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That Laffer Curve Thing – GP Closures Driven By GP Pensions Changes

So, The Guardian tells us that GP surgeries are closing across the country. In fact, there’s been a surge of such in the past couple of years. Gee, why could that be?

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]GPs have blamed under-resourcing and recruitment difficulties as surgery closures across the UK reach an all-time high, affecting an estimated half a million patients last year. According to research by the medical website Pulse, 138 surgeries shut their doors in 2018, compared with just 18 in 2013.[/perfectpullquote]

OK, it’s large and it’s new.

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Data released by 186 out of 217 clinical commissioning groups and health boards, following freedom of information requests, revealed that smaller surgeries – those serving 5,000 or fewer patients – were the worst affected in 2018, accounting for 86% of closures.[/perfectpullquote]

Smaller surgeries are those, obviously enough, more likely to be hit by the decision of just the one or two people.

Hmm, so, what has changed these years?

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] GP pension arrangements should be overhauled in a bid to stop GPs retiring early or reducing their sessions, the partnership review has said. The pension system provides ‘perverse incentives’ for GPs to reduce clinical hours, retire early or opt-out of the NHS pension scheme, in order to avoid additional tax charges, according to a report by the review team, published today. [/perfectpullquote]

Oh. So, the tax changes to pensions accruals have meant some doctors retiring early, have they?

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] The number of GPs taking early retirement has risen sharply following a clampdown on multi-million pound pension pots, new figures show. An investigation shows 62 per cent of GPs who retired in 2016/17 did so before the age of 60 – having made up just 33 per cent of cases in 2011/12. The trend follows changes in pension rules, which mean the cap on how much savers can amass without being taxed has fallen from £1.8m in 2012 to £1 million. [/perfectpullquote]

It’s not just that change. But yes, it is pensions and tax driving this.

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Cuts to pension tax breaks for high earners are driving thousands of doctors in Britain’s National Health Service to retire early, the government has conceded. According to official data released on Tuesday, about 2,000 family doctors took early retirement between 2016 and 2018, or “more than half” of all GP retirements in that period. Over the same time, about 1,500 hospital doctors took early retirement or about a third of hospital doctors who retired over that period. [/perfectpullquote]

Interesting, no?

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Some NHS workers claim they will effectively be working for free if they take on extra shifts due to the impact on their marginal tax rate — which they argue in some cases could exceed 100 per cent. In one case, a doctor who breached their £110,000 threshold income, by just £3, after doing an additional shift, triggered a £13,000 tax pensions tax charge, even though the extra income was not pensionable. [/perfectpullquote]

That’s a bit painful:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Your recent article on pensions (BMJ 2019;364:l206) was timely, as this tax year will be the last for carry forward of Annual Allowance from periods prior to the introduction of Taper. Established Doctors therefore almost universally face a 69.5% marginal tax rate. The shortage of NHS resource is not just about early retirement. Many will eschew additional work to take home 30p in the pound, whilst leaving the scheme entails taking a substantial pay cut. Both impact motivation and morale. Current and would-be Chancellors might care to google the elusive “Laffer Curve”.[/perfectpullquote]

We do actually recruit our doctors from those who can do sums. Perhaps it wasn’t wise to dump such tax rates upon the numerate?

The obvious way to solve the problem being to change back to the pension contribution arrangements before the scramble for the door. You know, maybe?

But over and above that there’s that Laffer Curve bit to consider. At the heart of which is, well what tax rate makes people not bother to go to work? If you can torture a progressive for long enough she will finally admit that the Laffer Curve exists, there is a peak rate, one where lower tax rates produce more revenue. As a result of people again thinking that it’s worth going off to work. But the insistence will be that such a peak is so high, 80% of income and the like, that it’s an irrelevance. Or, as the Senior Lecturer argues that therefore we should be taxing at 80%.

But if doctors are fleeing the system at a 69% marginal rate then the peak isn’t 80%, is it? It’s lower. And given the noted problems with even finding a GP surgery at all it’s lower than the 69%, isn’t it?

Which actually is interesting. It’s the votaries in the national religion, the National Health Service, showing us that the progressive insistence on the Laffer Curve peak rate is wrong, is overstated. No, that is interesting, isn’t it?

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Matthew Tee
Matthew Tee
5 years ago

The final paragraph makes almost no sense.

5 years ago
Reply to  Matthew Tee

Your comment almost makes sense.

Andrew Carey
Andrew Carey
5 years ago

There’s lots wrong with the way doctors are hired and the taxes they face. Who could forget that on average they voted to restrict competition for their jobs ( And the drop in the effective rate of income tax on incomes above £50k benefits GPs as they benefit from the drop in the NI rate and can avoid the increase in the PAYE rate by offloading their income into a pension plan. Up to a point. And what’s the top thing that would make it worth a GP working those extra hours for anyway once they are approaching their mid-50s… Read more »

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