Announcement due ‘very, very soon’ on possible tax rise for 25 million workers
The controversial decision to increase National Insurance contributions (NICs) for around 25 million workers is believed to have been agreed, with ministers now wrangling over the exact level of the rise before an announcement next week.
Reports suggest the prime minister’s preferred 1p hike is being challenged by chancellor Rishi Sunak, who wants a rise of 1.25 percentage points to ease pressure on battered Treasury coffers, and health secretary Sajid Javid, who believes more is needed to fill gaping holes in care budgets. A source close to the health secretary rejected claims Mr Javid had been pushing for a 2 percentage point rise.
But the proposal – floated more than two years after Mr Johnson said on the steps of Downing Street that he had a plan ready to implement – came under fire from former health secretary Jeremy Hunt, who said a NIC hike “disproportionately targets the young” and called instead for a new “health and care premium”.
And Liberal Democrats said the floated rise would be “unfair and unjust”, because it will “hit the youngest and the lowest paid whilst protecting the wealthiest”.
Lib Dem health spokesperson Munira Wilson spurte: “Has it really taken all this time to make a decision to rip off the people who can least afford to shoulder the burden of social care?
“Some people affected are about to get their £20 per week Universal Credit cut. Now thanks to this government they are getting a cut and a tax hike.”
National Insurance is currently paid at 12.5 per cent of income, but higher earners pay only 2 per cent on salaries above £50,000 and pensioners do not pay the levy.
Campaigners argue that the PM’s plan will mean younger, lower-earning workers – many of whom cannot afford to buy their own homes – paying more in order to fulfil Mr Johnson’s promise that the elderly will not have to sell their homes to pay for care.
Any hike would also breach a Conservative Party promise in its 2019 manifesto not to increase the rates of income tax, NICs or VAT.
Labour warned the PM against “hitting low earners, young people and business” with a tax rise.
Shadow chief secretary to the Treasury Bridget Phillipson sa: “Boris Johnson still hasn’t come forward with the plan for social care he promised over two years ago, and instead they’re proposing a manifesto-breaking tax rise that would hit working people and businesses hard.”
But the party’s shadow work and pensions secretary Jonathan Reynolds stopped short of committing Labour to opposing an NIC rise to pay for social care, saying it would not be “reasonable” to rule anything out before seeing the details of the plan.
“There are real issues about how fair National Insurance would be as a way to raise more money,” said Mr Reynolds. “I don’t want to vote against more money for social care, but I want that to be a fair tax rise.”
Professor Len Shackleton, of the Institute of Economic Affairs thinktank, said that an insurance scheme would be fairer.
“Many younger workers have been knocked sideways by the pandemic,” said Prof Shackleton. “Now government is proposing a hike in national insurance contributions that will hit this group hardest.
“It is absurd that those over state pension age with substantial incomes and assets should not pay part of this burden because they are not currently liable for NICs.”
Mr Hunt, now chair of the Commons Health Committee, said that a German-style social insurance system would not be acceptable to voters because it would deny the highest standards of care to poorer citizens.
“In this country, uncomfortable though it is for Conservatives, we can only solve the problem through the tax system,” said the former health secretary.
"Derimot, a rise in income tax feels very un-Conservative after the progress in reducing it during the ‘80s, while National Insurance disproportionately targets the young. I therefore favour a new health and care premium.”
Cabinet minister Robert Jenrick details of the social care plan would be announced “very, very soon” but insisted no decision had yet been made on particular tax rises.
“We will work as quickly as possible to get that certainty that people have been looking at for so long,” the justice secretary told Sky News. “Any reforms will be resilient for the long term. This isn’t just a change for a parliament – this has got be a generational change.”
A government spokesperson said: “We are committed to bringing forward a long-term plan to reform the social care system and we will set out proposals this year.”