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Why Australia could hold the key to fixing the UK’s crumbling NHS

Australia Healthcare
Australia Healthcare

Crumbling NHS services have fuelled a surge in demand for private healthcare.

A record 898,000 patients turned to private hospitals in 2023, up 7pc on the year before, as NHS waiting lists grew out of control.

The rise has reignited a debate around “going private” – does it help or hinder the NHS and should its use be encouraged or not?

The majority of admissions to private hospitals are funded by insurance, which most people access through employer-backed schemes.

But anyone who is not covered through their employer will have to pay out of their own pocket – and as demand has soared, so have the premiums.

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The average health insurance premium went up from £1,203 in 2021 to £1,225 in 2022, according to healthcare data provider LaingBuisson.

The UK used to offer tax relief to over-60s taking out private health insurance until the policy was abolished by Gordon Brown in 1997.

Now, Nigel Farage’s Reform UK party has proposed its return. In its election manifesto last week, chairman Richard Tice said 20pc tax relief on all private healthcare could permanently “ease the pressure” on the NHS.

Kristian Niemietz, of the Institute of Economic Affairs, a think tank, said: “Tax relief for private health insurance is in principle the right idea, and the experience of Australia, which has had such a tax relief system for many decades, has been broadly positive. But the devil is in the details.

“If somebody opts out of aspects of NHS care, and thereby saves the taxpayer money, it is only fair for them to get a tax refund broadly equivalent to those cost savings. This could take pressure off the NHS and stimulate the growth of a competitive private healthcare sector.

“But there is also a danger of people continuing to use almost as much NHS care as before, and using private health insurance to fund additional, luxury services. In such a case, tax relief for private health insurance would mostly be an unjustifiable middle-class subsidy.”

A $6bn tax break

Like the UK, Australia relies on general taxation to fund free public healthcare. But its private sector makes up a far bigger share of the healthcare system than it does in this country.

This hybrid model is partly the result of an ideological clash between the centre-right Liberal Party, who want a smaller state and lower taxes, and the Labour party, who have fought to expand public services.

But the system seems to be working relatively well for Australia. The share of GDP attributed to healthcare in the country was 9.6pc in 2022, compared to 11.3pc in the UK.

Yet it has one of the lowest rates of avoidable mortality in the Organisation for Economic Cooperation and Development – with fewer deaths of treatable conditions per 100,000 people than the UK, France or Sweden.

More than half of Australians have private health insurance. This is partly due to strong encouragement from the government.

Individuals earning less than $151,000 (£119,000) a year (from July 2024 onwards) can claim tax rebates to reduce the cost of their health insurance.

The rebate is higher if you are older and also if you earn less. For example, an under-65 earning less than $97,000 could claim 24.6pc. However, this would go up to 32.8pc if they were aged 70 or over.

Those eligible can either claim their rebate as a reduction on their premium, meaning they pay less upfront to their insurer, or as tax relief from filing their annual tax return – something most Australians are required to do every year.

The average premium for health insurance is $160 a month, meaning rebates could save people around $500 per year.

If you earn over $97,000 and do not have insurance, then you pay a Medicare levy surcharge of between 1pc and 1.5pc, which helps fund the public health system.

But the tax rebates don’t come cheap. The cost of subsiding private health insurance has risen from $1bn in its first year in 1999 to around $6bn today.

Despite this, a review by consultants Finity, commissioned by the Australian government department of health and aged care, recently concluded that the rebates should be kept because the cost of additional claims made in the public sector would be greater than the savings made from scrapping the tax relief.

The authors wrote: “Removing the PHI [private health insurance] rebate entirely would result in a worse overall outcome for the sustainability of Australia’s health system. We estimate the short-term impact would be a 10pc reduction in the number of people covered by PHI, and a reduction in hospital claims funded by PHI of $2.3bn-$3.1bn per year”

But not everyone agrees. As the tax relief has become more expensive, more Australians have questioned whether it is the best use of taxpayers’ money.

Yuting Zhang, a professor of health economics of the University of Melbourne, said the main advantage of the rebate is it helps those who cannot afford private health insurance.

However, private coverage remains out of reach for many low-income people – and there is also little evidence that it does relieve pressure on the public system, Professor Zhang said.

“Surgeons spending more time in private hospitals means less time in the public system.”

Reducing pressure on the NHS?

In January 1989, the Conservative government published a white paper on NHS reform, which included the introduction of tax relief on private health insurance for the elderly.

Kenneth Clarke, secretary of state, argued at the time that it would “reduce the pressure on the NHS from the very age group most likely to require elective surgery, freeing resources for those who need it most”.

The new relief came into effect in April 1990 and was immediately met with criticism from the left, who argued it would mainly save money for those who already had private health insurance.

Lord Stallard, formerly a Labour MP, said: “In order to benefit from the proposals you would have to retire both healthy and wealthy.”

In the end, the policy was around for only seven years before Mr Brown scrapped it. One of his main justifications was that it had “failed to achieve its original purpose” of funnelling more people into the private sector.

Between 1990 and the year the relief was axed, the number of individuals covered by private health insurance had increased from only 500,000 to 550,000. But the cost had gone up from £40m to over £100m per year.

In addition, research carried out by the Institute for Fiscal Studies in 2001 found that the savings the Government made by scrapping the tax break outweighed the costs of more individuals returning to the NHS. The think tank estimated that 4,000 individuals gave up private health insurance due to the abolition of the tax relief.

A key argument for tax breaks on private health insurance is that they will help free up NHS capacity. But these figures cast doubt on that theory.

Health experts also warn that more people going private, rather than easing pressure on the NHS, could do the exact opposite.

Sally Gainsbury, of the Nuffield Trust, said the think tank is “deeply sceptical” that increased use of private services reduces the burden on the public sector.

There are a number of reasons why not, she said.

“Both private providers and NHS are fishing in the same pool,” she said. “That will detract the availability of staff in the NHS – and this is its biggest issue. If there’s more work in the private sector, there is likely to be a knock-on effect for the NHS and increased price pressure.”

In addition, people often remain reliant on a combination of private and NHS healthcare even after taking out insurance.

After all, private medical insurance does not cover all conditions. It does not usually cover the treatment of pre-existing conditions or chronic conditions such as Type 2 diabetes.

And if you need emergency care, you are more likely to find yourself in an accident and emergency department than a private urgent care centre.

This means it is unusual for people to remove themselves entirely from the state system — making it harder to justify paying less tax for its upkeep.

“A tax break would be taking income for public services that is needed for the NHS,” said Ms Gainsbury. “Cash currently for public spending would be used to allow a small proportion of people to jump NHS queues.”

A better use of that money, she continued, would be to spend it directly on the NHS.

“The answer is not to bring more people into the private sector – it’s getting NHS capacity up so people don’t have to go private.”