Why Theresa May has deferred the hardest NHS choice

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Theresa May is turning into the most Micawberish, “something-will-turn-up” politician of modern times.

As we’ve seen with Brexit, if a tough decision needs to be taken – on what kind of customs arrangement we should have with the EU, for example – it’s delayed until the last possible moment.

And that is also what’s happening in respect of the only really tricky part of her decision to celebrate the NHS’s 70th birthday, by promising to inject at least £20 billion a year more into it – in real, inflation adjusted terms – by 2023-2024.

The announcement of lots more dosh is the easy part.

Rather more problematic is deciding where all that money will come from.

Predictably, she has decided that won’t be decided till the budget in November.

There are two choices that have to be made:

Now one parameter is that the Chancellor, I am told, has no intention of deliberately breaching the main elements in his fiscal rules. These include a promise to cut so-called “structural” borrowing to less than 2% of GDP or national income by 2020-21 and that Government debt should be falling as a share of national income by then.

Subject to those constraints, Philip Hammond could probably allow the annual deficit to rise by £10 billion a year (although doing so would render as laughable his other fiscal aim, that of balancing the budget by 2025).

Anyway, he could probably find half of the increment for the NHS by sanctioning an increase in the annual deficit – which would certainly be the easiest political route.

But whether it is altogether prudent to fund day-to-day spending in this way, as opposed to borrowing for growth-enhancing investment – at a time when the economy looks set to be sluggish for years, and when the public finances are a long way from being strong enough to absorb the financial impact of the next recession – is altogether less cut and dried.

But let’s say May and the Chancellor need to find “just” £10 billion a year in additional taxes.

Undoubtedly the “fairest” way to finance this would be from some kind of wealth or property tax – because the greatest pressures on health resources come from our rapidly ageing population, and older people own a disproportionately large share of the nation’s assets.

But with May’s non-existent majority, she won’t want the aggro of trying to get a new wealth tax through parliament.

So the money will probably have to come through income taxes on people or businesses.

If the Chancellor is boxed in, it’s from a statement in the Tory Party’s 2017 manifesto that it is “our firm intention to reduce taxes on Britain’s businesses and working families” – and more precise pledges that by 2020 corporation tax will fall to 17% and that the tax thresholds for lower and higher rate income tax will rise to £12,500 and £50,000.

None of that would preclude a rise of 1p in the basic rate of income tax, or freezing tax allowances after 2020. Which – as chance would have it – would together raise roughly the £10 billion needed.

This is not to say that Hammond will definitely opt for that combo of increased debt and income tax increases.

But it is to illustrate that there is almost no way he can find the needed money without either breaking a manifesto promise – he could for example reverse the pledge to lower the main business tax rate – or doing something Tories are not supposed to do, like putting up the basic rate of personal tax.

Now it may be rational for May to shelve such a politically toxic problem till the autumn, but in doing so she’s merely added another to a brimming hamper of such nightmare choices, because that’s when all the unmade Brexit decisions come home to roost.

With her non-existent parliamentary majority, and a divided party, this elevation of can-kicking-down-road into the leitmotif over her administration may be as much the result of circumstance as of character.

But whatever the underlying cause, it means that the Damoclean sword hangs above her noggin at all time; and goodness only knows how and if she manages to sleep.



Source

World News

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