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17 June 2018

There is no “Brexit dividend” to spend on the NHS

Contrary to Theresa May's claims, EU withdrawal will reduce the revenue available to the UK. 

By George Eaton

The NHS won’t receive £350m extra a week after Brexit, but £384m (in real-terms). That is the promise  Theresa May has made today in advance of the health service’s 70th anniversary.

The move is being spun by the Prime Minister as part of the “Brexit dividend” the UK will reap outside of the EU. In the Mail on Sunday, May writes: “Now, as we leave the European Union and stop paying significant annual subscriptions to Brussels, we will have more money to spend on priorities such as the NHS.”

There’s one problem with this assertion: it isn’t true. As is well-known, the £350m figure used by the Leave campaign did not take into account the UK’s £5.6bn EU budget rebate. In 2017, Britain’s net contribution was not £350m a week but £250m. Once the £4.1bn of EU funding allocated to the UK is also included, the net contribution falls further to £173m a week.

That would still account for nearly half the NHS increase promised by May (which will reach £384m by 2023-24). But over the next five years, there will be no “Brexit dividend” of any size.

Until the conclusion of the transition period (due in December 2020), the UK will continue to make EU membership payments (totalling £16bn). From 2021-28, it will contribute £18.2bn as part of the “divorce bill”. As a non-member, Britain will pay £3bn less from 2020/2021, rising to £5.8bn in 2022/23. But the government has already agreed to maintain existing EU spending on agriculture, universities, regional development and other areas – there is no spare largesse for the NHS.

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But most importantly, Brexit is forecast by the Office for Budget Responsibility (and every other major body) to harm, rather than improve, the public finances. After the referendum, the OBR estimated a net fiscal cost of £15bn a year (or nearly £300m a week) by 2020/21. Reduced EU trade and lower immigration – which May has explicitly stated will result – will depress government revenue. As Paul Johnson, the director of the Institute for Fiscal Studies, has said: “There is no Brexit dividend. Payments to the EU will fall [after Brexit], but tax revenues will fall more as a result of Brexit.”

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The entirety of the £20bn NHS spending increase will need to be raised through government borrowing, tax increases or cuts elsewhere. At present, the policy is precisely what the Tories rejoice in accusing Labour of: an unfunded spending commitment.

And though £384m a week for the NHS sounds impressive, it amounts to an increase of 3.4 per cent a year – below the historic average of 4 per cent. It also follows the longest period of austerity in the health service’s existence – since 2010, spending has risen by just 1.3 per cent a year.

An ageing population, the rising cost of drugs and technology and the growth of chronic conditions, such as obesity and diabetes, all mean that the NHS depends on above-inflation increases. The £4.5bn cut to social care has only intensified the pressure on the service (forcing the NHS to act as a provider of last resort). Patients have borne the cost in delayed operations, cancelled appointments and bed reductions.

The £20bn announced by May will not compensate for the underfunding of the previous eight years – it will merely enable the service to stand still. And, far from helping the government to sustain the NHS, Brexit will profoundly undermine it.