Just as a book-end to this morning's post, private healthcare providers are just as corrupt.
Remember always that the MW manifesto is based on flat, and preferably low, rates of income tax and flat-rate universal distribution (which includes health or education vouchers), of course. From the FT:
"Tax breaks for private healthcare (1) and new charges or co-payments for NHS services will have to be considered by the next government despite the parties' current promises to protect NHS spending, the head of Britain's biggest private hospital group said yesterday.
Adrian Fawcett, chief executive of BMI hospitals , said the NHS would not be able to cope with the spending squeeze to come (2). Mr Fawcett said NHS productivity had fallen during the years of big spending increases ...(3)
Contributions to private medical insurance should be made tax deductible (1), he said, and co-payments should be allowed for NHS treatment. That meant, for example, that if someone was being treated on the NHS but wanted a different hip joint, or a more expensive lens replacement, or a drug that the NHS did not provide, they could pay the difference, without having to pay for the whole of their care privately, as NHS rules normally demand... (4)
1) Twat. Tax breaks for things that only wealthier people can afford pushes up the overall tax rate for everybody else; and is clearly redistribution upwards rather than being flat-rate and universal. So this goes completely counter to the MW manifesto. I suppose at least he didn't suggest means-testing it somehow, which would just churn money back in the other direction again, as well as hiking effective tax rates even further.
2) Yes it will, see this fine article on the same page of the printed FT explaining how the NHS could reduce its healthcare costs by nearly a fifth without affecting patient care one iota*. Cut out the fifth of NHS spending that is spent on quangoes and propaganda, and we're really motoring! Either way, what he is proposing is diverting taxpayers money into subsidising private insurance (and the only people I trust less than the government are insurance companies) and away from the NHS, thus contributing to that self-same squeeze.
3) Agreed, the waste is quite criminal.
4) Completely agreed, I recommended that this morning (in a different context). This is the European system and it works fine, I've always supported this. But as these vouchers would pay for the bulk of private provision, why do they need tax-breaks as well?
* The report's author, Penny Dash, looks quite hot, in a Germanic ice-princess sort of way (if that's not a contradiction in terms?).
Friday 12 February 2010
Please sir, may we have some more?
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17 comments:
She's a bit like Ute Lemper, if you like that sort. And she should get her name trademarked as it's a cracking name for a kids cartoon character.
Anyway... one thing is whether you can, by providing a tax incentive, get enough people to go private that the cost impact on the NHS is reduced by more than that tax break costs. They're overall paying more for their health costs, but also putting more in for those who can't afford it.
That said, I think that the problems with medicine go beyond private and public and into questions about how medicine is (over)regulated and the barriers to entry and the costs that creates. We don't need nurses with degrees and I'm not at all convinced by the system where the rump is GPs rather than specialists.
So what you like is a blonde that is good AT statistics, rather then a blonde who HAS good statistics?
JT, tax breaks = subsidies, and the deadweight cost of the subsidy + deadweight cost of the taxes that have to be raised to pay for the subsidy are ALWAYS > any possible cost saving. Subsidies make things more expensive, not cheaper.
L, or both :)
If the State pays an average tax break of £100 for private health insurance and as a result the private health insurance pays for treament that would cost the NHS £200, there is a saving. (To the taxpayer, not to the total economy, please note. The person with the health insurance has obviously paid more overall.)
The tax breaks are really quite similar to the vouchers you were advocating in the other post, except that they are for insurance rather than pay-as-you-go treatment.
AC: "If the State pays an average tax break of £100 for private health insurance and as a result the private health insurance pays for treatment that would cost the NHS £200, there is a saving."
That's one of the biggest IFs of all time.
It's best to start off with a position where there are no tax breaks for insurance - like car or home insurance. If we got tax breaks for insuring our cars or homes, do you think that the amount of time that the police spend investigating thefts and burglaries would go down? Obviously not.
Would the behaviour of car or homeowners or thieves or burglars change? Nope. So the insurance companies would merely bump up their premiums to soak up the tax break (I have seen this happen a thousand times).
