U.K. PM announces tax hike to aid health, social care systems
Rise of 1.25% goes against party’s key pledge not to increase main rates of tax
U.K. Prime Minister Boris Johnson announced a tax hike on workers, businesses and shareholders to help rescue the National Health Service from soaring backlogs that built up during the COVID-19 pandemic and reform the “broken” social care system.
National insurance, a payroll tax, will rise by 1.25 per cent from next year — breaking the Conservative Party’s key manifesto pledge not to increase any of the main rates of tax. A tax on dividends will also be raised by 1.25 per cent to ensure high earners pay their share, Johnson said. The increases are expected to generate £36 billion ($62 billion) over the next three years.
Johnson’s decision risks sparking a backlash from his own colleagues, some of whom had already warned the burden could fall more on younger people and the low-paid — because national insurance is traditionally not paid by pensioners.
But the premier attempted to head off that criticism by including all working adults in the NICs rise, including those of pension age. From April 2023, NICs rates will revert to the current level and the rise will be replaced by a new dedicated “health and social care” levy.
Johnson made a statement to a hushed House of Commons on Tuesday, ahead of a joint press conference with Chancellor of the Exchequer Rishi Sunak and Health Secretary Sajid Javid.
As he begins his third year in office, 57-year-old Johnson is looking to move beyond the COVID-19 pandemic by delivering on a policy promise that he set out in his first speech as prime minister to “fix the crisis in social care once and for all” as well as ensure the NHS can keep functioning under extreme pressure.
But by attempting to meet this pledge, he is tearing up another one: The Conservatives vowed in their manifesto not to raise income tax, national insurance or VAT. He’s gambling that voters will reward him for finding a solution to social care, a problem that eluded his predecessors.
The government broke another pledge on Tuesday, saying it will scrap its “triple lock” commitment to pensioners, albeit for one year only. Pensions will now rise by the greater of inflation or 2.5 per cent, Work and Pensions Secretary Therese Coffey said. Suspended is an average earnings component after distortions caused by the pandemic caused wages to soar almost 9 per cent over the past year.
Some Conservative Members of Parliament have warned raising national insurance risks alienating voters, particularly those who switched from the opposition Labour party to back Johnson in the so-called “red wall” seats of northern England in 2019. There have been calls for the government to instead focus on income tax — but Johnson’s office believes raising NICs is fairer because businesses are also on the hook.
Social care has been a political hot potato in the U.K. for decades but calls for reform have been growing as people live longer with more complex health conditions.
The new plan includes a cap on lifetime care costs of £86,000 — that’s roughly equivalent to three years of care — so that people don’t necessarily lose their homes. A means-test threshold for savings is being raised from the current level of £23,250 to £100,000, making more people eligible for state support.
Opposition Labour Party Leader Keir Starmer said the plan was a “sticking plaster.” However, any dissent from the Tories was muted in Parliament, boosting Johnson’s chances of steering the measures through Parliament.
The taxation plans will be put to an initial vote on Wednesday, with legislation to follow later. Labour accused the government of rushing Parliament without proper consultation.
The £12 billion annual tax hike almost all comes from the national insurance increase, opening Johnson to accusations that he’s perpetuating generational inequalities. People with income from other sources, such as landlords or pensioners, will pay no more tax.
The health-care overhaul is expected to be fiscally neutral, with new spending funded by the tax increase — a victory for Sunak, who is trying to repair the huge fiscal damage wrought by the pandemic. The focus now shifts to a review of departmental spending on Oct. 27, when the chancellor will confirm whether he intends go ahead with a near £15 billion cut to departmental spending pencilled in over the next four years.