Rich Britons may end up having to pay for the NHS, IMF warns
Spending pressures are mounting but the government is struggling to raise taxes, already at a postwar high, or cut entitlements
[LONDON] The UK should consider charging wealthy people to access its National Health Service (NHS) in order to help balance the public finances, the International Monetary Fund (IMF) said.
“Tough fiscal choices” will be needed over the next couple of decades as spending pressures pile up due to an ageing population, the fund warned in the final publication of its Article IV annual check on the economy.
Universal free health care at the point of use is politically sacrosanct in the UK, where the state-run NHS enjoys widespread popularity despite long waiting times. Similarly, steep increases in the state pension enjoy strong support, yet the IMF said policy around at least one of the two areas may have to change.
“Unless the authorities revisit their commitment not to increase taxes on working people, further spending prioritisation will be required,” it said. “The triple lock could be replaced with a policy of indexing the state pension to the cost of living. Access to public services could also depend more on an individual’s capacity to pay, with charges levied on higher-income users, such as co-payments for health services.”
The UK’s so-called triple lock ensures that state pensions rise by the highest of either inflation, average earnings of 2.5 per cent. It has faced criticism for the fiscal burden imposed on the public purse, yet remains popular enough to have been protected by successive Conservative and Labour administrations.
The IMF’s analysis comes shortly after the UK’s Office for Budget Responsibility made a similar warning about the unsustainable long-term trajectory of the public finances. Spending pressures are mounting but the government is struggling to raise taxes, already at a postwar high, or cut entitlements.
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The report praised the UK government for its attempt to reform welfare payments, yet these plans, originally intended to trim £5 billion (S$8.6 billion) of costs, were scrapped earlier this month after a rebellion by Labour Members of Parliament.
The health and disability benefit bill is due to rise to £100 billion by the end of the decade, and the triple lock will cost £15.5 billion a year, triple the original estimate, according to the government’s budget watchdog.
Chancellor of the Exchequer Rachel Reeves will have to address these “difficult decisions” and is already struggling with “limited fiscal space”, the IMF said. She is under immediate pressure to find fresh savings ahead of this year’s autumn budget as higher borrowing costs, the welfare rebellion and a potential growth downgrade puts her fiscal rules in jeopardy.
The task is complicated by weak growth, with the fund warning of “significant challenges” to the government’s growth and investment agenda in the face of rising global trade tensions. It threw its support behind Reeves’ budget last October, saying it was growth-enhancing and hailing ministers’ “bold reforms”. But it left its growth forecast unchanged at 1.2 per cent for this year and 1.4 per cent in 2026.
Fiscal rules
Reeves could ease some of the fiscal pressure by increasing her buffer from its historically slim level of £9.9 billion, the IMF suggested. Alternatively, it could move to a system where compliance with her rules is assessed by the Office for Budget Responsibility only once a year, while two forecasts continue to be produced annually.
The Institute for Fiscal Studies earlier this week rejected the second proposal, saying the government should instead bring forward existing plans to allow the rules to be missed by 0.5 per cent of GDP from Spring 2027. Specific fiscal targets should remain binding at the once-a-year autumn budget. That would end the current “bad equilibrium” causing policy volatility and undermining efforts to deliver faster growth.
Risks to growth are “tilted to the downside” as tight financial conditions and rising household saving rates could “hinder the rebound in private consumption and slow the recovery,” it warned. “Persistent global trade uncertainty could also weigh on UK growth.”
It added that “after weakening in the second half of 2024, growth is expected to recover modestly over the course of 2025 and gain steam in 2026”. It estimated the underlying growth rate at 1.4 per cent.
Reeves welcomed the report, which she said “confirms that the choices we have taken have ensured Britain’s economic recovery is underway, and that our plans will tackle the deep-rooted economic challenges that we inherited. Our fiscal rules allow us to confront those challenges by investing in Britain’s renewal”. BLOOMBERG
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