The Guardian is amongst many reporting the following this morning:
British households will need to pay an extra £2,000 a year in tax to help the NHS cope with the demands of an ageing population, according to a new report that highlights the unprecedented financial pressures on the health system.
Two thinktanks — the Institute for Fiscal Studies and the Health Foundation — have said there can be no alternative to higher taxation if there are to be even modest improvements to care over the next 15 years, adding that demands on the health service will continue to rise.
I do, as usual despair at the poverty of thinking displayed by the Institute for Fiscal Studies. It really is time it stopped talking about macroeconomics, about which it appears to know almost nothing.
First, as usual the IFS suggests that government spending is paid for with taxation when that is not true: it is paid for with government created money which is then cancelled with taxation.
Second, the IFS defines health care affordability in terms of capacity to tax. This too is quite simply wrong: health care is affordable if there is the capacity to supply it within the economy. That is what limits the health care we can supply, and not tax. It really is time the IFS looked at the real economy and not just the money.
But third, and worst, is the sheer poverty of the IFS thinking. Paul Johnson admitted on the Today programme this morning, which I endured on my way down to Stansted, that he might suffer from a lack of imagination. Let me assure you, I agree. And the reason is obvious. Johnson simply cannot imagine the world changing. His whole analysis exists in a world where ceterus paribus holds true. But it does not.
I have not checked the report as yet to see what it says about automation so I will stick to discussion of tax where what the IFS is saying is that nothing will change. Johnson's commentary made this clear. We can't tax business: he thinks it will run away. Land and wealth taxes won't collect much, he says. And as for changes to allowances and reliefs, most especially when it comes to subsidising the already wealthy? Of that there was not a hint.
Let me put this in context. The IFS seem to be looking for about £30bn a year. That is, as I have shown, half the sum that subsidies to pension and ISA saving in the UK now cost each year. All of that sum goes as a subsidy to the City to effectively over inflate the price of shares. Johnson should know that. But he said on Radio 4 that there was nothing he could imagine cutting now that could meet health care costs. The only explanation for that is that he is not thinking, or cannot think, or wants to perpetuate the tax inequality we have in the UK where the wealthy pay no bigger a share of their income in tax than most in the population do.
And as I have also shown, we could raise this money from additional taxes on wealth.
So what really irritated me about the Today report? It was the introduction that claimed that the IFS is politically independent. So it might be. But it's a massive supporter of the status quo. And that's not independent. Nor does it evidence thinking. And most of all, it largely disqualifies a participant from debate on change when they refuse to imagine the possibility of it happening. And that's what the IFS is doing here.
Rant over. I've got through the security queue at Stansted where most of this was written. I need coffee.
PS The BBC asked me to go on television about this but as I am speaking in Dublin this early evening that is not possible.
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Methinks this might just be the start of a softening-up process of the people to creating a hypothecated ‘ NHS Tax ‘ ; an insurance premium by any other name, given that moving
healthcare towards an insurance based system like the US is their long term goal.
Very likely
And I strongly suspect that the aim is to make that tax deeply regressive
I also suspect some LINO MPs will be all too happy to go along with this
What is a LINO MP ?
Labour In Name Only
Excellent ranting, Richard, I hope that the coffee helped.
The sad thing is that Sarah Wollaston, an regrettably influential figure, later endorsed the report on Radio 4 and showed the same lack of understanding of the true role of taxes and how government spending works. Worse, she is mentioned, in the same Guardian article, as being in an ‘all party’ group of MPs including Norman Lamb and Liz Kendall who ‘welcomed’ the report. She was mildly pressed by the interviewer – who also should know better to do his job properly – about hypothecated tax to pay for the NHS. I fear we are on being led on to dangerous path.
I fear you are right
health care is affordable if there is the capacity to supply it within the economy
Sadly the capacity isn’t there because the union restricts the number of medical schools and the supply of doctors trained in the UK
https://www.bmj.com/content/337/bmj.a748
Willingness to print money here really is not the fundamental problem here in the UK.
