If Healey was serious about creating 'breathing space' he would have used the Budget to target one of our most expensive public services: the NHS
To encourage productivity within the NHS, we must remove the effective marginal income-tax rate and reform the £60,000 pension annual allowance
John Healey’s debut Budget was a coward’s charter. Despite there being a record 98 measures in the Chancellor’s announcement, all the major decisions have been kicked into the long grass.
Despite having resigned as Defence Secretary over funding concerns under Keir Starmer, Healey delayed detailing how the Government would fund raising defence spending to 3.5% of GDP until next year’s spending review. Tough decisions about welfare spending were also postponed into upcoming White Papers, reviews and legislation tabled for 2027.
Since 2022, over 1.7 million healthcare appointments have had to be rescheduled because of industrial action. And now, senior doctors will be staging a 48-hour walkout next month
Ultimately, nothing has changed. We are still in catastrophic amounts of debt, growth remains sluggish and inflation is on the rise. In this environment, we need urgency, not delay.
This week, we at the Prosperity Institute published exactly the sort of creative policy that the Chancellor should be considering to lower costs and improve public services.
If Healey was serious about creating ‘breathing space’ for ordinary Britons, he would have used the Budget to target one of our most expensive public services: the NHS. We spend almost £260 billion a year on our healthcare service – around 11.5% of GDP. Yet it lags behind many of our international competitors. Among advanced economies, only the US performs worse than us when it comes to preventing treatable mortality. Just to top it off, our doctors are perennially on strike. Since 2022, over 1.7 million healthcare appointments have had to be rescheduled because of industrial action. And now, senior doctors will be staging a 48-hour walkout next month.
It doesn’t have to be this way.
Dr Nick White, a healthcare leader with 25 years of experience in the NHS and independent sector, has written a plan for unleashing capacity in the healthcare system.
As it stands, there are several barriers disincentivising productive workers from undertaking additional work in Britain. This is the case across the economy but, given the importance of the NHS’ functionality to all of our lives, is a particular problem within the healthcare system.
The three major issues are as follows. The tapering of the income tax personal allowance above £100,000 has created a 62% marginal-rate band (60% income tax plus 2% employee NIC). There is also the pension annual allowance, which allows only £60,000 tax-free total pension input, tapered down to £10,000 for those with threshold income above £200,000 and adjusted income above £260,000. Then we have IR35 restrictions, which restrict medical staff from taking on extra off payroll shifts through private companies by taxing them and the hospital as if they were on payroll.
These policies have meant that there are fewer doctors at work in the NHS than there need to be. There is no financial incentive for them to take on overtime and many simply choose to work part-time. The proof is in the pudding: the current pension annual allowance regulations alone lead to 77% of consultants taking on less overtime.
The consequences of this are significant, contributing to longer waiting times and lists as there is less capacity to be shared among patients. Those staff who are working operate under worse conditions, and health outcomes worsen because of problems not being treated.
For the sake of our nation’s health, this cannot carry on. To encourage productivity within the NHS, we must remove the effective marginal income-tax rate due to tapered withdrawal of the standard personal allowance between £100,000 and £125,140, reform the £60,000 pension annual allowance through either total abolition or abolishing the taper and indexing the threshold to inflation and either simply, reduce or abolish IR35 rules. The latter point, it should be mentioned, has been endorsed by both the Conservative Party and Reform.
These are small and politically achievable policies that would boost productivity in the NHS, giving taxpayers value for money, and reduce waiting lists, saving lives. Healey has quite the challenge ahead of him if he wants to get Britain on to a stable fiscal footing. Clever measures like those detailed in our paper are golden opportunities to improve our fortunes without causing too much of a stir. All we need now is a Chancellor brave enough to take them.
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