Chancellor Rachel Reeves is facing renewed pressure to impose VAT on private healthcare, with former Labour leader Lord Neil Kinnock calling for the move as a means of raising billions in extra funding for the NHS.
With Labour’s autumn Budget on the horizon and mounting fiscal pressures following recent U-turns on welfare reform and winter fuel payments, Kinnock has urged the government to remove the VAT exemption currently enjoyed by private healthcare providers.
“Introducing VAT on private health provision could provide vital funding for the NHS and social care,” Kinnock said. “Ending the VAT exemption to generate much-needed revenue is a reasonable and widely-supported step.”
Analysis by the Good Growth Foundation, a think tank with close ties to Labour, suggests that charging the standard 20% VAT on private acute healthcare—excluding services provided to the NHS—could raise over £2 billion annually.
Polling conducted by the foundation in June found that 55% of UK adults supported a windfall tax on private healthcare firms, with strong backing for more progressive taxation to fund NHS services.
“We have sleepwalked into a two-tier healthcare system,” said Praful Nargund, director of the Good Growth Foundation and a former Labour parliamentary candidate. “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 and in need of major reform.”
The proposal follows Labour’s swift move earlier this year to end VAT exemption on private school fees, a manifesto pledge projected to raise around £1.6 billion.
Labour has promised not to increase income tax, National Insurance or VAT for “working people”, but applying VAT to previously exempt sectors—such as private healthcare—could be framed as closing a loophole rather than breaking a pledge.
That political nuance may appeal to Reeves, who needs to plug an estimated £30 billion fiscal shortfall while maintaining public service spending and avoiding widespread backlash from middle-income voters.
Lord Kinnock argued that taxing private care would address rising inequality in access to treatment, as many patients now resort to paying privately due to long NHS wait times.
“After 14 years of underinvestment, many people are turning to private healthcare not out of choice, but because they cannot afford to wait,” he said. “This has increasingly led to unequal access to care.”
Kinnock’s VAT proposal comes shortly after he also called for a wealth tax on individuals with assets over £10 million. His plan for a 2% annual levy on the ultra-wealthy could raise up to £11 billion a year, he claimed, and would enjoy the support of a “great majority of the general public”.
While no such measures were included in Labour’s election manifesto, pressure is growing from within the party’s own ranks and affiliated think tanks to adopt bolder tax policy as a route to rebuild public services.
The Conservative Party has condemned both the wealth tax and the proposed VAT on private healthcare, warning that such policies risk driving investment out of Britain.
“Taxing those who create jobs and invest in the UK is the worst thing to do when growth is needed most,” a senior Tory source said. “It sends the wrong signal and risks pushing capital abroad.”
However, with NHS waiting lists still above 7.5 million and pressure on health and social care mounting, Labour is likely to face growing calls to take bold, revenue-generating steps in its first Budget this autumn.