The North and Central European SHI systems are universal and don’t have this bottleneck in resources coming through because in general they are organised around the customer and not the highest paid workers.
Oh what drivel
I think you really have no chance of posting again if that is the best you can do
I haven’t heard any mention of the consultants bonuses, which are up to £75k, the vast an suspicious sums spent on agency nurses and locums, or the “bureaucratic cancer” that is consuming the patient. See http://www.dailymail.co.uk/health/article-5456701/It-nurses-need-not-bosses-says-Dr-Max-Pemberton.html . So this extra £2k a year sounds like a call to feed the fatcats.
Just for the sake of clarity – this is a different John D to me. Confusing. Should I change my i/d?
You were here first
Sorry – I do not always read email addresses
It seems that the Graun has now changed its article and added more detail (that clarifies, without letting the reader know they changed it) that the amount is not “per-year” but is over 15 years, based on an assumption of wage growth of £8,500 over the same 15 years… so its, overly simplistic, £133.33 a year extra tax on an additional earnings of £566.66 for the first year… doesn’t sound nearly as scary as an extra 2,000 a year! Even in 15 years when it will be much closer to 2,000 PA, wages will be an extra 8,000 a year higher.
I do wish publications would be far more clear with their articles before publishing, instead of re-working them later.
The misleading impression was given on Radio 4 and Johnson did nothing to correct it
Actually, the lower figure seem absurdly low
Wow. I am impressed you can write this in the security queue!
The pension subsidy point is excellent.
If tax receipts are perceived as the problem, then why are we giving tax relief on pensions when we could be investing in health?
You should have seen how long the queue was!
And I write anywhere (Pearse St Station in Dublin right now – just for the fun for of looking in before going to my confernece).
It’s a pity I could not accept the BBC Television invitation to discuss this though as I am over here today
“Johnson simply cannot imagine the world changing.”
May be he is more interested in keeping his job, which is a shame, as we do need independent economic commentary.
“British households will need to pay an extra £2,000 a year in tax ….”
You just can’t beat a good headline figure with no context can you ?
And they wonder why nobody wants to pay for newspapers.
And why increasing numbers of people decline to donate to BBC coffers via the licence fee.
Tax relief on ISAs and Pensions encourages savings. You think people saving money now to spend in the future is a bad thing.? Do you think it is much bettter to consume to the maximum now you say. With that methodology people work till they die. Or work & consume to the max and then retire and rely on the state. Encouraging saving is encouraging self dependency. It is bizarre you object to this.
I am entirely happy if people want to save
I see no reason at all why tax should subsidise those already well off when there are so many better uses of cash
You’d rather people die, would you?
You would rather people die.. is that your stock answer for anything relating to the NHS? You could use that line for every opportunity cost. Why spend on culture?
We were discussing the NHS and you wanted to subsidise the stock market instead
I thinik the question fair
I note you ducked it
Why?
I read the Guardian article while drinking my early morning cuppa and remarked to my wife that Richard Murphy will have something to say about this. I checked your blog but you were obviously on the move. Anyway, I returned from walking the dog and discovered you in fine form. Thank you for the rant but when is the Labour Party going to wake up? They are in a penalty shoot out with no opposition goalkeeper. It really should be easy but they seem to be making very hard work of it.
I admire your borrowing rhetorical devices from Cicero but perhaps a greater familiarity with declension and the meaning of stock phrases would enhance your orotund ex cathedra declamations.
That is economics….
My response to the Guardian article, for what it’s worth:
“The framing around this proposal is totally false and misleading: there is no need to “tax each household £2000 more” to pay for NHS improvements!
The Govt spends first, simply by crediting reserve a/cs of the recipients’ banks at the BoE, and then removes reserves later as and when taxes are paid.
