National Insurance hike ‘won’t fix social care’ – ‘Already broken one promise’

Sajid Javid grilled on Universal Credit and National Insurance

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Prime Minister Boris Johnson’s manifesto breaking tax rise has set the UK on the path for record taxes, according to a think tank. The Institute of Fiscal Studies also said that further tax hikes could be on the cards. They said: “Both [government] spending and tax will ratchet upwards over the next few years.” “Taxes will reach their highest sustained level in the UK. This was always going to be an inevitable consequence of ever-growing demands on health and social care, and would have happened eventually irrespective of the pandemic.”

Working people and employers will be made to pay the extra bill, dubbed a “Health and Social Care levy”, from April next year.

But economist at the free-market Institute of Economic Affairs, Julian Jessop, tells that there is no guarantee the plan will actually work.

He said: “It’s a tax increase for a start, you have to question whether you needed to raise taxes in the first place.

“But also, the money doesn’t look like it’s going to be well spent, so it doesn’t even look like it’s going to achieve the aim of improving health and social care.

“I think it’s a missed opportunity to have a fundamental rethink about social care and tax. Instead they have gone for a short term fix that actually may end up fixing nothing at all.

“There’s actually not going to be money for social care for several years, initially the money is going to be used to solve the backlog in the NHS.

“In the longer run, there’s no actual guarantee that this money will go to social care because, although they say it’s going to be ring-fenced, why would you necessarily believe a Government that’s just broken so many manifesto promises in a single day.”

Health ministers warned earlier this week that the Health and Social Care levy may indeed fail to entirely solve the issues it is designed to fix.

Speaking on Tuesday morning ahead of an announcement by the Prime Minister, Nadhim Zahawi said it would be “arrogant” to claim Mr Johnson’s policy would work.

He added: “It would be presumptuous, and I think completely arrogant, to say ‘of course it will fix the problem’.

“The right thing to do is deliver the reform and the investment into social care – you’ve got to make sure that is operational.”

Critics have pointed out that National Insurance is not paid on pension contributions or income from dividends and investments.

It is also paid by people on lower incomes than income tax, because of a lower tax-free allowance.

This means many fear the plan will lead to intergenerational unfairness, with younger, poorer people footing the bill while many wealthy people avoid any tax increase.

Mr Jessop adds that the plan could drive down wages for workers as employers are also affected.

He said: “It certainly adds to the downside risks, the economy is already facing a few headwinds at the moment.

“Supply problems, lingering concerns about Covid and a renewed lockdown in October.

“The idea that taxes are going up generally, but specifically taxes on employment, is another challenge the economy could do without.

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“I’m still optimistic the labour market can recover strongly, there’s currently a shortage of workers so employers probably will be willing to pick up the bill for higher National Insurance contributions.

“But they will inevitably pass that bill on in one way or another. Maybe in the form of lower wages, workers might not get as much in their pay packets as they might have otherwise done. Or it could be higher prices.

“There isn’t a free lunch here. But I imagine Boris Johnson will get away with it because the labour market is currently so strong.”

Some figures in the Labour Party, including Mayor of Greater Manchester Andy Burnham, have called for wealth taxes to be used instead to pay for the reforms.

Labour leader, Keir Starmer, told Sky News yesterday wealth taxes among other methods should be looked at, but didn’t offer an alternative plan.

Pushed to confirm how he would fund an increase in social care funding, Sir Keir told Sky News: “I wouldn’t look to working people.

“I would say those with the broader shoulders should pay – that means those that earn their money in ways other than work should pay their own share.

“People who earn their money from properties, dividends, stocks, shares – they should be looked at.

“We need to look at a range of options – that includes the way people earn their money.

“We should look at all of that. Those with broader shoulders should pay their fair share.”

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