Your mistake number 2 is to refer to "Cost to the NHS". THe NHS has no costs whatsoever, those are taxpayer costs.
Your mistake number 3 is to assume that insurance companies would cheerfully pay out £200 in exchange for a £100 tax break. They wouldn't.
Your mistake number 4 is to ignore the fact that every tax break (i.e. subsidy) of necessity means that tax rates on everything else must go up, which increases deadweight costs elsewhere (unless you want to fund this with Land Value Tax, which you don't).
Your mistake number 5 is to blithely talk about tax breaks when most people wouldn't be able to afford private insurance anyway (so wouldn't benefit from tax break - but would have to pay the slightly higher tax rate to subsidise those who could; and all the tax breaks accruing to those who could would merely go to the insurance industry as super-profits, to be spent on marketing and advertising).
It's always best to think things through before recommending "tax breaks" and the answer is always "don't".
To the taxpayer, not to the total economy, please note
Is the taxpayer not of the economy?
JH, there is a difference, and quite an important one, although usually higher costs to the taxpayer mean higher costs to the economy. But it's difficult to think of an example, especially as something that is a "cost to the economy" is also somebody else's income.
"Your mistake number 4 is to ignore the fact that every tax break (i.e. subsidy) of necessity means that tax rates on everything else must go up"
Not necessarily, government spending elsewhere could be reduced. If you recall, you agreed with me that we are currently already taxed as much as possible short of revolution/electoral suicide, therefore tax rates can't go up. If they thought they could put them up and get away with it, they would have done so already.
B, Ok, let me word it thusly:
"Your mistake number 4 is to ignore the fact that every tax break (i.e. subsidy) of necessity means that tax rates on everything can't be reduced as far as they otherwise could be reduced."
If we got tax breaks for insuring our cars or homes, do you think that the amount of time that the police spend investigating thefts and burglaries would go down? Obviously not.
No. But that's different from health. If someone takes out health insurance then there is a reduction in the cost of taxpayer funded treatment.
Would the behaviour of car or homeowners or thieves or burglars change? Nope. So the insurance companies would merely bump up their premiums to soak up the tax break (I have seen this happen a thousand times).
Normally, I would agree with you, but in this case, the insurer is also competing with the state as a "free provider". If they go too high, people will just stop using it and go back to the state.
Your mistake number 2 is to refer to "Cost to the NHS". THe NHS has no costs whatsoever, those are taxpayer costs.
I completely agree.
Your mistake number 3 is to assume that insurance companies would cheerfully pay out £200 in exchange for a £100 tax break. They wouldn't.
I'm not sure I understand, but...
Your mistake number 4 is to ignore the fact that every tax break (i.e. subsidy) of necessity means that tax rates on everything else must go up, which increases deadweight costs elsewhere (unless you want to fund this with Land Value Tax, which you don't).
But that's the thing about the tax break on health. You might spend £30 on a tax break, but reduce the state health costs by 3 times that.
Your mistake number 5 is to blithely talk about tax breaks when most people wouldn't be able to afford private insurance anyway (so wouldn't benefit from tax break - but would have to pay the slightly higher tax rate to subsidise those who could; and all the tax breaks accruing to those who could would merely go to the insurance industry as super-profits, to be spent on marketing and advertising).
This is a good point. The calculation to be done is on the amount of tax giveaways (people getting tax back who would have had private health anyway) vs the amount returned by the savings made on those people who decide to opt for private health.
I'm generally an anti-subsidy person, but if someone can make an economic case then it might be worthwhile (but I'll cast a cynical eye on it).
Of course, if we had a decentralised health system, all of this would be moot anyway.
JT: "You might spend £30 on a tax break, but reduce the state health costs by 3 times that."
Rather than discuss hypotheticals, let's look at the real life example of tax breaks for pensions.
1. Broadly speaking, the tax breaks are as much again as net contributions paid in. (and coincidentially, roughly as much as state basic pension paid out).
2. The amount paid out is about half of the total amount paid in (cash plus tax relief).
3. The rest is soaked up by the insurance companies. Compare for example ISA tax reliefs - the banks just pay out a lower gross interest rate which leaves the saver with much the same after-tax income as if he had his money in a normal account. And for a basic rate taxpayer owning shares in an ISA is a negative sum game as he gets no tax advantage whatsoever.
