Maheen Behrana explores how the rise in National Insurance to fund the broken social care system reveals how little the public understands about taxes – something the governing party is happy to take advantage of
As Boris Johnson breaks a manifesto pledge and raises National Insurance to reform our ailing social care system, few who oppose this Government are surprised to see the Prime Minister reneging on yet another promise.
But Johnson’s usual cheerleaders in the right-wing media are stumped. The Telegraph has described the rise as a “tax grab” (before swiftly moving on to tell readers how to avoid it). While the Sun deems his policy a “gamble“. The Daily Mail urged Johnson to make sure the levy is worth it.
But Johnson is not simply breaking a manifesto pledge, he is radically altering what the Conservative Party stands for.
For some on the right, this tax rise is a socialist move. But the 10% increase in National Insurance is not a radical move in the slightest. It is a cynical attempt to capitalise on public emotion and a general ignorance about taxation. Ultimately, it will consolidate the wealth of elites, while placing enormous financial constraints on ordinary people – many of whom will already be hard hit by cuts to Universal Credit and projected rises in inflation.
But, when polled, the UK public seems to be remarkably agreeable to the idea of an increase in National Insurance. Prior to the Commons debate on Tuesday, two-thirds of those surveyed said that they would support a 1% rise in National Insurance payments in order to reform social care or tackle the NHS backlog (although more recent polling suggests that this enthusiasm may have waned, perhaps as a result of media opprobrium).
The willingness of the public to support the NHS and social care is admirable. It is a sign not just of public compassion, but of the emotional pull that it these services have for the British public. But this pull is something that the new levy wilfully exploits.
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While people understandably want to do their bit to support the services that have kept us all afloat throughout the Coronavirus pandemic, an extra income tax levied on basic rate earners is not the fair solution.
Yet fair or foul, Boris Johnson is able to take advantage of public goodwill and the lack of public fiscal literacy to present this tax rise as both necessary and fair.
Public understanding around taxes is poor. The initial rumours that a permanent National Insurance rise was on the cards indicate that the Government realises that the vast majority of people don’t appreciate the fact that National Insurance is just income tax by any other name – and a tax that disproportionately affects younger and lower-paid workers.
It is only levied at 2% on earnings of more than £50,284 (while 12% is levied on all earnings below that), and it is only paid by those below state pension age. Earnings from dividends or rental income are not liable for National Insurance.
Nevertheless, even though there is public support for a rise in National Insurance, there were clear murmurings of discontent from within Johnson’s party – with some of its MPs concerned about how this would affect the ‘levelling-up’ agenda – and the wider political sphere.
And so was born the brand new ‘Health and Social Care Tax‘ which, from 2023, will be charged at a rate of an extra 1.25% on income. This will include rental and dividend income, and the income of working pensioners.
It certainly seems fairer than National Insurance increases, but that doesn’t actually make it fair.
Instead, it appeals to a public that values its health services. It creates an alternative tax which can gain emotive approval by not being rolled into ordinary income tax. It plays on the fact that 1.25% doesn’t sound like much – despite the fact that, combined with cuts to Universal Credit, the increases in National Insurance will mean many working families will be left poorer to the tune of £1,300 a year. It is a tax levied on the lowest earners as well as the highest – something that will hit hard at a time when lower-paid workers have often suffered financial hardship.