Rachel Reeves must slap VAT on private healthcare, warns ex-Labour leader Neil Kinnock

Rachel Reeves should slap VAT on private healthcare to raise billions for the NHS, ex-Labour leader Lord Neil Kinnock has said.

The prominent politician said Rachel Reeves should remove the VAT exemption in the same way she did with private schools in this autumn’s Budget. He said the move would raise “vital funding” for public services and be “widely supported” by the public.

It comes as Ms Reeves gave an update on calls for a wealth tax as pressure mounts to target the richest Brits.

The Chancellor is battling to plug a hole in the public finances following recent Government U-turns on cuts to disability benefits and the winter fuel allowance. Labour is constrained by how it can raise money after pledging in the election not to hike income tax, national insurance or VAT.

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But removing a VAT exemption on private healthcare could provide an opportunity for Ms Reeves to raise cash without breaking her election promise.

Lord Kinnock told the i newspaper: “Introducing VAT on private health provision could provide vital funding for the NHS and social care.

“After 14 years of underinvestment, many people are turning to private healthcare not out of choice, but because they cannot afford to wait. This has increasingly led to unequal access to care. Ending the VAT exemption to generate much-needed revenue is a reasonable and widely supported step.”

Analysis by the Good Growth Foundation (GGF) think tank, which supports the policy, found more than £2billion could be raised by applying 20% VAT to private acute healthcare. This would excluding putting VAT on the use of private hospitals.

Private acute healthcare covers short-term care and treatment for illnesses or injuries but does not include things like optician and dental appointments. The GGF said the area of care was worth £12.4bn in 2024.

Some 55% of Brits support a “windfall tax” on private healthcare firms, with 17% against it, according to a poll of 2,054 adults by the think tank in June.

Praful Nargund, GGF's founder, said: “We are sleepwalking into a two-tier healthcare system, and we have to back our NHS.

“The NHS is in a dire state: from 8am GP scrambles to months-long waits for cancer care, this is simply not good enough. People are being forced to go private for care they should get for free.

“That’s not a system in need of tweaks – it’s a system on the brink, in need of major reform. A windfall tax on private healthcare would be a bold, fair first step to fund the innovation and change we need in the NHS.”

During the election, Labour pledged to scrap the VAT exemption enjoyed by private schools to pay for 6,500 new teachers for state schools. From January this year, all private education and boarding services became subject to VAT at the standard rate of 20%.

The Department for Education says ending tax breaks on private schools will help raise around £1.8billion per year by the 2029/30 financial year.

Education Secretary Bridget Phillipson has faced fury over the policy from right-wing parties. Critics claim it will put pressure on state schools as they will have to accept kids from families who can no longer afford private schools, if their provider chooses to hike fees to pay for the VAT uplift.

In December, Ms Phillipson said she had received abuse over the policy but added: “I’ll wear that as a badge of honour if it means that we drive up standards in state schools and invest in better life chances for our children.”