4. The tax relief (to the extent not nicked by insurance companies) is badly targetted as the bulk goes to those with higher incomes who would save privately anyway. This is the deadweight cost of a subsidy.
5. The tax relief -> higher tax rates on everybody else, so they have less income which they could save privately.
6. Higher rates on everybody else -> deadweight cost on economy.
If you imagine for one second that exactly the same wouldn't happen with tax breaks for private health insurance (or old age care insurance or any other form of private savings) then I'd love to know how you think that this miracle will happen.
Mark. I have recently started to follow your blog with interest. While I think I agree with your views on no subsidies (tax breaks etc etc), flat rate and low % taxation, end of means testing benifits. There are areas where I do not follow your logic. Do you advocate giving ALL benifits universally (eg what about mobility allowance?). Why aren't universal benifits just subsidies? Could you expand on how your land tax would work? Perhaps a topic for a days blogging?
In the interim, I will keep reading and enjoying.
Ken: "Do you advocate giving ALL benifits universally (eg what about mobility allowance?)."
Not everybody is severely disabled, so no, of course I wouldn't give everybody mobility allowance.
Benefits are like insurance. If no house ever burned down or no car ever got stolen, we wouldn't need home or car insurance. If everybody earned the same amount of money and had the same assets (which they clearly don't) then there'd be no need for welfare either, it's just there as a safety net.
So every kid ought to go to school (=education vouchers); nobody should starve (=citizen's income); and old people and disabled people get more; so although not everybody gets the extra, the entitlement to the insurance is universal; only it only pays out if you live long enough, or are or become disabled.
"Could you expand on how your land tax would work?"
Easy - value land or property by whatever formula; multiply by a percentage; work out what the receipts would be; and decide which taxes to replace, or indeed which benefit payments to increase (so that pensioners' overall income does not go down).
Hmm. Delightfully simple, which I like. But I can't help but feel I am missing something here...
If we "give" everyone a citizens income to feed themselves (say £100 per week), why would any (young) person living at home get a job, they can live with mother & father and have £100pw to spend on whatever. Would that not give us a worse situation with unemployed youth than we have now?
Ken, because
a) £100 is a tad on the generous side (I'd align CI with current IS rates of about £48 for 16 - 24 year olds);
b) the best career advisors are nagging parents, who would no doubt dock their children some or all of the CBI to recoup the LVT that they themselves pay, so the child would always be better off working (they don't lose CBI if they go to work - unlike current welfare which discourages people from working);
c) If more people share the same house, then that is efficient use of housing, what's wrong with that? And if parents want them to be able to afford their kids to leave home, perhaps instead of NIMBYism where they lobby the council to refuse to allow any more homes ever to be built, they would be lobbying the council to allow more homes to be built so that their kids can afford something nearby.
And so on.
OK, sounds good to me. I always used to theorise about doing something similar. "My" theoretical scheme would have been a form of Income Tax. For any adult with no income they would get x amount, then as their income increased (by for example having a job), there would be a linearly increasing rate of tax applied, eg (say) 1% on first 100, then 2% and so on. But to cap the rate at a "reasonable" figure say 20%. My theory was to attempt to do away with the disincentives (is that how you spell it?) to work and "better" yourself, which are built into the present system. The existing Tax and National Pension System is bad enough, but housing benefit, council tax benefit, etc etc just make it worse and trap people into a poverty/benefits loop. (in my humble opinion). Any way, I have pobably bored you enough with this, I will continue to enjoy reading you blog.
Ken, sliding scale taxes are too tricky to administer (everybody would have to do a tax return, for a start).
In any event, a flat tax combined with a Citizen's Income (let's say 30% and £60 a week) gives you:
a negative overall average tax rate on incomes less than £10,000 per annum;
a zero average tax rate of income of exactly £10,000;
a 15% average tax rate on an income of £20,000;
a 27% average tax rate on an income of £100,000
and so on.
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