British households will need to pay an extra £2,000 a year in tax to help the NHS cope with the demands of an ageing population, according to a new report that highlights the unprecedented financial pressures on the health system.

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Two thinktanks – the Institute for Fiscal Studies and the Health Foundation – have said there can be no alternative to higher taxation if there are to be even modest improvements to care over the next 15 years, adding that demands on the health service will continue to rise.

The report said the NHS has been struggling to cope after the toughest financial constraints in its 70-year history had been imposed on the service. Costs were bound to increase due to demographic change, an increase in chronic illnesses and bigger bills for staff and drugs.

Niall Dickson, chief executive of the NHS Confederation, which commissioned the report and represents 85% of NHS bodies, said: “This report is a wake-up call. And its message is simple – if we want good, effective and safe services, we will have to find the resources to pay for them.”

The research was published as the Spectator reported that Theresa May had decided to increase the NHS’s budget by 3% a year for each of the remaining four years of this parliament. It means that, by 2022, the health service would be getting the £350m a week extra that was promised on the side of the Brexit battlebus in 2016. The magazine’s cover story, on changed Conservative attitudes to NHS funding, stated that, in making her decision, May had overridden Philip Hammond’s concerns that such large sums would be difficult to afford.

All political parties accept that NHS funding will need to be increased over the coming years, but the IFS and Health Foundation report said the resources needed far outstripped any tax pledges already made.

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It said even modest improvements to services and higher pay to recruit and retain staff would require health spending to grow by 4% a year over the next 15 years, with front-loaded increases of 5% a year for the next five years. Health spending would rise from 7.3% of GDP to 9.9% of GDP by 2033-34 – £56bn at today’s prices.

Household incomes are expected to rise by £8,500 between now and 2033-4, and under the report’s calculations, almost a quarter – £2,000 – of that would go on extra tax to pay for the NHS. A further 0.4% of GDP – around £300 per household – will be needed to pay for adult social care.

“The scale of what we face is not widely understood,” Dickson said. “Over the next 15 years in the UK, there will be four million more people over 65 and the prospect of a 40% increase in hospital admissions and further large increases in the number of people with numerous long-term conditions.



“It is now undeniable that the current system and funding levels are not sustainable. Without new ways of delivering services and sustained investment, NHS and care services will not cope, and we will face a decade of misery in which the old, the sick and the vulnerable will be let down.”

Paul Johnson, the director of IFS and an author of the report, said Britain was finally having to face up to one of the biggest choices in a generation.

“If we are to have a health and social care system which meets our needs and aspirations, we will have to pay a lot more for it over the next 15 years. This time we won’t be able to rely on cutting spending elsewhere – we will have to pay more in tax. But it is a choice: higher taxes and a health and social care system which meets our expectations and improves over time, or taxes at current levels and a more constrained health service delivering less than we have become accustomed to.”

The report said that over the past 70 years, spending on the NHS had been paid for by reduced spending on defence, housing and debt interest, but that none of those alternative sources of cash would be available in the future.

Instead, it said the money would have to be found from the three main sources of government revenue: income tax, VAT or national insurance. Putting a penny on all the main rates of income tax would raise £5bn, a penny on VAT would raise £6bn, and a penny on each of the main employee, self-employed and employer national insurance rates would raise £10bn.

Anita Charlesworth, the director of research and economics at the Health Foundation and an author of the report, said: “After eight years of austerity, the health service will need a sustained injection of funding just to get back on an even keel, let alone to modernise. The prime minister has committed to a long-term funding settlement for the NHS.”

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Spending on the NHS needed to return to the 4% a year real-terms increases seen during its first six decades, Charlesworth added. Meaningful progress on waiting times, staffing shortages and mental health would need growth of around 5% a year for the next five years. “There are four million people on waiting lists. It is not a service where the problems can be hidden from people”, she said.



The report was welcomed by an all-party group of MPs. Dr Sarah Wollaston, the Conservative chair of the health and social care select committee, Norman Lamb, the Liberal Democrats former care minister, and Liz Kendall, the former shadow care minister, said: “As a cross-party group of MPs who have come together to campaign for a new settlement for the NHS and the care system, we wholeheartedly endorse this analysis.

“We call for the government to accept the case for meeting the ambitious scenario which would deliver a modernised NHS. It sets a benchmark against which to judge any announcements from the government about extra funding for the NHS and social care as we approach the 70th anniversary of this great institution.”