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1% Increase in Income Tax Could Solve NHS Budget Issues

Posted: 20th July 2018 by Finance Monthly
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A simple increase of 1% on income tax and National Insurance could pay for the 3.4% increase to the NHS budget announced by the Government says leading accounting, tax and advisory practice Blick Rothenberg.

Robert Pullen a Director at the firm said: “The debate has been raging over the weekend about how the increase to the budget could be paid for. There was alarm recently when a report from the Institute for Fiscal Studies and Health Foundation said that the NHS would need an extra 4% a year - or £2,000 per UK household - for the next 15 years and that the only realistic way this could be paid for is by tax rises of 3% on VAT, income tax and National Insurance contributions.”

Pullen said: “If a 3% tax increase is implemented, this would undoubtedly cause further issues within the Government, but a more manageable increase of just 1% to income tax rates could give the additional funding required."

He added: “We have calculated the impact of a 3% increase for an employed worker who is not at retirement age. It would mean extra tax of £892 for someone on £25,000 (3.5% effective tax rate) up to £11,747 for someone on £200,000 (5.9% effective tax rate).”

It is potentially worse as the tax brackets increase, Robert said: “For the £25k earner, that equates to £17 per week or £74 per month and for the £200k earner £226 and £979 respectively.”

He continued: “The NHS budget in 2016/17 was around £122bn, and so a 3.4% funding increase, as proposed, would broadly be equivalent to an extra £4.2bn per year.”

He added: “We calculated, using HMRC statistics, that if income tax rates were increased by 1% then in the tax year 2016/17 an extra £4.2bn would have been generated."

“This means that a 1% increase for an employed worker who is not at retirement age would mean extra tax of £297.00 for someone on £25,000 (1.19% effective tax rate) up to £3,196.00 for someone on £200,000 (1.96% effective tax rate).”

He added: “This would go some way to filling the hole in the finances without relying on the ‘Brexit dividend’ crystallising but if the dividend does come to fruition the one percent could be even less."

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