Of course NHS hospitals pay business rates - a very sensible idea it is too

That old outrage, that NHS hospitals pay business rates but private hospitals can be charities and so gain an 80% reduction is doing the rounds again. A good explainer - and the one usually referred to - is here.

Hospitals in England receive most of their funding from NHS England and ultimately central government (mostly from general taxation). These hospitals then pay business rates to councils, which keep some of the money to spend on services and give the rest back to the government. The government then redistributes that money to other councils using the Barnett formula, which is designed to distribute based on need.

At worst it’s a bit of a money go ‘round, the NHS budget includes the business rates bill which then returns back to government. If NHS hospitals didn’t pay business rates then the NHS budget would go down by that same amount. Or, perhaps more likely given the terror any politician has of cutting the NHS budget, wouldn’t rise so quickly for some years until the effect was the same.

But if it is just that money go ‘round then why on Earth do we do it? For the same reason that we charge the contracting company lane rental on a roadway while it’s undergoing works. We have to pay the rent money to the contractor and then they pay it back. A go ‘round - except it produces an incentive for the contractor to economise on how long the lanes are closed for. Because they get to keep the daily rent for any time underruns but have to pay it for any overs. Beats a Cones Hotline as an incentive.

Spectrum is a scarce resource - we also know that the military needs some of it. So, we allocate spectrum to the military rather than selling all of it to the mobile telecoms companies and TV stations. But we charge MoD for it - and increase the MoD budget to account for that. A go ‘round again. On the basis that seeing that cash flow across the budgets is going to concentrate military minds on whether they need quite that much spectrum. Spectrum which, if they didn’t really, really, need it we could sell to the telecoms companies and TV stations. A weaker incentive than the roadworks people, obviously, but then it’s been a long, long, time since a Colonel was personally responsible for the finances of a regiment.

Which is also why we charge business rates to NHS hospitals. Land and buildings are a scarce economic resource. We’re obviously going to allocate some of those to the NHS - well, until that blessed day that we abolish it and decide to have a decent health care system instead. But we want those who have them allocated to to also think about whether they need quite as much as they’ve got. Thus the business rates go ‘round. All the money to pay it comes from government. All the money paid out goes to some level of government. But that it flows across the budgets of the varied levels of NHS management means that minds are concentrated upon whether quite that much of the scarce economic resource is actually required.

It is, in fact, sensible that NHS hospitals pay business rates.