HOSPITALS, councils and health trusts grappling with major service cuts will be squeezed even further next year as two tax rises come into force.

The Government is increasing VAT by 2.5 per cent from the beginning of January, while employers will also pay 1 per cent more in National Insurance contributions on staff earning more than £20,000 from next April.

The tax rises are expected to have a significant impact on public services, with Basildon Hospital predicting it will add £1.8million to its running costs, while Southend Hospital is expecting it to add £750,000.

The NHS will be worst hit by the tax increases because, unlike local authorities, it is unable to claim back VAT.

A spokeswoman for Southend Hospital said: “Like the rest of the NHS, but unlike most organisations, Southend Hospital is deemed to be funded for VAT and therefore cannot reclaim it, except on a few items.

“This is therefore a genuine cost pressure which, along with others, we must address.

“At an absolute minimum we will need to find at least 4 per cent efficiencies.”

A spokesman for Basildon Hospital said: “These changes will affect all NHS hospitals, but as an NHS organisation that has consistently balanced its books every year since first becoming a trust in 1992, we have an excellent track record of financial management and will rise to this challenge.”

Local authorities are exempt from the VAT rise, although residents will pay more when buying council products, such as books for sale in libraries.

The rise in employers’ National Insurance contributions will hit councils though.

Basildon Council estimates it will cost it an extra £80,000, which seems a small amount in comparison to its overall budget of £30million.

However, Jeffrey Stanley, councillor for finance in neighbouring Castle Point, said the extra costs would be a challenge to councils because of reductions to their overall budgets due to the Government’s austerity measures.

He said: “Of course the increase in National Insurance will have an effect.

“We are all expecting it and have budgeted for it.

“There’s no doubt it’s going to be very difficult for all local authorities to be able to balance their books.

“The irritating thing is, despite the fact everyone knows this problem is coming, we are unable to budget accordingly until we know exactly how much our budgets are going to be reduced by.

“You can’t turn spending on and off like a light switch. You need time to work it out.”

The Government is set to announce how much councils’ budgets will be cut at the beginning of next month.