Labour urge Ed Miliband to campaign for NHS health tax

Ed Miliband is facing growing pressure from all wings of the Labour party to face down his shadow chancellor, Ed Balls, by backing a rise in national insurance contributions as a way to fund the NHS for future generations.

A week before the Labour party conference opens in Manchester, the issue of how to finance the health service is seen as a key test of whether Miliband will offer bold solutions that will set his party apart from the Tories in May 2015 or opt for safety first.

Figures from the right and left of the party, including former education and home secretary Charles Clarke, have put their weight behind radical plans to increase NI and guarantee that the money raised would pay for spiralling NHS and social care costs.

Writing for theguardian.com, Patrick Diamond, a former adviser to Tony Blair and Gordon Brown, argues that Miliband has to confront the electorate with a bold agenda that recognises both the need for deficit reduction but also the urgent requirement to finance an NHS which is unsustainable unless backed by a new funding model.

"If voters are to entrust it with the keys to 10 Downing Street, Mr Miliband's party must demonstrate it is capable of facing up to long-term challenges and being brave, not just telling voters what they want to hear," Diamond says. "In a tightly fought contest, conceivably the closest election in postwar history, the temptation for Labour will be to hunker down, saying as little as possible. Miliband's strategists will remind the leader that oppositions don't win elections – governments invariably lose them."

He argues that the most "politically potent" issue next May will be the future of the NHS, which experts say will face an annual funding shortfall of at least £20bn a year by 2020 because of the demands of a rapidly growing elderly population and the increasing cost of drugs and other treatment.

"On the NHS and social care, Labour should be bold," he writes. "A solution to financing a universal, 'free at the point of use' system has to be found for a society where, as people get richer, they want greater quality from public services."

"At the next election, Labour should propose a hypothecated insurance fund to finance the NHS and social care so voters can see a direct link between the earmarked taxes they pay and investment in a prized national institution. Taxpayers could be issued with an annual statement, detailing precisely how their money has been used."

Charles Clarke, a leading figure from the Blair years, said he too favoured a rise in NI, which would be specifically set aside to fund NHS and social care. People would be prepared to pay extra for the security of knowing the NHS would survive, and would relieve anxieties about the huge potential costs of social care in old age. "I strongly support the idea of a hypothecated health tax," Clarke said.

The idea, championed by former Labour minister Frank Field, also has the backing on the left of the party. Neal Lawson, chair of the centre-left thinktank Compass, said: "A hypothecated tax for the NHS could do three things: provide essential extra funding, get round the loss of trust in politicians and provide confidence that the one national institution people still believe in has a future."

While Miliband has not ruled out a new NHS tax, Balls believes that people pay enough tax as it is and is strongly resisting such a move. He, and other opponents, also believe it will leave the party open to Tory charges that Labour is returning to a high-tax, high-spend agenda.

Field said on Saturday that he feared the Tories might trump Labour by announcing their own NI funding plan for the NHS, and then tear into Labour for being irresponsible, promising to safeguard services without any detailed programme of how to pay for them.

He added: "But he needs to pre-empt a Tory move and to do so by setting the national insurance increase in a much wider reform programme. Creating a national mutual, ringfencing any increase to the new mutual and turning the mutual over to mass membership of voters could strike voters as Labour offering the NHS mark two."