NHS spending 'will force tax hike'

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Analysis from the Institute for Fiscal Studies (IFS) and charity The King's Fund said it was the "inevitable" consequence of commitments made by the Labour and Conservative parties not to cut NHS spending in real terms from 2011 onwards.

Only large improvements in NHS productivity would alleviate the need for "hard decisions" about whether to cut other budgets or raise taxation over the period to 2017, the report said.

Co-author John Appleby, chief economist at The King's Fund, said the NHS was facing "the most significant financial challenge in its history".

"Both the Labour and Conservative parties have pledged to avoid cutting NHS spending in real terms from 2011 but this will come at a big price - whether in departmental cuts elsewhere or tax hikes.

"The NHS has enjoyed unprecedented increases in funding since the turn of the century but those days will soon be over."

He said it was "crucial" that the NHS does all it can in the next two years to prepare for the impending "financial freeze".

The report said real increases averaging 2.5% per year between 2011 and 2017 to NHS funding could mean other departments facing annual budget cuts averaging 2.8%, equivalent to around 16% over six years.

A mid-range scenario of no real rise in NHS funding suggested other departments would need real budget reductions totalling around 8% by 2016/17.

Extra tax income of around £10.6 billion - equivalent to £340 per family - would be needed if the NHS budget was frozen and other departmental cuts were 2% a year from 2011/12 to 2013/14, it said.