Any increase in spending will automatically lead to larger and/or more frequent initial and subsequent transactions, which will be taxed automatically in the normal way – the resulting reserve sweep at the BoE effectively destroying the money, so that the whole spending process can continue, ad infinitum, without causing inflation.
No increase in tax rates are necessary.
Any ‘extra tax’ will be incurred in the normal way, purely as a result of that extra spending – and is no more threatening, burdensome, or undesirable than the extra tax one would pay as a result of receiving a very hefty pay rise!
No ‘wake up call’, no need to be falsely ‘honest with ourselves’, in fact nothing to be daunted by at all.
The Govt just needs to drop their politically motivated resistance to the NHS, increase the money it spends in order to run it properly, and the taxes required to prevent any resulting inflation will flow in automatically.
Then the problem will be ensuring the supply of *real* resources available to match the spend.
I suggest banning private medicine, and absorbing those real resources into the NHS so that demand can be supplied according to medical need, and not the size of the patient’s wallet.”
I doubt anyone who isn’t already on board with MMT will pay attention though, and the comments section appears, as usual, to be largely populated by the usual sock puppets working for right-wing, free-market think tanks, and the social media depts. of private medical interests.
Not really relevant to the NHS funding argument per se, but I read the article about Stephanie Kelton and MMT a few days ago and was surprised to see this:
“The left-wing appeal of these ideas is obvious. With inflation stubbornly low over the past 35 years, Kelton’s work suggests Democrats have plenty of fiscal room to not only protect Social Security and Medicare but also expand them and propose ambitious new programs. But MMT is also attractive to certain elements of the superrich. Because if we don’t have to worry so much about how much these programs cost, then there is no pressing need to raise taxes in order to pay for them.”
Surely this isn’t right?? MMT isnt a theory for letting off the super rich from paying their taxes is it?
From Confused of Dorset!
It is wrong
MMT says we should push tio full employment – and at that point G must = T in economic terms – money printing will pay for nothing then if inflation is to be controlled
So those super-rich have got it wrong, in my opinion
I have been following you for some time. My economic knowledge is confined almost exclusively to a gut feeling and a few phrases like ‘opportunity cost’. Could you recommend a basis guide (preferably video) guide that includes newer economic theories/arguments with lots of graphs and animations. I sense lots of people are interested but want to understand mechanisms as they are and as they might be in a more enlightened society. Hope you can help. Fran
Fran
There is no one such text
But there os a lot here
http://www.taxresearch.org.uk/Blog/2018/05/08/towards-a-reading-list/
And Ha Joon Change has sold 800,000 copies of 23 things they don’t tell youn about capitalism for a reason
I hope that helps
I’m fairly sure that the IFS’s own Mirrlees Review of the UK tax system in 2011 endorsed Land Value Tax as a replacement for business rates. LVT could play a much bigger role than that, potentially, as could a General Anti-Avoidance Principle with “bite”. And Country-By-Country Reporting. Between those three, there’s easily £30bn of extra tax that can be raised – and that’s just the tip of the iceberg.
Indeed…
I sent the following email to Anita Charlesworth the Chief Economist of the Health Foundation this morning .
