Unpicked... how £36bn raid will hit YOUR pocket
TAXES are being raised to their highest level since the Second World War to grab an extra £12billion a year the Government claims it needs to help tackle the health and social care crisis. We pick through the details to find where the money is actually going – and how it affects us.
So how are our pockets going to be picked?
NATIONAL Insurance is to rise by 1.25 percentage points. This extra 1.25 per cent tax will be paid by both workers and employers – so it will effectively add up to 2.5 per cent.
The self-employed will also have to pay the new tax, as will pensioners aged 66 or over and still working. The rate of dividend tax will also be raised by 1.25 percentage points – meaning income from investments may be hit.
Why does the Government want this extra cash?
THE pandemic has proved costly, leaving a huge backlog of hospital treatments and operations that need to be paid for in the coming years. Already 5.5million people are on waiting lists, but that could hit 13million by the end of the year. Initially, money raised in the first three years – an estimated £12billion a year – will almost all be spent on clearing up this backlog. Only about £5.4billion of this £36billion has been earmarked specifically for social care.
How will I notice the change?
YOUR pay packet will be lighter. For example, a basic-rate taxpayer on a salary of £24,100 will pay an extra £180 in tax a year, while a higher-rate taxpayer on £67,100 will pay an extra £715. Although the money will probably end up in an NHS black hole, the tax should appear on a separate line on pay slips – to be labelled as a health and social care levy.
When is the tax hike going to happen?
NEXT April. But the funding rules for social care will not kick in until October 2023. This means that before then, those facing care costs must keep paying just as before.
Are we all being treated the same?
NO. The younger generations will bear the biggest burden because they are funding the elderly, who are more likely to need social care than them in the next few years. But 1.3million working pensioners will also pay the new National Insurance tax. Previously, employees aged 66 or over never had to pay any National Insurance contributions. There will also be a higher tax on dividend income – hurting investors and the selfemployed that take payments in dividends.
So will my investments end up being taxed?
MOST private investors will largely be left unaffected if their money is kept inside a tax-efficient Individual Savings Account or within a pension plan, such as a self-invested personal pension. There is also a £2,000 annual tax-free allowance on dividend income for individuals on top of a £12,570 personal allowance.
Those receiving annual dividends in excess of £2,000 a year will pay tax on any surplus at 8.75 per cent, as opposed to 7.5 per cent now. For higher-rate payers, it goes up from 32.5 per cent to 33.75 per cent.
Will all parts of the UK pay these new taxes?
NATIONAL Insurance contribution taxes are levied the same wherever you live. While those living in Scotland, Wales and Northern Ireland must also foot the bill, they will enjoy a combined additional ‘union dividend’ of £2.2 billion a year. This equates to a 15 per cent hike in spending on care. Together, these nations will receive about £300million a year more than they pay into the new tax.
What exactly is social care?
IT IS care that is given to assist the elderly and disabled. This could be provided in their own home, a residential or nursing care home, a day centre or in supported housing. It is focused on personal care – for example, helping the elderly with washing, bathing and mobility issues.
How do we currently fund social care?
THE majority of social care is funded directly from those who need support (typically, the elderly who need to go into a residential or nursing home). Some people on low incomes draw on assistance provided by local authorities, and funded through council tax.
In England, you might only get help with care costs if your personal savings and assets are worth less than £23,250 – full help from your local council if your assets are under £14,250. Above £23,250, anyone requiring social care must pay the full cost. This has led to thousands of elderly people having to sell their home to fund care home fees.
Currently, the average cost of being in a care home is £36,000 a year – more if full-time nursing is required.
And what will happen under the new regime?
THE State will now contribute to care costs if someone’s assets are below £100,000 – a massive hike on the current £23,250. If someone’s assets are below £20,000, the State should pick up the social care tab.
In terms of care costs, a new cap will be introduced that means you will have to foot no more than £86,000 of social care bills. After this ‘cap’ has been reached, the State should step in with funding.
About one in seven people aged over 65 face care costs that could total more than £100,000 over a lifetime.
Are there any nasty catches?
YES. There is a big one. Check the small print of the £86,000 ‘cap’ and you discover it only relates to the ‘personal’ aspect of social care. It does not include the food, accommodation or cleaning costs related to residential or nursing home care.
Experts believe these ‘hotel costs’ account for about half of total care costs. So although there is an £86,000 cap, by the time you reach this limit you may well have spent double this amount – £172,000.
Is £36 billion enough to solve the problem?
NOTHING is ever enough to fill the NHS black hole. There are fears this cash could simply get sucked up by public-sector bureaucrats. There is already talk of 42 new bosses to be employed on salaries of up to £270,000. The NHS in England has already received £136billion this year, plus a further £18 billion to tackle the Covid19 crisis. It has more than 1.3million employees to pay. Unions are already calling for bumper pay rises (surprise, surprise).
Is there any way of avoiding the tax hike?
EMPLOYEES who use salary sacrifice to contribute into a company pension can put more aside into a retirement pot because such contributions avoid having to pay National Insurance on them. Non-working pensioners and those earning less than £9,564 a year also do not pay National Insurance.