Personal Account

The latest care funding proposal is very unfair – but the biggest problem is that it will spell the end of the state pension triple lock

Another week, another half- baked proposal on how to fix the care crisis. This has been going on so long, the crisis is no longer looming – it’s already affecting thousands of families who have been forced to sell their homes to fund endof-life care.

The Government’s latest solution? To increase National Insurance contributions by one percentage point, taking the primary rate from 12pc to 13pc and the upper earnings rate from 2pc to 3pc. This, according to the Social Market Foundation, a think tank, will raise £ 6bn a year.

This helps the Government to dodge accusations about breaking its pledge not to increase income tax – albeit only in name, not in spirit. And of course, it also raises vital funds to fix a problem that should have been solved two decades ago.

But there are three significant issues. The first is that increasing NI is not the most progressive way to solve the care conundrum. The rate decreases the more you earn, so the effective rate of NI contributions falls. In monetary terms, the more you earn the more you pay, so it is progressive in that sense.

However, it is less progressive than income tax where your “effective rate” always increases.

Someone earning £ 80,000 pays £5,478 in NICs a year, an effective rate of 6.8pc. But someone earning the average salary of £ 31,461 pays 8.4pc. Increasing the two rates of NI under these proposals, they would climb to 7.7pc for the person on £80,000, and 9pc for the average earner, keeping this settlement unfair.

The second issue is that care exclusively benefits the elderly and the funding is needed here and now, yet it will be paid for by those of working age.

Currently anyone over the state pension age does not pay National Insurance, irrespective of whether they are working and how much they earn.

This used to make sense, given that NICs were paid to fund the state pension. But today, they are just another form of taxation. So if we’re balancing the books using National Insurance, increasing it to fund care could possibly be the most unfair way – other than a 1,000pc levy on avocados and flat whites.

This leads me on to my third concern with the proposal. If the Government chooses this path, then one must fear for the state pension triple lock. It would take a very brave (read: stupid) government to fund elderly care by taxing the working young and then provide pensioners with a massive boost.

The state pension is set to increase by about 8pc next March because of a quirk in how earnings growth is calculated because of furlough. Alterations are being considered, but any change would also amount to breaking a manifesto pledge.

If the Government pushes ahead with raising NICs – like all good care proposals, a final decision has been pushed into the autumn – then the triple lock will likely be looked at. This, given Britain’s state retirement benefit is among the lowest in Europe, will not go down well.

There’s a big hole in our finances, and it’s time to face facts: both the young and old will have to pay.

It would be brave – or stupid – to fund care by taxing the young, then give pensioners a boost