‘Don’t raise National Insurance!’ Experts suggest how Boris should pay for social care
Boris Johnson announces 1.25% national insurance increase
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From April 2022, workers and the self-employed are set to see a 1.25 percent increase on their National Insurance payments. This will return to its current rate in April 2023 but a new “Health and Social Care Levy” will be introduced at a rate of 1.25 percent to make up the difference. Unlike National Insurance, this levy will be paid for by pensioners who work past the state pension age.
Experts are at odds of how social care should be paid for in the UK, with many acknowledging it is unlikely to be popular with the public in the medium-term.
Will Hale, CEO of UK-based equity release adviser Key, believes its important that older people make a “substantial contribution” to their own healthcare, which is partially done by the new levy.
He said: “There is no simple answer to the social care debate but with 12.5 million over-65s in the UK, we need to tackle this issue sooner rather than later.
“While today’s announcement that we will see a 1.25 percent increase in national insurance contributions is unlikely to be popular, it will be less of a bitter pill to swallow if we see a real improvement in how people can expect to access and receive the care they need via the NHS and in later life.
“The devil will be in the detail and even with these changes, it is important to remember that older people will still need to make a substantial contribution towards paying for their own care. “
Torsten Bell, Chief Executive at the Resolution Foundation, cites the Government’s promise of taxing some pensioners as one step forward, but ultimately believes the move is two steps back with its treatment of the younger population.
He said: “The Treasury has taken important steps to address some of the huge problems with using National Insurance as the basis of this tax rise by promising to tax dividends and the earnings of working pensioners from April 2023.
“But the Chancellor is still asking younger workers to pay more while many rich pensioners, among the biggest winners from today’s announcement, will not have to pay a penny.”
Critics, including the Adam Smith Institute’s Head of Government Affairs John Macdonald, are slamming the Prime Minister for breaking a manifesto promise and not utilising the private sector to sort social care.
“Today’s announcement marks a historic betrayal from a supposedly Conservative Government that promised to not raise taxes,” he explained.
“It’s morally bankrupt to ask poorer workers to bailout millionaire property owners. This is a kick in the teeth for all the young working people of this country who have already been hard done by the pandemic.
Mr Macdonald added: “And it risks bankrupting Brits financially, too. It is disastrous to put a tax on employment just as we begin to recover from a historically large recession.
“Throwing more money into a broken social care system will not fix the fundamental problems.
“We need a serious discussion about how to stimulate private-sector investment and personal responsibility, not simply more cash and state involvement.”
Some detractors, such as George Dibb, Head of IPPR’s Centre for Economic Justice, believe a more progressive tax policy is needed to address the social care crisis while not taxing the most vulnerable.
Mr Gibb said: “A better alternative would be to put a social care premium on income tax or, even better, to raise taxes on the wealthy – including on the income they earn from their wealth.
“We have calculated that taxing capital gains the same as income earned from work could raise £90 billion over five years – a significant addition to government revenues.
“For a fair general taxation system that funds excellent public services, we need to rebalance our tax system so that it no longer favours wealthy asset owners.
“That means changes including taxing income from wealth the same as income from work, and introducing a proportional property tax.”
Ultimately, many finance experts agree that the hike on National Insurance should be scrapped altogether due to the effect it will have on low-income workers.
John O’Connell, the Chief Executive of the TaxPayers’ Alliance, said: “Hardworking taxpayers will foot a punishing bill for the prime minister’s social care ploy.
“Despite claiming to share the burden, this hike will hit low-paid workers and struggling employers hardest, laying the groundwork for more demands for cash after the next election.
“The Government should’ve settled on a fairer and more sustainable solution for fixing social care than forever ramping up national insurance rates.”
While speaking in the House of Commons yesterday, Mr Johnson outlined why a National Insurance raise is necessary, according to his Government.
He said: “As an additional investment in health and social care, it would be irresponsible to meet the costs from higher borrowing and higher debt.
“From next April, we will create a new UK-wide 1.25 percent Health and Social Care Levy on earned income… with dividend rates increasing by the same amount.
“This will raise almost £36billion over the next three years.”
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