National Insurance rise: why is it happening and what does it mean for me?
The plan, concocted to fund reform of the social care system, has created a stir within the Tory party.
Boris Johnson’s plan to increase National Insurance to fund social care reform has been roundly condemned by current and former ministers on both sides of the political spectrum.
Downing Street sources said details of the social care plans were still being worked out on Sunday night and that a day for the announcement was yet to be confirmed.
Here, the PA news agency takes a look at why the initial plan has created such a stir.
– What is the Prime Minister’s plan?
Reports emerged last week that Mr Johnson was lining up an increase to National Insurance to fund the Government’s long-awaited social care reforms.
It was suggested that £5.5 billion more funding has been agreed for NHS shortfalls later this year, including to help clear the backlog caused by the coronavirus pandemic.
The Sunday Times reported that lifetime contributions on care will be capped at about £80,000 and National Insurance will be increased by 1.25% to raise between £10 billion and £11 billion per year.
– Who would be affected by a National Insurance increase?
National Insurance contributions are based on weekly financial thresholds, with 0% due on the first £184 earned, 12% on sums between £184.01 and £967, and 2% on remaining earnings.
According to the Office for National Statistics, the average weekly wage in Great Britain is £576, with a weekly National Insurance contribution amounting to £47.04 (8.16%).
So anyone whose primary earnings are above the £967 2% threshold, or just over £50,000 a year, ultimately pays a proportionately lower rate than those who have the bulk of their earnings in the 12% threshold.
As such, much of the criticism of the plan revolves around the unfair impact a National Insurance hike would have on young and lower income workers.
– Why are some Conservatives against the plan?
As mentioned above, multiple Tory Ministers and grandees have spoken out against how raising the National Insurance would disproportionately affect younger and poorer workers.
Former chancellor Lord Hammond told Times Radio: “Economically, politically, expanding the state further in order to protect private assets by asking poor people to subsidise rich people has got to be the wrong thing to do.”
Lord Clarke, the Conservative chancellor between 1993 and 1997, echoed these comments, telling LBC that National Insurance is “too heavily weighted on the lower paid”, adding there is “no reason” why people who continue to work after the state pension age no longer pay it.
– What did the Conservative manifesto say?
Any increase in taxation would be a breach of the 2019 Tory manifesto, which contained a personal “guarantee” from Mr Johnson not to raise income tax, VAT or National Insurance.
Commons Leader Jacob Rees-Mogg appeared to show his disapproval of the plan in his “weekly wisdom” column in the Sunday Express.
He cited George Bush Sr’s promise not to create new taxes in his successful bid to be US president, before he went on to raise taxes and lose the next election to Bill Clinton.
Mr Rees-Mogg added: “Voters remembered these words after President Bush had forgotten them.”
– How have industry bodies responded to the plan?
Social care providers have largely welcomed the idea of a tax rise, but also urged the Government to go further to reshape the sector.
Mike Padgham, chairman of the Independent Care Group, said a tax rise must be “only the very start” and be part of a system overhaul, including tackling the staffing crisis.
And Caroline Abrahams, charity director at Age UK, said that in addition to a cap set at a “reasonably generous” level, funding is needed to “stabilise care services and begin the enormous job of rebuilding the care workforce”.
– Have any alternatives been proposed?
Former prime minister Sir John Major warned increasing National Insurance would be “regressive”.
Speaking at the FT Weekend Festival, Sir John instead called for the Government to take the “straightforward and honest” approach of increasing general taxation.
Former Tory health secretary Jeremy Hunt, who is currently chair of the Health and Social Care Select Committee, suggested in an article for The Telegraph the funding could come from a “new health and care premium”.
– What have the opposition said?
Labour has also voiced its opposition to an increase to National Insurance, but leader Sir Keir Starmer is yet to set out how he would fund social care reforms.
