Tuesday, 12 July 2016

Health Charges and Central Funding

Health and the Village: A Fable

Very many years ago, there was once a small village, and it had a village school and a village hospital. The villagers paid money from their income to the Village Council into a special pot, and it looked after roads, gardens, the school and the hospital.

The villages paid in total around £100 a week, and of that money, about 30% of it, which was £30 a week went to support the hospital, the maintenance of the building, the doctors and nurses, the special drugs, and the administrators. This may seem little, but this was a long time ago!

But the hospital needed to be extended, and times were hard, so a special health charge was made for an extra £1 a week. This way the hospital got £31 a week from the Village Council. And the extra £1 was put into a special fund for the hospital and the villagers’ health.

But as time went on, and times were hard, the health charge went up. And then the Village Council raised it to £5 a week, but in fact they only needed £4 a week.  But the Councillor who was the Village Accountant said: no, keep it, because we can do something clever here.

He had thought of some clever accounting. And it worked like this. All the £5 went to the special fund, and to healthcare. But that was more than was needed. So they left it alone, but reduced the general amount from income tax to 29% or £29 a week.

Health got £34 a week, and the £5 still all went to health, but they could cut back on the share it got from the general pot by £1. And as time went on, the health charge rose, and it all went to health, but as a result they needed less and less from the general pot.

So it looked as if all the money from the charge went to health on paper, but in reality, because of the twists and turns of the money, it didn't really!

Our Situation

Now to return to the real world, I asked the question on Facebook:

“Apparently, according to Alan Maclean, the Health Charge is not a tax because "it is capped". Does that mean that high net worth individuals pay an "income charge" rather than income tax because that is "capped" for their income?”

The States Treasurer, Richard Bell replied:

“The Council of Ministers has asked that the legislation that comes forward with the detail of this charge restricts the use of these funds for delivery of health services. At this point Ministers are asking for agreement from the Assembly to the principle of levying this charge - which would be similar to the Long Term Care charge. If the proposal is accepted by the Assembly, the detail will come forward for the budget, in common with revenue raising measures “

Now that is well and good, and I accept that as a source of funds restricted for a purpose, it can be deemed a tax rather than a charge, at least according to some economists.

But that does not stop the “share of the pie” for Health from general funds being gradually reduced over time because more income is coming from the health charge. This is the example I gave in my little fable.

Lest anyone think the States are not capable of this, let them examine the creative accounting over Plemont, which was masterminded by Senator Philip Ozouf.

Money was transferred from the Criminal Justice Confiscation Fund to the budget for the States Police HQ. Like the health charge, this money was restricted in its use. It had to be used for policing or crime reduction. Like the health charge, it could not just be spent as the States liked.

But by transferring the money to the Police budget, the budget for the new Police HQ had more money than it needed. So some of the money from the general taxation “pie” was returned to the Chief Minister’s Department because it was no longer needed.

This money had no restrictions on it, and could be used to fund the purchase of Plemont by the National Trust. This was creative accounting indeed! A paper trail that kept the letter of the law, but allowed it to be bypassed.

So although the revenue stream from the charge is restricted to the use of delivery of health services, there is nothing in past practice to prevent the States using this as a revenue stream in excess of what is needed. This would enable them to reduce funds from general income tax being redirected to health. It may not be what is intended, but it will always be a temptation. And as recent history shows, some politicians are apt to grasp such temptations.

What is needed therefore, is a cast iron assurance that not only will the health charge be restricted in the use of these funds for delivery of health services, but also - and importantly - that the proportion of revenue from general taxation to health will never diminish – because of an alternative revenue stream. That is an extra safeguard. It is not fool-proof but it is a means of preventing creative accounting to be made so easily.

That is the proposal amendment that is needed for the Assembly!

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