Lord Kinnock has urged the Government to double down on its decision to add 20 per cent VAT to independent school fees with similar charges on private healthcare

Rachel Reeves should put VAT on private healthcare in this autumn’s Budget to raise billions for the NHS, Lord Neil Kinnock has said.

The former Labour leader said that removing the VAT exemption on private healthcare would provide “vital funding” for public services and be “widely supported” by the public.

If such a tax was structured to give private hospitals a carve-out for any work they do for the NHS, it would still raise more than £2bn, analysis suggests.

Reeves is spending her summer contemplating what taxes she will have to raise in the Budget. The hikes are needed to fill a hole in the public finances caused by weaker economic growth and U-turns on welfare reform and cuts to the winter fuel payment.

Her options have been limited by a promise in Labour’s general election manifesto not to “increase taxes on working people”, which the document defined as not increasing “National Insurance, the basic, higher, or additional rate of income tax, or VAT”.

However, removing the VAT exemption which applies to most private healthcare services could provide Reeves with a loophole to get around the commitment.

Labour could frame the policy as a move to make the wealthiest in society pick up the burden of additional taxation.

And it has a precedent in its decision to put VAT on private school fees last January.

Last month, Kinnock made a major intervention into public debate by calling for the Chancellor to consider a wealth tax – an idea which numerous Labour MPs have since taken up.

Now, Kinnock has intervened again to urge Reeves to remove the VAT exemption on private healthcare.

He said: “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.”

The policy is supported by the Good Growth Foundation – a think-tank with close links to the Government and run by the former Labour parliamentary candidate – Praful Nargund.

According to analysis by the think-tank, private acute healthcare – covering short-term intensive care but excluding optician and dental appointments – was worth £12.4bn in 2024, including £2.1bn derived from NHS use of private care for extra capacity.

Applying 20 per cent VAT to private acute healthcare but excluding the use of private hospitals by the NHS could raise more than £2bn, the Good Growth Foundation believes.

Polling carried out by the think-tank also suggests that the public are sympathetic to the idea of taxing private healthcare. A survey in June of 2,054 adults in Great Britain found that 55 per cent supported a “windfall tax” on private healthcare firms, with 17 per cent opposed to the idea.

The Good Growth Foundation argues that the impact of the Covid-19 pandemic on the NHS and the resulting increase in waiting times has driven up demand for private healthcare, giving the sector a “windfall” in profits which would merit additional taxation.

However, the move could spark a backlash from the growing number of patients who are opting to use private healthcare to avoid long waits on the NHS.

Data from private healthcare analyst LaingBuisson published at the start of 2025 suggested that 4.68 million people – or one in eight Britons – now has private medical insurance – the highest proportion since 2008.

The Good Growth Foundation polling also found that 55 per cent of Britons say they support the NHS being free at the point of use and funded through taxation, with 33 per cent supporting a mixed, insurance-based model and just 7 per cent favouring a purely private system.

Nargund stood as Labour’s unsuccessful candidate against Jeremy Corbyn in Islington North at the election, and previously ran a private healthcare company providing IVF services.

He 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.”

The Treasury declined to comment on whether it would consider applying VAT on private healthcare in the Budget, saying it did not comment on speculation around tax changes outside of fiscal events.

A Government spokesperson said: “Thanks to this Government’s record investment, reforms and the hard work of NHS staff, we’ve cut the waiting list by over 260,000 since July 2024, which also fell for the first time in 17 years in April and May outside of the pandemic. On top of this, we have also delivered 4.6 million appointments – more than double the two million we promised.”