Lib Dem health policy gets a welcome outing, but comes with a pair of major risks

When I updated my poster about what the Liberal Democrats stand for, I highlighted as one of the party’s current priorities the NHS and a willingness to raise taxes if necessary to provide the much loved service with extra funds.

Although the NHS played a significant role in the successful Witney by-election campaign, the party has been rather quiet nationally on NHS funding outside of the mental health area where Norman Lamb has been vigorously pushing for parity with physical health.

Until now, that is, with coverage in The Guardian:

People may be ready to pay an extra penny on income tax to fund the NHS and social care, Tim Farron, the leader of the Liberal Democrats, has said.

Farron said voters had reached the stage of not believing the NHS’s problems could be solved through efficiency savings and might be willing to pay more if they were convinced it would go to the health service.

He said he did not want to pre-empt the conclusions of an independent panel formed by the Lib Dems, which will look at possible taxes to help the NHS.

But asked if he believed people would be happy to pay an extra penny on income tax to improve health services, Farron said: “Yes, potentially, if people see this as the way of solving a problem that is increasingly apparent to people.”

Putting a penny on income tax for education played a major part in the party’s early 1990s revival and it is a policy that is still fondly looked back on by those members who were active in the party back then. Hence the almost instinctive turn to a penny on income tax for health, although Norman Lamb has also talked about using national insurance.

There are two particular political risks with this approach. The most obvious is that theoretical tax rises a long way out from polling day usually appeal more to voters than actual tax rises on the day of voting. But as the penny for education showed, there are exceptions to this, if people really believe the extra money is needed and will be put to good use. (That’s one of the reasons why promises to build housing tend to have little political mileage – in amongst the other issues with it as a campaigning topic there is the belief amongst many that new housing will only help the rich and immigrants, greatly reducing the policy’s attractiveness in their eyes.)

The other political risk is that if the first risk is overcome, there’s an economic trap for liberal in that very success. That is because if the policy does work politically, it will make either income tax or national insurance the one significant tax which is politically safe to raise regularly. That will tilt the overall tax system even more towards direct rather than indirect taxes – and as David Howarth has pointed out, the economic evidence is that if we want both a tax base large enough to fund good public services and also an efficient economy, we need to move more towards indirect rather than direct taxation. It’s an important and neglected argument.