A proposal to apply VAT to private healthcare services has sparked debate over how best to fund and reform the NHS, with potential implications for employers offering private medical insurance (PMI) as a benefit.
Former Labour leader Lord Neil Kinnock has urged chancellor Rachel Reeves to introduce VAT on private healthcare.
He said that removing the current tax exemption could raise significant revenue to invest in the NHS. His policy call comes ahead of the Autumn Budget, with widespread talk that it will include tax hikes.
“Introducing VAT on private health provision could provide vital funding for the NHS and social care,” Lord Kinnock, told the i newspaper.
“After 14 years of underinvestment, many people are turning to private healthcare not out of choice, but because they cannot afford to wait. This has increasingly led to unequal access to care.
“Ending the VAT exemption to generate much-needed revenue is a reasonable and widely supported step.”
A poll from the Good Growth Foundation found strong public support for some form of targeted taxation on private healthcare. It found that 55 percent of adults support a windfall tax on private healthcare companies, with 25 percent strongly in favour.
More than two fifths (43 percent) support a general tax on private healthcare and 37 percent back means-tested NHS charges.
Nearly six in ten of those polled said the NHS needs reform and more funding to modernise and improve efficiency, while 80 percent agree the NHS must change to remain sustainable.
Almost three quarters (71 percent) expressed concern about the potential introduction of NHS charges and 55 percent were clear that they want to keep a tax-funded NHS that is free at the point of use.
For HR professionals, the debate raises questions about the future cost of providing employer-paid PMI.
Ian Talbot, CEO at Healix Health, commented that while Lord Kinnock’s proposal may be well intentioned, it risks making healthcare harder to access at a time when providers should be focused on improving it, not restricting it.
“Employer-backed private healthcare is a hugely valued benefit. Driving up costs will likely mean fewer businesses offer it, fewer employees can access it, and more pressure ends up back on an already overstretched NHS,” Talbot said.
“For businesses, it’s déjà vu. We saw the same with the national insurance hike earlier this year leading to higher costs for employers, and employees feeling the squeeze. As businesses weigh up their options, healthcare trusts give employers more control over the benefits they offer, avoid the 12 percent Insurance Premium Tax on PMI, and let forward-thinking companies support their people in a way that genuinely works for them.”
An ABI spokesperson commented: “The insurance sector and independent health services have a vital role to play in supporting a healthy and productive workforce as well as helping to reduce pressure on the NHS.
“Many people have access to preventative services through their workplace that help them stay well and in work, or treatments that can help them return to work sooner after illness. At a time when the government is looking to promote the role of health prevention and reduce economic inactivity, we would be concerned about the introduction of any measures that might create a barrier to health support.”
The Independent Health Providers Network said: “With record demand for both NHS and privately funded treatment, along with increasing numbers of employers providing medical insurance to keep their staff healthy, we would strongly warn against any changes to the tax system which may disincentivise people from accessing the healthcare that they need to live full and productive lives.”
On Wednesday (6 August), the Times reported that a government source, commenting on the policy call to introduce VAT on private healthcare, said: “This would be totally counterproductive. It is not something that is being considered at all.”
