Michael Lansdell explains the new rise in National Insurance and explores some of the criticism the move has received.
In September, some feathers were ruffled when the Prime Minister announced a new Health and Social Care levy, to fund reforms to the care sector and to support the NHS.
The new tax, to be introduced from next April, broke a Conservative manifesto pledge of course; a manifesto, Mr Johnson pointed out, that had been written before a global pandemic changed everything. He also said the levy would raise billions in funds, ringfenced for much-needed investment and for tackling the backlog caused by covid. Hospital capacity would be increased, allowing space for nine million more operations, scans and appointments. The PM’s announcement focussed on boosting funding in England; Scotland, Wales and Northern Ireland will also receive an additional £2.2bn to spend on health and social care services.
It will begin in April 2022 with a 1.25 per cent rise in national insurance contributions (NICs) for employers and employees, including self-employed workers. From April 2023, NICs will return to their current rate, with the extra tax collected via the Health and Social Care levy, to be paid by all working adults including those over the state pension age.
Why the criticism?
The Institute for Fiscal Studies said the latest tax increases, together with those announced in the March 2021 Budget, amounted to the highest in 40 years.
For employers, on amounts above £8,840 paid to an employer each year, it will cost them 15.05 per cent in NICs. The current rate is 13.8 per cent and plenty already think that’s too high. Will employers start thinking twice about hiring and/or creating new jobs?
There will also be a 1.25 per cent tax rate increase on income from share dividends. For self-employed workers trading via a limited company who take dividends out of that limited company, the same will apply.
But the levy has also been criticised for not going far enough to ease the pressure on the NHS. Social care leaders also said that current problems with the system remain unaddressed and that the money is insufficient. MPs on all sides have also expressed their concerns that the Health and Social Care levy will disproportionally impact on the lower paid – Sir Keir Starmer described it as “an unfair tax on working people.”
What is not in question is that the NHS and social care sectors urgently need more funding to improve the nation’s health, and support those with a high level of needs, including the elderly. We wait to see if the levy will succeed in practice, as the UK recovers from the impact of the pandemic