With Labour's Budgets showing evidence of old-style redistribution, perhaps the NHS could set a trend by looking at its own income inequalities, says John Appleby

While the prime minister's new taskforce teams grapple with ways to spend the NHS's big Budget bonanza to tackle - among other things - health inequalities, there are other changes going on that will have an impact on people's health, and health inequalities in particular.

The Institute for Fiscal Studies has been tracking the impact of Labour's Budgets on the population's income distribution, and the conclusion is that a fair amount of old style Labour redistribution has been going on.

Income inequalities and poverty have been shown many times and in many places to be related to inequalities in health: the poorest in society tend to suffer the worst ill health, to die younger and to be in more need of healthcare than the richest. So while pumping money into the NHS is one way to ameliorate some of the large variations in health inequalities (if it is spent on the right things), going 'upstream' to readjust income disparities will also help.

Since Labour's first Budget in 1997, and including the Budget this March, the various tax and benefit changes that have been introduced have increased the weekly income of the poorest 10 per cent of the population by around 9 per cent (about£9 per week). The richest 10 per cent have seen their weekly incomes reduced slightly by around 0.5 per cent - all other things being equal. Splitting up the population into various family types - single unemployed, single earner couples with children, and so on - reveals that it is the low/no-earners with children that have tended to benefit from the last four Budgets.

In health terms these changes are important. Not only are the poorest in society getting a bigger slice of the income cake, but the two biggest users of the NHS - children and elderly people - are increasingly the ones to benefit.

But with the average income of those in the bottom 10 per cent four times less than the average of those in the top 10 per cent, are these changes significant? A 9 per cent increase on a very low income still amounts to a very low income.

The problem is that while everyone can agree that health inequalities are bad and that income inequalities can lead to health inequalities, there is clearly a tension between economic and health goals. Differentials in incomes are perhaps at best seen as inevitable and at worst desirable.

In general, financial incentives are just that, incentives.

Even doctors can be motivated to change their working behaviour in the face of such incentives.

The problem is to identify a minimal inequality that balances competing incentive (and other economic) goals with the desirability of closing the gap between rich and poor to impact on associated health inequalities. But what should this differential be? Some firms and many charities employ the rough rule of thumb that the highest paid in the organisation should not receive more than three times the lowest. Across the economy this is clearly not the case - the highest paid (rather than the average of the top decile) receives hundreds of times more than the lowest in society.

Perhaps the NHS could set a trend by looking at its own income distribution and doing a bit of redistribution to get closer to the three-times rule for the sake of health inequalities. The questions are, who wants to run a major teaching hospital on a salary of around£30,000 a year, or carry out a heart and lung transplant for a similar salary? As ever, the economic issue is that there is no such thing as a free lunch. l