NHS could swallow up most of the £12 billion raised by Johnson’s tax, IFS warns

The £12 billion a year extra for health and social care as a result of Boris Johnson’s tax hike risks being swallowed up by the NHS, an economic think tank warned.

The Institute for Fiscal Studies (IFS) warned that little might be left available for social care even once funding from the new levy is expected to shift away from the NHS.

Under the plans announced by the Prime Minister the NHS will get the bulk of the £36 billion raised in the first three years, with £5.4 billion for social care in England.

But that balance is expected to tip towards social care in subsequent years as the £86,000 cap on costs introduced from October 2023 starts to require funding.

The IFS suggested that the experiences of the past 40 years showed that NHS spending plans are almost always topped up, meaning that health would continue to require the bulk of the revenue raised by the new tax.

Ben Zaranko, a research economist at the IFS, said: “The extra funding provided for the NHS in yesterday’s announcement will result in spending growing at 3.9% a year between 2018−19 and 2024−25, exactly the same rate of growth as was planned between 2018−19 and 2023−24.

“That suggests little or no long-term additional costs as a result of the pandemic.

“History suggests these plans will be topped up further – they have been in almost every year for the last 40 years.

“That could leave little if any of the tax rises announced yesterday available for social care.”

Health Secretary Sajid Javid insisted that “more and more” of the money raised by the levy would go towards social care in future years.

The IFS said that between 1982 and the start of the pandemic, keeping to initial real-terms spending plans set out by governments would have meant health spending growing at an average rate of 2.7% per year.

But on average, it grew by 4.1% per year: 1.4 percentage points, or 53%, faster than planned a year previously by the ministers in charge of the public finances at the time.

The IFS acknowledged that “this time could be different” and “with a multi-year settlement, the NHS may be able to plan and spend funds more effectively, improving health system performance and removing the need for any future top-up”.

“But the experience of the past 40 years is that this new, shiny set of NHS spending plans should be viewed as a lower bound, not a firm set of limits.”

The Health Secretary was challenged to give a clear guarantee that money would shift towards social care in a Times Radio interview.

Mr Javid said: “It’s clear that more and more after three years will shift towards social care because, not least, by that time the money over the next three years that will go to the NHS will be able to deal with so much of the challenge they are facing around the waiting list.”