National Insurance contributions will rise by 1.25% to pay for the social care system in England in a bid to end the “unpredictable and catastrophic costs” faced by many.
A social care package, which the prime minister has called “the biggest catch-up programme” in the NHS’s history, will be funded through a new, UK-wide 1.25% health and social care levy’ from April 2022.
The plan was signed off by ministers at a Cabinet meeting earlier after days of fury from Tory backbenchers and Commons Leader Jacob Rees-Mogg confirmed MPs will vote on the proposals on Wednesday.
The 1.25 percentage point increase is expected to raise about £12bn which, in the early years, will mainly be used to fund dealing with the NHS backlog.
This includes £2.2 billion a year for Scotland, Wales and Northern Ireland, as tax changes affect the whole of the UK.
Announcing the plans in the Commons, Prime Minister Boris Johnson said the costs of the programme will be split between individuals and businesses and “those who earn more will pay more”.
From October 2023, anyone with assets under £20,000 have their care costs fully covered by the state, while those with between £20,000 and £100,000 will be expected to contribute to their costs but will also receive state support.
He added that there will be a cap of £86,000 on what people will be asked to pay over their lifetime for care.
The increase will be used exclusively on health and social care, and will raise £36 billion over the next three years, the PM said.
He told MPs the measures will cap COVID backlogs in hospitals by increasing hospital capacity “to 110% and enabling 9 million more appointments, scans and operations”.
“As a result, while waiting lists will get worse before they get better, the NHS will aim to be treating around 30% more elective patients by 2024-2025 than before COVID,” the PM said.
The PM’s plan to overhaul the social care sector includes:
• A government pledge to invest £36 billion over the next three years to help the NHS recover from the pandemic.
• To also invest in reforming the social care sector.
• A promise that from October 2023, nobody will pay more than £86,000 for their social care – regardless of their assets.
• That the government will fully cover the cost of care for those with assets under £20,000, and contribute to the cost of care for those with assets of between £20,000 and £100,000.
Mr Johnson said he accepts that the measure breaks a Tory manifesto pledge not to hike National Insurance, but that it was a necessary move due to COVID financial pressures.
“No Conservative government wants to raise taxes, I will be honest I accept this breaks a manifesto commitment. It is not something I do lightly but a global pandemic wasn’t in anyone’s manifesto,” the PM told MPs in the Commons.
“This is the right the reasonable and the fair approach. I think the people of this country understand that in their bones and they can see the enormous steps that this government and the Treasury have taken.”
The PM’s official spokesperson said the change will make “the system fairer for all” and noted that working adults above pension age will also contribute to the new levy.
“The levy will be paid by working adults including those over the state pension age. From April 2022, while systems are being updated, NICs rates will rise by 1.25%,” the spokesperson told reporters on Tuesday.
“Then, from April 2023, once systems are updated, the levy will be separated and the exact additional amount each employee is paying through the levy will be visible as a separate line on an individual’s payslip.
“It is at this point that working adults above pension age will contribute to the levy.
“Individuals will contribute according to their means and those who earn more will pay more.
“A typical basic rate tax payer earning £24,100 will contribute £180 – that’s £3.46 per week. A typical higher rate tax payer earning £67,100 – the top 15% of earners – will contribute £7.15.”
Referring directly to those who have opposed the National Insurance hike and suggested income tax should be raised instead, the PM said this would not generate the same amount.
“Income tax is not paid by businesses, so the whole burden would fall on individuals, roughly doubling the amount that the basic taxpayer could expect to pay and the total revenue from capital gains tax amounts to less than £9 billion this year,” he told the Commons.
“Instead, our new levy will share the cost between individuals and businesses, and everyone will contribute according to their means, including those above their pension age.”
The PM also announced that there will be a 1.25% hike in the amount of tax that is paid on income from share dividends to help cover the costs of the social care package.
Ashish Joshi, health correspondent
The prime minister’s plans for health and social care reform have been almost universally welcomed as a good start.
But the positive response was quickly followed up with a warning they do not go far enough and the spending review settlement leaves a shortfall for the next financial year with a continuing funding gap into the future.
A recent report says the health service needs around an extra £10bn of revenue funding.
It is estimated the NHS requires up to £5bn just to cover the extra day-to-day running costs that are being driven by COVID-19.
Health Secretary Sajid Javid warned the current five million-strong waiting list could spiral to 13 million people so it makes sense to target this first.
But NHS leaders say this funding gap will mean they will not be able to make a dent on the waiting list unless significant cuts are made in services elsewhere.
The prime minister has to be congratulated for grasping the social care reform nettle. Successive governments have ducked the issue and continued to underfund the sector exacerbating the crisis.
But again here, Boris Johnson’s plans for reform have been welcomed as bold and positive but with the caveat they are not nearly enough the fix the system.
The introduction of a cap on social care costs will finally provide people with greater certainty about the future costs they may face.
Understandably, the headlines will focus on this but care providers will argue that little has been made available for people under 65 who rely on the publicly-funded system and make up a third of all users.
It is hoped decisions on wider funding and reform, not tackled today, will be addressed in the autumn spending review.
Labour leader Sir Keir Starmer asked if the PM’s new plan will still lead to people selling their homes to fund care.
“Let me spell that out – a poorly-paid care worker will pay more tax for the care that they are providing without a penny more in their pay packet and without a secure contract,” he said.
“The alternative is obvious: a timetable, a plan to clear waiting lists just as we did under the last Labour government, a comprehensive report planned for social care dealing with the inadequacies I have just pointed out, and driving up the equality of provision, and not just tinkering with the funding model.
“We do need to ask those with the broadest shoulders to pay more and that does include asking much more of wealthier people including income from stocks, from shares, from dividends and from property.”
Posting on social media, Labour’s deputy leader Angela Rayner added: “This is not a plan to fix social care. Describing it as such is an insult to everyone who works in social care and everyone who relies on social care.”
The leader of the Liberal Democrats Sir Ed Davey – who himself is a carer – described the government’s new health and social care levy as an “unfair tax”.
Meanwhile, the SNP’s Westminster leader Ian Blackford referred to the move as “the prime minister’s poll tax on Scottish workers to pay for English social care”.