our choice: to make our NHS the best insurance policy in the world".

Iain Duncan Smith, leader of the opposition Conservative party, said: "This government said it wouldn't raise income taxes at all and everyone knows this is a tax on income. You've added a penny in the pound to income tax today."

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