Govt considering NI increase to solve care crisis
Prime Minister Boris Johnson is considering increasing National Insurance to fund a long-term reform of social care, according to reports released this morning.
Payments may increase by 1 percentage point for both employers and employees to raise an extra £10bn per year to reduce NHS waiting times and fund a cap on social care, according to a report from The Times.
Critics have branded the reported move as having a disproportionate effect on lower paid workers. National Insurance (NI) kicks in at £9,568 whereas income tax does not start until £12,570.
As pensioners do not pay NI, the move would only affect those workers between 16 and State Pension age.
Investment platform AJ Bell said Mr Johnson risks accusations of a "intergenerational raid" with any increase to NI to fund social care reforms.
Tom Selby, senior analyst at the platform, said: "After decades of prevarication by successive Governments, the Coronavirus pandemic may be the crisis that finally forces politicians to take meaningful steps to address the UK’s long-term care crisis.
"It is not yet clear what Prime Minister Boris Johnson’s long-term care solution will look like, although previous administrations have considered a cap on costs set somewhere between £50,000 and £80,000.
"Hiking National Insurance contributions – perhaps from 12% to 13% for employees - would be the simplest way to fund this reform as it utilises the existing tax framework.
"However, it would also break a central Conservative manifesto commitment and leave the Government open to accusations of an intergenerational raid, with younger people paying for reforms which immediately benefit older people, most of whom won’t be subject to National Insurance."
Investment firm Hargreaves Lansdown said that by dodging the question of whether he plans to raise taxes or NI at a press conference yesterday, Mr Johnson has "leaned heavily on the tax floodgates.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said she expects the tax floodgates to open in the March Budget. She said: "With the Chancellor and the Prime Minister self-isolating and MPs set to pack up for the summer this week, it’s likely that we’ll have to wait for the autumn for any major announcements. At that point, we’ll be heading towards The Budget, and there’s the chance the tax floodgates will open.
"We can’t be certain what changes lie ahead, but we can be increasingly confident that life isn’t going to get any easier for taxpayers, and tax allowances are unlikely to get more generous."
A report released by wealth manager St James’s Place this morning called for urgent reform of social care but warned that individuals must expect to continue to pay towards the direct cost of their own care.
The report outlines a range of ideas to address the estimated £8bn a year funding gap for social care. This includes increases in general taxation, the viability of a Care ISA, the use of existing pension schemes to make payments to care providers in a tax-efficient way, a new compulsory social insurance scheme and voluntary top up private insurance.
Tony Müdd, author of the report and divisional director for tax & technical support at St. James’s Place, said: “As many as 1.4 million people aged 65 or over in the UK receive some form of care. However, among the 25% of St. James’s Place clients who are 75 or over, we can see from their experiences that the current system is inadequate, complex and unsustainable. Put bluntly, it fails to meet the needs of far too many vulnerable individuals.
“Successive governments of all parties have been unable to tackle the issue. This is understandable, since any viable solution will ultimately need to include a greater level of public funding, which is going to require unpopular decisions such as increasing taxation or making cuts elsewhere.”
Social care reform has been a long-debated issue with many Governments promising to address the issue but then saying changes to the social care system are unaffordable.
Mr Johnson is one politician who has repeatedly promised to address the social care system and last year made promises that the Government was working on a plan. The Government made further promises to reform adult social care in the Queen’s Speech in May, but gave no details on how it would be achieved.