The reports in today’s newspapers concerning the underfunding of the NHS and the contribution by the IFS to the report Securing the Future perpetrate the myth that a government like ours with a sovereign currency, tax and spends when the reverse is the case. The proof is in the government and Bank of England reports on Quantitive Easing amounting to £435 bn created on a computer to bail out the banks after the crash of 2008. I have a copy of Alistair Darling’s letter of 29th January 2009 to Mervyn King in which he instructs him to create the first trance of £50 bn. The present government could do the same for the NHS tomorrow if it chose to. It chooses not to because it is ideologically committed to reducing / eliminating the deficit, but the deficit is simply money loaned to the government by people choosing to hold government securities as investments and for the government not to run a deficit when the need to create money is patently obvious as in this case is as good as criminal. A democratically elected government has a duty to do its utmost to ensure the wellbeing of its citizens and this government is failing to do that. A government is not like a household , it does not have to live within its means; it can create all the money it needs to do what needs to be done providing there are people willing to do the work and materials and equipment that can be purchased. I explain it this way to anyone I can engage : if war broke out tomorrow do you think for one moment the government would say before we can fight we’ll have to see how much tax is coming in to pay for it. No of course not that’s never been the case. Troops and armaments would be mobilised and the money to pay for them would be created once they had been. But for anything else the response from government is always the same ‘ where’s the money going to come from ? ‘ It’s a lie. The money is going to come from where all money comes from , it’s created on a computer . This is the reality of money creation in the 21st Century and it’s about time this myth was exploded and in my small way I am doing my best to explode it.
Thanks!
Good man, John.
Just keep doing it. Eventually if enough of us keep saying this it will eventually sink in.
Brilliant John.
Time to get this on billboards across the land!
To John Hope
Splendid letter John! I hope you will share any response with us. It is splendid to hear an ordinary person stand up and hold the establishment to account. Richard does this almost daily with great effect with technical knowledge and expertise that most of us do not possess so I can only admire an ordinary citizen who takes the time to react the way you have . Well done.
Andy – after all these years of academic debate, analysis, public lectures, presentations, blogs etc. etc. it’s difficult to believe that those who need to know don’t. So the $64,000 question is always why don’t they implement policies for the public good when they know money is not an issue – especially when there’s clearly so much spare capacity. I think it was Warren Mosler (I may be mistaken) who, when asked this question, replied that it’s because the voting public don’t believe it and politicians won’t risk votes by rocking the boat.
So, it’s a Catch 22 situation, or vicious circle, in which law makers are too scared to admit that they can indeed generate as much money as is needed via a simple computer keyboard stroke because maintaining the household budget analysis gives them both power and popularity in the sense that they’re seen to be prudent with the nation’s finances. The strategy has worked well for successive Conservative administrations who always emphasise their superior financial expertise, despite no factual historical evidence.
Regrettably for the country the Labour Party has always been successfully lured by the Tories to fight the economy on their (Tory) terrain, leading to the ridiculous claims by Gordon Brown that he was the master of prudence. It was judged that it was the message the public wanted to hear & believe. Maybe the LP did too. But it just further endorsed & perpetuated the Conservative lie.
People accept and understand that government will find the money for immediate & urgent crises like war and bank bail-outs, but they can’t translate the ‘mechanics’ of money creation for such exaggerated emergencies to general policy decisions, including the NHS. There’s a firmly rooted psychological block, which is perpetuated by the political class which is hoist with its own petard.
So we’re stuck on this dialectical hamster wheel which nobody is prepared to jump off. All this against a backdrop of inflation scare-mongering which is again fixated in people’s minds – both professional and lay – despite all evidence to the contrary.
I suppose I could just have simply said the main reason for not immediately funding the NHS is more strategically political than sheer ignorance. And, no matter how often the economic facts are published, I can’t see any way out of this self-enforced trap until an external crisis of such a scale that voters will demand a better deal forcing their political leaders to respond, in the same way that the patrician FDR had to in the 30s. This time it could be called ‘The Green New Deal’.
I hope this makes some sort of sense because I fear I’ve not argued my point as coherently as I would’ve liked. And it’s too late for a caffeine shot to reactivate my atrophying grey matter 🙂
I think the logical fallacy Ad Ignoratum applies here , when you argue that something is true because it has not been proven to be false. This is what I believe to be the case with the ‘ tax and spend / spend and tax ‘ conundrum . It needs to be proven that ‘ tax and spend ‘ is false regardless of whether those perpetuating it know that it is , or not. Hence Richard’s ‘ QE proves it ‘ which I’ve taken up when writing , or speaking about this . People are moved by emotion . That’s why I like to use the example of war because everyone knows that no government asks where’s the money going to come from to go to war. People get that . I know I’ve used it many times. What doesn’t work is to try and argue people out of entrenched belief systems. Tax and spend sounds like so much common sense especially when related to a household . An exposition of MMT isn’t going to persuade the man or woman in the street . This is a kind of Copernican Revolution in the making and we have to remember Upton Sinclair’s dictum ‘ It is difficult to get a man to understand something, when his salary depends upon his not understanding it .’ And there are an awful lot of salaries depending on not understanding ‘ spend and tax ‘ .
