Labour Proposes Raising UK Private Health Insurance Tax (Yes, You Read That Right)

D.J. McGuire May 8, 2017 1 Comment

Labour began the week proposing a tax increase on something most Americans think don’t even exist in Britain: private health insurance policies.

As the Telegraph notes: “Around 10 per cent of the population has private medical cover, meaning the policy would affect six million people, though the figure includes children and spouses who are covered on family policies.” Premiums for said policies are presently taxed at 12%; Jeremy Corbyn’s party wants that raised to 20%.

British insurers immediately sounded the alarm (same story):

But insurers warned that it would discourage people from taking out private medical cover, which would in turn increase the burden on the NHS.

It will hit the self-employed and those who take out individual policies disproportionately hard, according to the Association of British Insurers, because they pay the Insurance Premium Tax themselves, whereas companies pay the tax for employees who are part of a group scheme.

…

Malcolm Tarling, of the Association of British Insurers, said: “We would not favour this because it would not encourage people to take out private medical insurance – something which relieves pressure on the NHS.”

In other words, contrary to what many in the American left believe (and more than a few on the American right fear), the health insurance system in the United Kingdom does have competitors in the private sector. While the National Health Service is the largest payer by far, it is not the “single payer.”

Moreover, as noted in the quote, private insurance is considered (at least by some) as a necessary complement to the NHS, one whose absence would make an already strained system all the more so.

How this plays out in Britain remains to be seen. Labour says they’d use the money to wipe out hospital parking fees, but if their revenue figure assumes a tax increase of this size won’t reduce the use of private insurance, it’s certain to be way off.

Meanwhile, those of us who follow British politics as closely as we can from across the pond were reminded – yet again – that reality and Washington’s perception of the former mother country are quite diffferent.

  • The Jaded JD

    Surely Philip Hammond’s budget proposal to increase the National Insurance Contribution for self-employed workers in March is at least relevant to this post. It isn’t just Labour who are interested in raising health insurance collections. The only reason the government backed down from the idea is that it violated a pledge not to raise NIC in David Cameron’s 2015 manifesto. (It technically wasn’t a violation because the manifesto pledge didn’t mention the class of contributions from self-employed workers, but this was too fine a hair for the Treasury to split for the public.)
    It will be interesting to see whether that pledge is renewed in May’s manifesto for this general election when she unveils it, because its omission would be a strong suggestion that the NIC rise–and possibly a broader one–will be back on the cards in Hammond’s autumn budget (assuming Hammond remains at Number 11 after the post-election reshuffle, which is probable but not certain).