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banner Wednesday, 4 October, 2000, 08:48 GMT 09:48 UK
Can the Tories boost health spending?

By BBC News Online's Steve Schifferes

Saving the National Health Service has always been one of the most effective campaign slogans of the Labour Party.

And the government's decision in April to boost public spending on the NHS by 13bn over the next four years has been touted as the centrepiece of its vote-winning strategy of spending the proceeds of prudence on services the public really wants.

Spending on hospital services is likely to keep rising
Spending on hospital services is likely to keep rising
Now the Conservatives have pledged to top this, increasing the UK's overall spending on health by boosting the role of the private sector while matching Labour's figures on NHS spending.

At the same time, the Conservatives say they will limit the rise in public spending to less than the rate of economic growth to find room for tax cuts.

Can they possibly do all these things at once?

Boosting the private health sector

Many health experts would agree with the Conservatives that Britain spends an unusually low proportion of private money on health care.

That contributes to the fact that overall, the UK spends less on health than any of the other six major industrial countries - Japan, Germany, France, Italy, Canada and the United States.

The UK spends 6.8% of its total economic output (GDP) on health, compared with 9.6% in France, 10.5% in Germany, and 13.9% in the United States.

And the UK spends just 15% of its total, or 1% of GDP, on private health care.

In contrast, most other countries allocate between 20% and 30% of health spending privately. The United States spends a massive 7.4% of its total income on private health care, more than half of its total health spending.

But more money does not necessarily bring better care. It is striking that in Japan, which spends not much more than Britain on health as a proportion of GDP, people live longer than in the United States, which spends almost three times as much.

More consumer choice?

There is no doubt that the growing dissatisfaction with the NHS has already led to more people to turn to private health care.

In the UK, the number of people covered by private health insurance (mostly paid for by employers) has increased from 2.4 million in 1977 to 7 million at present, and spending is up from 9% of the total to 15% in the same period.

And in a poll conducted across all 15 EU member states, people in the UK were the fifth most dissatisfied with the way health care was run, with only 47% saying they were either very satisfied or fairly satisfied with the service.

The Conservatives could encourage more private health plans by introducing tax breaks on company or trade union health schemes.

And they could reverse Labour's decision to scrap tax relief on private health insurance for pensioners.

But those plans could be expensive, and there is no guarantee that they would be self-financing.

The independent Institute for Fiscal Studies says it is "extremely unlikely" that reviving pensioner tax relief (at a cost of 135m each year) would lead to enough of a reduction in the use of NHS services to save money.

And the Tory health spokesman, Liam Fox, says the total cost of taxes on company schemes for both employees and employers is 468m.

So to encourage private provision could add some 600m annually to the Chancellor's costs through lost tax revenue - although some might be recovered through VAT on private health spending.

Taxes and spending

That sum would be additional to the huge amount the Conservatives have pledged to match in funding the NHS itself.

Under Labour's plans, spending on the NHS will rise by 6.1% each year over the next four years, from 46.5bn in 1999-2000 to 58.9bn in 2003-4 in real terms.

That is double the average rate of increase of NHS spending since it was created in 1948.

But Tory shadow chancellor Michael Portillo says that overall, the Conservatives will pare back Labour's spending plans. He wants government spending to rise by less than the overall growth in the economy, in order to leave room for "modest" tax cuts.

After years of public spending restraint, Labour plans an overall increase in spending of around 2.5% from 2001 to 2004 - broadly in line with the estimated growth rate of the economy.

However, the extra money for departments- whose spending will grow by 3.3% - has come at the expense of spending on social security - the largest single item of government spending - which, it is claimed, will only increase at 1.5% each year.

If the Conservatives wanted to cut back the overall spending increase to, say, 1.5% to 2%, they would have around 2bn to 4bn less to spend each year (1/2% to 1% of the 400bn government budget).

Over 4 years, that amounts to 8bn to 16bn less spending than currently planned.

With the government heading for a huge budget surplus next year, that could probably be financed initially without too much pain.

Problem of a recession

But in the longer term, or if there was a recession, that surplus is likely to disappear.

Then the Conservative plans could be in difficulty

Spending increases would have to be cut back to match the lower growth rate. And it would be hard to save even more money during a recession from social security, which tends to rise in times of economic difficulties.

If the Conservatives were to leave room for tax cuts, they would then have to reduce the increases going to other departments - such as transport, defence, and housing - to finance a continual rise in the NHS budget.

Of the total increase planned by Labour, education and health take 25bn - but spending by other departments is planned to grow by 18bn.

Since the Tories have already pledged to reduce duty on petrol by 3p a litre at a cost of 1.5bn, and to increase the basic pension (the largest item in the social security budget - partly by consolidating several allowances introduced by Labour), there would be few other places to look for savings.

Of course, they could look to get further money by increasing charges within the NHS itself, for example for prescriptions or dentistry - although the Conservatives have pledged to keep the NHS free at the point of use.

So the Conservative approach could lead to a squeeze on spending. How quickly that might come would depend on how well the economy performs.

But due to the chancellor's prudence, the day of reckoning, either for Labour or for Conservative spending plans, is likely to be well beyond the date for the next general election.

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See also:

18 Jul 00 | CSR
Strong economy aids spending
03 Aug 00 | UK Politics
Labour 'spending less than Tories'
18 Jul 00 | Health
No extra cash for NHS
16 Jan 00 | Health
Blair admits NHS is underfunded
16 Jan 00 | UK Politics
Health insurance 'can ease NHS strain'
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