Lord Kinnock Urges Rachel Reeves to Launch VAT Raid on Private Healthcare

In this iPMI Global article, we explore a proposal by former Labour leader Neil Kinnock to levy VAT on private healthcare services in the UK. This measure aims to generate significant revenue for the National Health Service (NHS), which faces funding challenges. A similar tax was recently imposed on private school fees and that analysis suggests this new healthcare tax could raise over £2 billion. Polling indicates public support for increased taxation on private healthcare firms to benefit the NHS, framing this as a step towards addressing unequal access to care within a perceived two-tier system.

Table: Economic Impact Model (Baseline Estimate)

1. Proposal to Charge VAT on Private Healthcare:

• Core Idea: Rachel Reeves, the current Chancellor, is being urged to charge VAT on private healthcare. This proposal comes from Lord Neil Kinnock, former Labour leader.
• Mechanism: Specifically, Lord Kinnock calls for the removal of the current VAT exemption on private healthcare.
• Targeted Application: Analysis by the Good Growth Foundation suggests applying a 20% VAT to "private acute healthcare," explicitly excluding the use of private hospitals by the NHS.

2. Revenue Generation for the NHS:

• Projected Revenue: The Good Growth Foundation estimates that charging 20% VAT on private acute healthcare could raise "more than £2billion."
• Addressing Financial Gaps: This revenue is seen as crucial to "generate much–needed revenue" for the NHS, especially in light of the government's "multibillion–pound black hole" in national finances due to recent U-turns on welfare reform and winter fuel payments.

3. Public and Political Support:

• Public Opinion: Polling conducted by the Good Growth Foundation (a Labour-linked think tank) indicates "widely supported" public backing for greater taxation on private healthcare to fund the NHS. A survey of over 2,000 adults in June showed "more than half (55 per cent) supported a windfall tax on private healthcare firms."
• Labour's Stance and Potential Loophole: While Labour has a manifesto commitment not to raise "National Insurance, the basic, higher, or additional rates of Income Tax, or VAT" for "working people," removing a VAT exemption on private healthcare could be seen as a "loophole to get around their manifesto pledges." This is consistent with Labour's swift action after winning power in July 2024 to charge 20% VAT on private school fees.

4. Rationale and Justification for the Proposal:

• Addressing Underinvestment: Lord Kinnock states, "After 14 years of underinvestment, many people are turning to private healthcare not out of choice, but because they cannot afford to wait."
• Tackling Unequal Access: He further argues that this situation "has increasingly led to unequal access to care," and ending the VAT exemption is a "reasonable and widely–supported step."
• State of the NHS: Praful Nargund, director of the Good Growth Foundation, describes the NHS as "in a dire state: from 8am GP scrambles to months-long waiting lists. It's simply not good enough."
• "Two-Tier Healthcare System": Nargund emphasizes that the UK has "sleepwalked into a two tier-healthcare system," where "People are being forced to go private for care they should get for free." He advocates for this tax as a "bold, fair first step to fund an NHS the British public deserve."

5. Related Tax Proposals (Wealth Tax):

• Lord Kinnock's Broader View: Lord Kinnock previously urged Rachel Reeves to introduce a "wealth tax."
• Wealth Tax Details: This separate proposal involved a "two per cent levy on assets worth more than £10million" which he claimed would raise "up to £11billion a year" and be popular.
• Tory Opposition: The Conservative party "condemned such a tax as 'the worst thing to do' as they warned of a fresh exodus of wealth-creators from Britain." This highlights potential political opposition to broad tax increases.

Conclusion:

iPMI Global analyst Christopher Knight concludes, "The proposal to levy VAT on private healthcare is presented as a significant revenue-generating measure aimed at bolstering the NHS, addressing perceived underinvestment, and rectifying growing healthcare inequalities. Proponents believe it aligns with public sentiment and offers a strategic way for the Labour government to raise funds without directly violating previous tax pledges. However, it exists within a broader context of potential tax reforms, some of which (like a wealth tax) face strong opposition."

Knight continues, "While applying VAT to private healthcare services may appear equitable and fiscally beneficial, it presents multiple risks. These include added strain on NHS services, reduced access for middle-income individuals, administrative challenges, and limited net fiscal gain. Any policy change should be preceded by comprehensive impact assessments and stakeholder consultation."