I accept all that
But Copernicus overcame a Pope
We’ll have to overcome similar obstacles
“But Copernicus overcame a Pope”
If I’ve got the story right he only made it by means of a posthumous or deathbed affidavit.
I think we should aim higher than that 🙂
OK
Good point
But I am 60….
“But I am 60…….”
Tha’s nobbut a lad.
Life begins at forty they used to say.
Sixty is the new forty. 🙂
The way to solve the funding is to remove the NI upper threshold of 2% and make all pay 12% like most of us do I would love to know how much extra revenue this would raise not only would it pay for the ongoing NHS increased cost but pay for proper social care as well.
A) The cost does not have to be funded
B) That would be useful – bit not enough. But I have noit time to do the maths this morning
Robert Liddell says:
“The way to solve the funding is to remove the NI upper threshold of 2% and make all pay 12% like most of us do I would love to know how much extra revenue this would raise not only would it pay for the ongoing NHS increased cost but pay for proper social care as well.”
I agree with the sentiment. That is to say the perverse distortion of the headline progressive income tax rates. To solve that there would be perhaps be a strong case for scrapping NI altogether. It confuses people because of the bogus hypothecation narrative that is inherent in it.
The employers contribution would need to be somehow incorporated into business taxation I suppose. It ought to produce a system which is more transparent and take out a whole whole taxation category, In theory that ought to very popular with tax haters and in theory it should make life simpler.
There will be a downside to that prescription, I suppose, but I don’t know what it is.
Any thoughts or observations ? It’s so screamingly obviously the sensible thing to do I must be missing something.
Post Script.
I am ignoring the tax and spend fallacy which Richard addresses as:
“A) The cost does not have to be funded”
….and addressing the issue in the orthodox terminology, which is how it would need to be discussed if ‘Joe public’ or politicians were to understand what we were talking about. People simply do not accept/believe that things don’t have to be funded.
Sundials tell the time whether you believe the Sun goes round the Earth or vice versa. If it’s the best timepiece you have the mechanics don’t matter.
Thank you, Richard and all for a very useful stream. I don’t know if it adds much but my unpublished response toe the Guardian was:
(Household tax bills must rise by £2,000 to fix crisis in NHS, 24 May). No, no, no. We just hasten to complete the privatising of it before Labour gets in, and then only the households who need treatment will pay for it. That’s fair isn’t it? The 1%, who already invest in the business, simply withdraw from their tax haven funds on the rare occasion they might have to.
John Airs
Quite possibly the Guardian took your suggestion at face value.
Don’t think so. The Guardian does manage to get irony, if it doesn’t manage to get much else right.
John Airs says:
” The Guardian …….. doesn’t manage to get much else right.”
Oh! I don’t know……. I get the impression they are picking up literate Daily Mail readers…..
or at least fishing for them 🙂
The supposedly “independent” IFS is substantially funded by the ESRC which is predominantly funded by the UK Government which is controlled by the Tories. We have a saying in Scotland; he who pays the piper, calls the tunes.
Colin Dawson says:
“The supposedly “independent” IFS …”
“Independent” is a word which is becoming increasingly meaningless in political discourse.
It seems to cover anything which is not directly the ‘business’ of the parliamentary chambers, and perhaps more specifically, the government of the day. (Nowadays invariably referred to as No.10.)