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The state of health

Was it a broken pledge on tax or desperately needed extra funding for an ailing NHS? Maybe it is a bit of both?

The recently announced increase in National Insurance Contributions has left everyone smarting. An employee on earnings of £25,000 a year will pay roughly an extra £4 a week in NI while an employee on £50,000 a year will pay nearly £10 a week more. An employer with a total salary bill of £1,000,000 will have to pay an extra £10,000 a year – almost the equivalent of another person on the payroll but without the additional productivity.

The political commentators even called it something of an “own goal” when it was realised that, as the nation&#39s biggest employer, the NHS would have to pay a huge amount towards itself and it has been admitted that extra money was included in the Budget calculations to allow for this.

Effectively, the top rate of income tax for an individual is now 41 per cent – in itself no big deal. But the accusation is that Labour has reverted to type and implemented a new “tax and spend” regime – this could be just a taste of what is to come.

It could even be said to be an extension of the “nanny state” idea, in that the NHS is viewed as the only method of health provision. Gordon Brown is on record as saying that he wants the NHS to be the best insurance policy in the world. On that basis, we will not ever need another.

But where does that leave the existing private sector? The trouble is that the NHS is not yet ready to fill the role envisaged by the Chancellor and we have to work out what we do in the meantime.

What happens to all the public-private initiatives that have already begun – especially some local pilot schemes of partnership? The Government has been talking for some time about involving other agencies – the private sector – in assisting it in areas related to health and sickness, for example, the payment of and adjudication on qualification for some types of incapacity-related benefits.

As we also know, private hospitals have, for some considerable time, been undertaking all kinds of operations. Some patients have even been sent abroad for their surgery.

What will be the impact of paying an extra 1 per cent in National Insurance?

The questions for employers and employees are whether this extra tax will provide the benefits that have been promised and whether other existing benefits will be affected by the need to pay this extra contribution. Also, how will the private sector co-exist with the new NHS?

This is a significant question for employers providing private healthcare cover for their employees as well as those in the industry such as private health insurers and private care providers.

Although the economy is still on track, squeezing taxpayers, employers, employees and self-employed alike, until, as one of Brown&#39s predecessors put it, “the pips squeak” will mean only one thing – less money will get spent on other things. The nub of the question is, where will these reductions hit?

The cuts have already begun in the area of pension provision. For a whole range of reasons, employers are already changing pension schemes from the long-term basis of defined benefit to defined contribution where it is easier to control and effectively reduce the costs.

I am not convinced that anyone has yet fully worked out the implications of this trend for the pensioners and taxpayers of tomorrow.

If the trend is accelerated as a result of the new additional 1 per cent National Insurance contribution, there will be an increased expectation that the state will provide in the pension area as well despite the fact that this is what the Government is trying to move away from.

We all know that stakeholder has had a very low take-up, indicating that employers are not prepared to make extra pension provision for their employees.

The overall picture is that less money will be paid by employers into employee pension schemes and the additional 1 per cent NI payment is likely to be a contributory factor to this. Does this finally mean that employer contributions to stakeholder will have to be compulsory?

Other benefit provision may well suffer, too. The employer could easily decide that medical expenses insurance and income protection are unnecessary and can be dispensed with if the Chancellor&#39s vision is realised.

If the NHS is going to be so good, then why duplicate the service with unnecessary private healthcare provision?

But does it have to be the case that just because the NHS is improved – even if out of all recognition – that private provision is relegated to the margins or disappears altogether? I think not.

I firmly believe there will still be the need for both, that the one complements the other and that there are many ways in which they will continue to assist each other. In any event, one thing that people will want is a continuing right to choose, either between private and state or within each.

There is every likelihood, of course, that employer-sponsored private health insurance will be cut back – long before any of the trumpeted improvements in the NHS have been delivered.

The resulting extra strain on the NHS could be too much for it to bear and we may be faced with further tax increases before we have even absorbed the impact of the recent 1 per cent increase.

As it is, we know that extended waiting times, not just for operations but to get appointments to see specialists, are iniquitous, even though they are not a particularly good measure of efficiency and are easily manipulated.

What are the effects of this on the nation&#39s productivity? Last year, 166 million working days were lost through sickness, an average of seven days for every working person, costing the economy around £10bn.

Perhaps some of the increased funding could be channelled into preventing some of this sickness and for the new NHS to live up to its middle name by improving general health rather than just trying to cure the nation&#39s ills. The old proverb says, prevention is better than cure. It is certainly better value for money.

Come on Gordon Brown, give it a go. There is a lot at stake but it must be worth the risk. Just to pour the money in will not do it.


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