This week: Paul Johnson, director of the Institute of Fiscal Studies
Why he matters: The IFS was formed in 1969 to “promote the development of effective fiscal policy”. It is, according to former BBC economics editor, now ITV political editor, Robert Peston “the ultimate authority…when the IFS has pronounced, there’s no other argument. It is the word of God.” Paul Johnson has been its director since 2011.
Paul Johnson smiles ruefully when asked how best to fund the NHS in the long term.
He remarks that healthcare is “kind of odd” in that the introduction of new technologies does not produce a lower cost base as is the case with most sectors, but instead bakes in the need for increased expenditure as people live longer.
“The future is unknown,” he acknowledges, “but I think we have to plan on the assumption that we’ll be spending quite a lot more on health in 10, 20, 30 years than we are now.”
Mr Johnson agrees with an earlier Bedpan interviewee, Resolution Foundation director Torsten Bell, that government needs to draw more tax from wealth (as opposed to income or expenditure).
However, he cautions that you would need to be very careful to avoid the counter-productive impact of decisions like the recent significant rises on pension tax contributions. This he says has left those with big pots “completely untouched” – due to a belief that “it’s impossible to touch wealth that’s already been accumulated” – while “exacerbating the intergenerational issues” afflicting the country.
He says the proceeds from increased wealth taxes would be “modest” and that it would unwise to “pretend you can fund the future of the NHS” from them.
Mr Johnson also rejects the idea of a hypothecated tax to fund the NHS. And he has little time for the idea that you could make any major contribution to meeting the increased costs of healthcare through increased private contributions, noting “we’ve been asking that question for the last 70 years, and the answer has always been ‘no’”.
Finally, he again agrees with Mr Bell that the option of cutting public expenditure elsewhere to fund the NHS is now “just not the world we’re in”.
This leaves increased taxation on corporate and personal income and expenditure.
“As a fraction of national income our [personal and corporate] tax take is still on the low [side compared to most] European countries,” he explains. “We can certainly run a perfectly respectable economy with a tax take at 4 or 5 per cent of national income higher than it is at the moment. That equates to £100bn [per annum], which would get you quite a long way.”
He also notes that many other countries operate a broader VAT system and that the UK could “easily live with slightly higher national insurance contributions”.
If you wanted to raise, say, an extra £50bn in the current system, you’d have to do it on a fairly broad-based basis. You couldn’t just soak the rich and if you try, you’ll probably damage the economy
He acknowledges that such a policy shift would “not be easy to do for all sorts of reasons” but notes that “18 months ago the Labour Party nearly won an election with a very, very big tax rising manifesto”.
Ever even-handed in his critique, however, he describes that 2017 manifesto as “significantly misleading” in claiming that its promises could be met by just “taxing rich people and the companies”.
For one thing, he says, the UK already gets “loads of money from the rich [compared to other countries] partly because we’ve got some very rich people”.
Expanding on the theme, he says: “If you wanted to raise, say, an extra £50bn in the current system, you’d have to do it on a fairly broad-based basis. You couldn’t just soak the rich and if you try, you’ll probably damage the economy.”
A significant shift in the UK’s tax base would have to be “gradually introduced” and “carefully evaluated”, he says. For example, he explains, one of the reasons unemployment rates in the UK are relatively good when compared to European countries is that taxes related to employment are correspondingly lower.
Admitting it is unlikely that “any politician would ever get elected” proposing the kind of taxation changes he suggests, Mr Johnson says part of the problem is public discourse around the NHS.
For a start he believes the “hero worship” afforded to the NHS is “dangerous”.
He also notes that much of the higher spending on healthcare in other European countries is a product of social insurance contributions. This he claims creates a stronger “relationship between what you put in and what you get out”, increasing the “public acceptability” of any rise.
With the NHS, he states there’s “literally no relationship between what you put in or what you get out”.
But what drives Mr Johnson “nuts” is politicians comparing the NHS to the US healthcare system.
“Politicians very rarely talk about [the NHS] without saying something like, the NHS is wonderful - look at how they do it in the United States.
He says that when a politician contrasts the NHS with US healthcare then “you’re almost certainly going to hear a pile of nonsense, because it’s just an inappropriate comparison
“Whereas of course the truth is the United States is the outlier among developed western countries and the NHS is really like most other developed western countries’ healthcare systems. A sensible comparison would be, ‘look at the NHS, this is how it compares with France or Germany or the Netherlands or Australia.’”
He says that when a politician contrasts the NHS with US healthcare then “you’re almost certainly going to hear a pile of nonsense, because it’s just an inappropriate comparison. It works in a rhetorical sense, but it’s just not a sensible way of thinking about how effective the NHS is.”
He also believes the NHS is misunderstood by the public.
“They still think of the NHS as an organisation. It’s more like a sector of the economy. You can almost think of the NHS like you think of the manufacturing sector, it’s just so big and so complex.
“But we’ve grown up with the idea that [the NHS] is something that somebody, whether it be Simon Stevens or Matt Hancock or whoever, runs [and that] it’s a single monolithic organisation. That myth has an impact on the way we think about it.”
Mr Johnson says that, understandably, politicians and NHS leaders are forced by the service’s “infinitely complex” system to “boil things down to something [the public] can get their head around. As such the debate around the NHS has been particularly affected by the public’s loss of faith in politicians and experts.”
He says: “If you don’t have a degree of narrative and trust… then it’s just not going to work as part of a democratic discussion. It just becomes narrowed down to these very simple [messages] ‘don’t privatise it’, ‘don’t turn it into something like the US’, ‘spend this much more’ etcetera.”
This size and complexity is just as much a challenge for oversight of the NHS by government departments, including the Department of Health and Social Care and the Treasury, says the IFS director.
He is a former Treasury mandarin and he suggests his old department has “nowhere near the same level of oversight per pound spent in health as it has in most other departments”. He adds that “the Department of Health itself is not very big at all given the scale of what it is overseeing”.
“It is a huge institutional challenge, how you manage such vast quantities of money. Certainly, if you’re sitting in the Treasury there’s a very limited amount you can do… other than just putting a limit on the amount that goes [to the NHS].”
Next week: Anti-PFI warrior Stella Creasy MP
Coming up: Medicinal cannabis campaigner and CCG sceptic Sir Mike Penning MP
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