How Much of Our Taxes Go to Healthcare

Taxes and health care funding: how does the UK compare?

The government's decision to raise taxes to better fund health and social care has understandably generated a lot of interest. For many, this is a much-needed increase that will help meet some of the care needs of people in the UK after the pandemic. For others, the NHS is a 'black hole', swallowing increasing sums of taxpayer money.

These arguments raise several important questions. In particular, do we spend enough – or too much – on health and social care? And is it reasonable to raise taxes to fund increased spending? While the answers to these questions will ultimately be decided by the public, it is important to consider how the UK compares to other countries on health care spending and tax revenue.

How much does the UK spend on health care compared to other countries?

Public spending on health care in the UK totalled £177bn in 2019 (the last year for which we have comparable international data), which equates to £2,647 per person for the year. This was slightly above the average for members of the Organisation for Economic Co-operation and Development (OECD) at £2,336 per person, but less than the EU14 average (£2,908) and significantly less than the G7 average (£3,523) and our nearest neighbours such as France (£3,308) and Germany (£4,131).

Using another common measure, public spending on health care was equivalent to 8% of GDP in the UK in 2019. This is more than the OECD (6.4%) and the EU14 (7.2%), but less than the G7 (9.4%). It is notable that the UK spent more as a share of GDP on health care than the EU14, and yet had a lower spend per person. This is explained by the UK's relatively low GDP per person, which in turn illustrates how spending is determined both by the relative priority afforded to health care and by wider economic prosperity.

Public spending, which includes government and compulsory spending schemes and excludes voluntary private payments, accounts for the bulk of health care spending in the UK (nearly 80%) and across developed countries more generally (80% in G7). We estimate that the funding recently announced could see UK public health spending rise from 8% of GDP in 2019 to around 9.4% in 2024 (although this estimate is very sensitive to things like changing GDP forecasts). However, given similar pandemic-related challenges elsewhere, other countries are also likely to increase public spending, so it remains to be seen what will happen to the UK's relative position internationally.

How much does the UK raise in tax compared to other countries?

UK tax revenues were equivalent to 33% of GDP in 2019. This is slightly below the average for both the OECD (34%) and G7 (36%), and considerably lower than many other European countries (average tax revenue among the EU14 was 39% of GDP in 2019).

According to the Institute of Fiscal Studies, current government plans (not including the recently announced National Insurance increase) could see UK tax revenue increase to 35% of GDP by 2025/26. This would still be considerably below our peers in Europe, who may also plan to increase taxes after the pandemic.

Government spending is a complicated issue that we don't attempt to address in full here. For instance, increasing tax rates is only one way of raising revenue. Other options include stimulating higher economic growth or increased borrowing. Similarly, National Insurance – which the government plan to use for the Health and Social Care Levy – is only one among several different taxes. A broader discussion could be had about the merits of taxing different groups or activities, although again this is outside of the scope of this piece.

What do we get in return for the money?

There have been suggestions that money can be freed up simply by reducing waste in the NHS. However, the available evidence suggests the UK health care system is relatively efficient. For instance, the UK has a low spend on pharmaceuticals – owing to the use of cheaper generic drugs – and the average length of stay in hospital is shorter. The UK also spends less than many countries on the governance and financing of health care. Although reducing unwarranted care (such as unnecessary outpatient appointments) remains an objective across the NHS, there is no reason to believe this is higher than in other countries.

The UK health care system delivers some good health outcomes, such as rates of survival after heart attack, but trails many developed countries on measures including avoidable mortality and cancer survival. Nearly all care is free at the point of use, however waiting times were growing even before the COVID-19 pandemic. The UK also has low capacity in terms of beds, nurses and doctors. Indeed, if anything the NHS may be too efficient: it is increasingly argued that running a lean service (eg with few spare hospital beds) might improve short-term efficiency but also reduces the health care system's resilience to shocks. Building buffer capacity is critical for reducing the vulnerability of the system going forward.

Discussion

The data presented here suggest that at the start of the COVID-19 pandemic, the UK was neither a particularly high funder of health care nor a high-tax nation when compared to other similar countries. For this funding, the UK has a relatively efficient health care system, that delivers some good outcomes but with areas for improvement.

Looking ahead, the NHS faces multiple pressures, from a backlog of unmet need to rising demand. If the UK wants to overcome these challenges and have a health system that is the 'envy of the world', funding will need to be increased. One way to do that is through higher taxes, something that international comparisons suggest the UK has scope to raise and for which polling shows broad support. Ultimately, though, the public will decide whether the extra National Insurance contributions leaving their pay packets to fund health and social care is money well spent.

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How Much of Our Taxes Go to Healthcare

Source: https://www.health.org.uk/news-and-comment/charts-and-infographics/taxes-and-health-care-funding-how-does-the-uk-compare

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