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Budget 2021 tax measures to support Covid recovery
Rishi Sunak_Vaccination_HM Treasury

Is NIC about to rise to pay for social care?


A purported leak to The Guardian suggests an NIC hike to pay for social care could be on the cards. Philip Fisher explores the Chancellor’s plans. 

23rd Jul 2021
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One has to wonder whether readers are enjoying their newfound “freedom” or cowering away in self-isolation.

For a couple of hours on Sunday, it looked as if the Prime Minister was going to have his cake and eat it by creating a ruling elite escape route from isolation, possibly not the wisest move given his recent health record.

Instead, entirely predictably, he enjoyed the umpteenth U-turn of his dizzying career.

If authoritative reports in the Guardian are to be believed, then with the assistance of Rishi Sunak, surely Brutus to his Caesar with the knives sharpening up nicely under the guidance of Cassius Cummings, one of many more reversals in the pipeline is very much in our sphere of interest.

Oven-ready social care plans

Readers will recall that at the time of the last election the Prime Minister claimed to have an oven-ready (or should that be half baked?) plan to sort out social care.

Being a Boris Johnson plan, it wasn’t even formulated far enough to be written down on the back of an envelope. Two years later, it appears that he may be embarrassed into actually doing something and dear Brutus will need to raise some funds to pay for it.

One could suggest that this is a little bit of a farce, given that the pandemic is likely to cost around £1 trillion against which a few billion for healthcare or social care is a relative drop in the ocean.

Even so, that is not the way that today’s PR-obsessed politicians think.

Breach of a manifesto promises

The leak suggests that they have spent some time trying to come up with a cunning way to raise some taxes, blame it on social care and, in doing so, breach one of the firmest and most memorable of manifesto promises.

That was an absolute assurance that they would not raise income tax, national insurance contributions or VAT during the tenure of this Parliament.

However, as we know, promises are made to be broken and the Guardian article suggests that the latest plan being tested on the public via the back door is a 1% increase in national insurance contributions.

On the plus side, this would raise significant amounts of funds via what has generally been regarded by past Chancellors of the Exchequer as a really helpful stealth tax.

According to the Guardian, the plan would only be to increase contributions from employees and the self-employed. Quite why this is not extending to employers as well might be open to question, although that could be the result of a loss in translation or transmission of the scheme.

There is also a reasonable possibility that this is a relatively subtle attempt to implement some other proposal that the government believes might seem unpalatable to the general public, but could be seen as a lesser evil.

Divisive impacts

Already the Resolution Foundation has responded angrily pointing out that NICs generally hit the young very hard, while it goes without saying that pensions are only paid to the old - a classic example of divide and rule or another cock-up waiting to happen?

The supreme irony is that the super-wealthy who live off savings and investments would still happily receive pension payments, gains and investment income without paying a single penny into the Exchequer as a result of the projected change.

Such a plan could happen but at the moment, this writer’s guess is that there will be enough of an uproar to leave it dead in the water.

There is also a question of timing, since in a leak to a different national newspaper, Brutus has floated the idea of postponing his Budget announcement until next year.

As has been noted in this column on numerous occasions, there has not been a full-scale Budget at any point in the past five years.

Surely given the parlous state of the country’s finances, particularly if inflation is here to stay and interest rates begin to rise, Mr Sunak will have to take the bull by the horns at some point in the next few years with a carefully thought-through route out of long-term debt.

Alternatively, Mr Sunak might prefer to wait until he moves into number 10 and allow his successor at the house next door to take the flak.

Replies (6)

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23rd Jul 2021 12:43

Controversial proposal - bring property and dividend income into charge for NIC. Don't all bite my head off all at once.

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By dmmarler
23rd Jul 2021 17:35

Why not just change everything? Taxes in the UK are not hypothecated. Change the tax structure completely so there is no longer any NIC (ers or ees) and just call the overall percentage tax "combined personal tax" (rather than "income tax" and "NIC") for individuals. Change various allowances to simplify. Then use the opportunity for cost savings - a simple tax system needs far fewer HMRC staff, estate, IT and associated overheads. I am sure it could be justified as it does not increase Income Tax or NICs, as they will no longer exist.

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By HowardLHartness
25th Jul 2021 16:49

The whole tax regime should be abolished and replaced by one tax rate i.e 15%. There should be no tax allowances, no pension tax relief in fact no tax reliefs whatsoever. This means that any income earned should be taxed at 15% be it £20,000, £ 200,000 or even £2,000,000. This would eliminate the big earners from trying to find tax loop holes especially as there would be none. I can see firms like audit firms and tax specialists being dead against this type of taxation regime as this would mean a serious drop in revenue from most "tax advisory " departments. Just thought I would put this idea out there for discussion!!

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By spilly
26th Jul 2021 13:29

Why can pensioners not pay some NI? After all, they are benefitting from using the NHS, and probably to a greater extent than any other time in their lives.
It would have to be at a reduced rate though, as there would be no element of pension contribution needed. Even at 2 or 3% of income over the current tax threshold, the yield could be quite significant. (Yes, I am aware that NI starts at a lower rate, but maybe it could rise to match the tax threshold if this was introduced).

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By David Heaton
27th Jul 2021 14:01

When Gordon Brown added 1% to ERs, EEs and S/E NICs (with no increase in benefit levels), it raised £8bn that was (and still is) hypothecated directly to the NHS, so there's no practical reason why a hypothecated levy of some kind can't be added to fund social care, or indeed the NHS backlog plan (assuming BoJo actually has one - probably the same blank back of the envelope Philip mentions in the article).

Now is not the time to go for a wholesale demolish-and-rebuild job on the tax system, and combining IT and NICs is never going to happen. It's too complex, linking the domestic system with international obligations (tax and NI treaties being very different beasts), and dealing with the very long tail of historical entitlements for tens of millions of voters who will give the party that scraps them a good kicking.

What we need is a sustainable injection of significant cash. Given that social care is an issue for the whole of society, everyone needs to chip in. Increasing income tax for all but the poorest has to be the logical, equitable source of those funds. There's no reason why pensioners shouldn't make a contribution to their own care - plenty of other countries collect a small levy from them. Simple means-testing applies via the single personal tax allowance, and collection is simple.

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By dmmarler
28th Jul 2021 15:10

David Heaton is suggesting that a hypothecation sold to the public when Gordon Brown was Chancellor still exists? By now this nicety - if it ever existed - will have long gone. All tax and NICs will just be lumped together as income. I agree the government is going to need more income from tax BUT it also needs to spend less on collecting it! That means making the whole system more simple and efficient to run, with fewer civil servants, etc. Further, you need to recall that pensioners are often ignored and brushed aside by both the NHS and Social Services at the moment, so they and their relatives will be up in arms if they have to pay NICs on their tiny incomes (bearing in mind that NICs cut in at an earlier point than the personal allowance).

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