A better way to avoid NHS tax distortion
Of course the whole purpose of the new NHS watchdog ‘monitor’ was to remove the competitive advantage the NHS has on not earning profits or paying dividends, and borrowing at (low) treasury rates. The Lansley aim was to gradually squeeze out the public sector, as he made very clear in several pre-election pamphlets.
Hence it is no surprise today to see Monitor propose a ‘level playing field’ of no corporate tax payments for private health providers.
Of course Monitor does not have amongst its statutory purposes that its proposals make any economic sense whatsover – hence it is free to propose such nonsense.
All sectoral ax breaks do is distort investment towards that sector, causing an asset price boom in shares in that sector, and of course an eventual bust and excess capacity harmful to the economy as a whole.
Think about it, two sectors each earning an average rate of profit, one earning tax on profits the other not, which one would you invest in?
There is a better way, all arms-length public sector bodies, such as HNS and Educational Trust should pay the standard rate of corporation tax. Of course most will be non-profit making returning all profits to investment, and so they wouldnt pay a penny, but if they did earn profits, and I have have no ideological objection to them engaging in profit making activities which don’t divert resources from their public service priorities, then tax those profits at the standard rate.
This way there will be a level playing field, an incentive for public service providers to innovate and for the private sector to invest capital; in public services, whilst there being no distortion of investment between sectors.