£28bn needed for NHS 'would be 10p on tax'

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Health funding needs to rise by £28bn to match the current European Union average and approach "appropriate" funding levels, according to health experts.

Analysis by the King's Fund, an independent healthcare charity, shows that such an increase would mean a rise equivalent to putting up income tax by 10p in the pound or raising VAT to 27 per cent.

But, as he prepares to deliver his spring Budget, Chancellor Gordon Brown is understood to be considering other ways to reach the EU average incrementally by 2006. Options include increasing tax on cigarettes, dipping into Budget surpluses, raising National Insurance contributions from 10 per cent to 11 per cent to provide £3bn, and increasing the upper earnings limit on NI contributions to make another £1bn.

Mr Brown will base his plans for the health service on a second report to be published before the 17 April Budget by Derek Wanless, the former NatWest chief executive. Whitehall sources said the Wanless report would make a case for "a significant increase in health spending", possibly as much as £10bn, and would stress that the increase should be "sustained over a long period of time".

But Alan Milburn, the Health Secretary, has warned NHS professionals that he will be unable to continue to argue for more NHS spending unless reforms are delivered. A health department source said: "Alan's message has been that the reason we are putting such pressure on you is that we have to demonstrate to the Treasury that we are worth the money. It will strengthen our arm if we can meet our targets."

As part of those reforms the Government this week will announce plans to allow cash to follow elderly patients when they are discharged from hospital as a solution to "bed blocking" in the NHS.

An estimated 6,000 patients a year are forced to stay in hospital beds because of a lack of home helps and intermediate care. The new scheme would allow money to be transferred from the NHS to local councils, who run social services, as soon as a consultant decides a patient can go home.

While health service reform is important, the Government now knows the public expects more money to be put into what is increasingly seen as a failing service. Senior ministers are conscious that funding changes – particularly a tax hike to pay for the NHS – must be "politically acceptable".

Prime Minister Tony Blair signalled last week that Labour needed to win a third term in office to save the NHS. His plea for time followed a string of indications that tax rises could be on the way. But a Whitehall source said: "They are going to have a hard job persuading people that is what is required."

John Appleby, director of the Health Systems Programme at the King's Fund, said there was no "appropriate" spending figure for the NHS. "The trouble is they have no objective benchmark as to what is right to spend."

Current health spending is estimated at £57.6bn – 6.6 per cent of gross domestic product. Mr Appleby said it was possible the Wanless report would call for that to rise to 10 per cent, higher than the Government's projected rises – contained in a pledge to meet the unweighted EU average by 2006 – of up to 8 per cent.

Mr Appleby said it was likely a "health tax", earmarked to pay for the NHS, would be rejected as unworkable but he said Mr Brown could easily use the National Insurance contributions system and even highlight on people's pay slips how much they were paying towards the NHS.