Social care tax ‘must double’ to tackle crisis

Johnson’s £12bn levy only enough for health service in short term, says Institute for Fiscal Studies

FURTHER tax rises will be necessary to tackle the health and social care crisis because the increases announced by Boris Johnson are not enough to fund the NHS, the Institute for Fiscal Studies has warned.

Its report, published today, says that the £12billion annual tax rise announced by the Prime Minister last month is only sufficient to fix the immediate shortfall faced by the health service as it emerges from the Covid pandemic.

The IFS said that the health and social care levy – set at 1.25 per cent on top of National Insurance, and due to take effect in April – may need to more than double to 3.15 per cent from as soon as 2025 to raise a further £19billion.

Calculations by The Daily Telegraph suggest this would add £960 to the annual tax bill of a worker earning £40,000.

Experts also warned that inflation could rise to its highest level for a decade next year and the Bank of England will be forced to increase interest rates, blowing a further £15billion-a-year black hole in the public finances.

The report comes as concerns grow over surging government spending.

Kwasi Kwarteng, the Business Secretary, yesterday requested that the Government provide a bailout for heavy industry as companies struggle to cope with sharp rises in energy costs. He is understood to have submitted a proposal to Rishi Sunak, the Chancellor, for loans and other measures worth several hundreds of millions of pounds.

The IFS estimates that health spending will rise to 44 per cent of all day-today spending on public services by 2024-25, up from 27 per cent at the turn of the century.

But Carl Emmerson, an IFS analyst, said the tax raid – the biggest since the 1970s – is insufficient to deal with the country’s looming demographic problem. He said: “One option would be to continue to increase the new health and social care levy, but if you wanted to get £19billion extra from that, you would need to more than double its rate.”

He added that the Government is “finding it hard to make cuts elsewhere given how much we have cut already”.

The IFS also raised concerns about surging inflation. Analysis by Citi, the investment bank, for the think tank, predicts that the Consumer Price Index will hit 4.6 per cent next year, its highest level in a decade, as soaring energy costs and a supply chain crisis bite.

The Bank of England is likely to respond by putting interest rates up to 0.5 per cent by August, Christian Schulz, a Citi economist, said, and the combination of higher rates and prices would push up the Treasury’s debt interest payments by £15 billion a year.

Mr Schulz warned that the Bank of England may be making a mistake if it raises interest rates too soon.

He said: “It would be best to try to boost the economy, even if there is a bit of inflation overshooting in the meantime. If you do not do that, if you hike too early, you will not get very far.

“Our view is that the Bank will be stuck at 0.5 per cent after that and we will not see any further rate hikes.”

Mr Emmerson said government finances were benefiting from the strong economic recovery, with the deficit this year expected to fall to £180 billion, around £50billion lower than predicted in March.

But the finances remain very sensi- tive to rates, particularly if the economy fails to recover to the growth trajectory predicted before Covid struck.

A spokesman for the Treasury said: “We will confirm departmental budgets for future years at the Spending Review, where we will continue to invest in the public’s key priorities. Core departmental spending will grow in real terms over this parliament at nearly 4 per cent per year on average – a £140billion cash increase and the largest real-terms increase in overall departmental spending for any parliament this century.”

FUEL shortages have hit high street shops with sales slowing to levels last seen during lockdown, a report has found.

Retailers saw their post-pandemic recovery stall last month as sales growth plunged to the weakest performance since January, according to the study by the British Retail Consortium (BRC).

Meanwhile, separate figures from Barclaycard revealed that consumer confidence also dipped sharply amid concerns over fuel and supplies.

The BRC-KPMG report showed that total sales increased by 0.6 per cent in September against the same month last year, compared with an average of 3.1 per cent growth for the past three months.

Like-for-like sales were 0.6 per cent lower for September compared with the same month in 2020.

Helen Dickinson, of the BRC, said: “September saw the slowest retail sales growth since January, when the UK was in lockdown. There are signs that consumer confidence is being hit as the fuel shortages, combined with wetter weather, had an impact in the second half of the month.” She said this particularly affected larger purchases such as furniture and homeware.

Paul Martin, UK head of retail at KPMG, said: “Fuel panic buying bought into sharp focus the impact supply chain bottlenecks and labour shortages can quickly have for consumers. The energy crisis is set to have further impact on inflation levels, putting pressure on household spending and retailers will be hoping for some good news from the Chancellor in his Budget to help them manage rising costs.”

Barclaycard said its latest consumer spending data for September showed that consumers are starting to feel the impact of rising prices on their finances.

It also found that nearly half of shoppers – 46 per cent – said they saw empty shelves in supermarkets, while 18 per cent found it harder than usual to find fresh fruit and vegetables.

The number of people confident in their ability to buy non-essential items fell four percentage points last month to 59 per cent, from 63 per cent in August, pulling consumer confidence down to its lowest reading since February.

Raheel Ahmed, Barclaycard’s head of consumer products, said: “Consumers are starting to feel the impact of rising prices on their personal finances, which is also hampering confidence levels.

“While this is causing some people to seek out value in their purchases, as the festive season approaches, we expect spending to gradually gather pace as shoppers start buying gifts and preparing for gatherings with loved ones.”