From Ros Altmann:economist and pensions,
    investment and retirement policy expert

  • pensionsandsavings.com

    National Insurance hike should be abandoned – wrong tax, wrong time, and won’t fix the crisis anyway

    National Insurance hike should be abandoned – wrong tax, wrong time, and won’t fix the crisis anyway

    • Government should abandon plan to increase National Insurance in April – it’s the wrong policy at the wrong time and won’t fix social care anyway. 
    • Proposed rise in NI hits lowest earners, employers and the young hardest. 
    • Imposing a new tax on earnings and business, in the eye of a cost of living storm, is wrong. 
    • A better solution would be a new nationwide social care insurance levy on all sources of income, spreading the burden across society more fairly.

    The care funding crisis is the biggest failure of social policy in modern times, but this NI rise is mostly for the NHS, not social care: The Government is right that social care is in crisis and I believe the funding problems for care represent the biggest failure of social policy in modern times. However, this planned rise in National Insurance – called a ‘health and social care levy’ – will actually be spent mostly on the NHS to address Covid-related backlogs and increased costs. Very little of the £36billion it is expected to raise over the next three years will be spent on social care. Only 15% of the money (around £1.8billion a year) will help social care.

    Government should scrap the NI rise – it is the wrong tax at the wrong time and won’t fix social care: The NI rise is due to begin from this April, imposing a 2.5% rise in taxes on earnings (1.25% on employers and 1.25% on employees). These plans should be put on hold or ideally scrapped altogether for three important reasons. This is the wrong tax to increase, comes at the wrong time for the country and will not fix the social care crisis anyway.

    Wrong time – April will see families hit with rising fuel bills and soaring inflation: The timing of this planned increase could hardly be worse.  Since the planned NI rise was announced, inflation has taken-off sharply. Price rises are already at a 30-year high, with the cost of essentials such as heating, food and fuel, rising by even more than the 5% inflation rate. There is another hike in the energy price cap in the pipeline for April, so just as their bills will be soaring, people’s pay packets will be reduced by the extra NI they have to pay. Now is not the moment to add to the burden on hard-pressed working families who are already on a financial knife-edge.

    Wrong tax to raise as it hits lower earners hardest but others pay nothing:  Lower income households, hard hit by the pandemic and already struggling most with inflation, will be worst affected by the NI increase. This is hardly ‘levelling up’. Anyone earning over £9,564 pays NI, while only those earning over the tax threshold of £12,570 start paying tax. This is an unfair way to fund the NHS and social care, because it places the burden only on a section of society, rather than fairly across the population. Anyone living on a large pension income or buy-to-let properties pays nothing extra at all. This seems particularly wrong because the first people to call on the social care system in coming years are likely to be pensioners who have already stopped working.

    A new tax penalty on working past pension age may drive more people to retire sooner,  leaving them and the country poorer in the long-run: It is true that this new NI charge will apply to previously-exempted dividend income and earnings of those working past pension age, But a sudden National Insurance tax rise on older workers – who want or need to keep working will perhaps drive some to retire sooner, reduce their savings and leave them with less money to sustain themselves as they get older. This short-sighted measure will push extra costs onto their families and future taxpayers and reduce long-term growth.

    Won’t fix social care anyway – Government’s aim is laudable, but this won’t do it: While I applaud the government for trying to address the social care crisis, rather than continuing to sweep it under the carpet as so many previous governments have done, a hike in National Insurance contributions in the middle of the worst cost-of-living crisis for a generation and imposing new taxes on businesses just trying to recover from the pandemic, is not the way to do it.

    Most of the revenue from the NI rise is going to the NHS and won’t help social care: The Government expects to raise £36billion over the next three years from the new health and care levy.  However, the money will initially be used for the health service, with only 15% (around £1.8 billion a year) destined for social care. The rest will be to fix the NHS backlog, cost increases and staff shortages.  This means, even after a painful NI increase, the social care crisis will not be fixed.  There are widespread staff shortages and funding shortfalls in care, which leave over a million people needing care but getting no support.  Councils have had to severely ration care spending in recent years, withholding help from those with moderate needs and only paying for people whose needs are already severe or critical.

    Funding shortfalls will not be fixed by the proposed extra levy: We owe it to the social care sector and the vulnerable people in residential or individual homes to do more to help them.  However, the IFS has estimated that the new NI tax revenue will not fix the shortfalls that are already endemic in the sector. (for example https://ifs.org.uk/publications/15597 ).  They estimate that social care funding per person was 7.5% lower in real terms in 2019-20 than in 2009-10.  The planned extra £1.8 billion a year is only equivalent to a 9% rise in spending relative to 2019-20 and, with the cuts in funding per person and rising numbers needing care now, this will clearly not resolve the problems facing councils struggling to fund their local care demands.  The headlines sound good, but the reality underneath is that this reform will not achieve its aims for social care.

    Social care needs radical funding reform – an earmarked nationwide care insurance levy, spreading costs more fairly: The government needs to be radical. The current system places too much burden on the vulnerable individuals who need care and have some savings or other assets and the new NI rise places too much burden on the young, employers and lower earners. A fairer system would see everyone paying something towards care, spreading the costs fairly across society with a social care contribution from all income.  A new nationwide care insurance levy, which everyone pays regardless of where their income comes from.

    Time for a rethink – pause and reconsider: Having kicked this can down the road for so long, it would not be right to go ahead with an ill-conceived tax that will fix nothing and be highly damaging for families and businesses at such a vulnerable moment. Yes, addressing the care crisis is an urgent national priority, but increasing National Insurance is not the way to do it and now is definitely not the time. Rather than ploughing ahead with the wrong solution, at the wrong time, just for the sake of doing something, the brave thing to do is hit the pause button.

    One thought on “National Insurance hike should be abandoned – wrong tax, wrong time, and won’t fix the crisis anyway

    1. I’d like to make a comment about the social care system. No one has ever mentioned that over the years there has been a huge increase in the number of private businesses, which charge astronomical weekly fees for care. The costs inevitably impact on families, who somehow have to find the money to care for their loved ones.

      I understand that without the facilities of these care homes, the councils would not be able to provide care as the system is at the moment. I also understand that these are businesses, which need to make a profit. However, the staff are usually poorly paid and overworked.

      Isn’t it time that the whole system was reformed, not just about the allocation of government funding.

      I’m a former NHS worker and as my age increases, the prospect of needing some type of care in the future fills me with dread, especially from a financial point of view. Surely society as a whole should not have to worry about the financial burden that growing old is likely to incur. A prosperous country should be able to look after anyone in need, including the older generation.

      A small amount from a weekly pension would be a relief and a great comfort to know that money to pay for care was no longer an issue. Huge weekly/monthly bills would be a thing of the past and houses & possessions would no longer be sold to fund the care.

      I remain amazed at the invention of a National Health Service in this country. Anyone who needs medical, surgical and nursing care is provided with the highest standard of care. Over the years since the late 1950s the quality and type of care available has rocketed out of all proportion. Who could have predicted the advances and types of treatment available now. I am sure a lot of people have never known what any type of medical or surgical procedure would cost in other countries.

      Wouldn’t it be great if care of the elderly was viewed in the same way.

      Am I living in the country of utopia!

    Leave a Reply

    Your email address will not be published. Required fields are marked *