Prime minister Boris Johnson is looking at increasing national insurance to fund long-term reform of social care.
Johnson and senior ministers have reportedly agreed to raise NI to reduce NHS waiting times and fund a cap on social care.
It is expected that payments will increase by 1 percentage point - to hit both employers and employees - which will raise an extra £10bn per year, The Times reported this morning (July 20).
At a press conference yesterday (July 19), Johnson dodged the question of whether he planned to raise taxes or national insurance.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “Choosing to raise NI over income tax has two distinct effects. It hits people on lower incomes faster, because NI kicks in at £9,568, while income tax does so at £12,570.
“It also only affects people between the ages of 16 and the state pension age. It means that older people could be unaffected by the change.”
It comes after the Financial Times, FTAdviser’s sister publication, reported last week (July 16) that the prime minister hopes to announce a plan for social care before MPs depart for their summer holidays later this month.
One government official said it was “50-50” whether he could strike a deal with the chancellor in time, the FT reported.
But Coles believes with them both self-isolating at the moment, and MPs due to go on summer break soon, it’s more likely that any major announcements will come in the autumn.
“At that point, we’ll be heading towards the budget, and there’s the chance the tax floodgates will open,” Coles said.
“We can’t be certain what changes lie ahead, but we can be increasingly confident that life isn’t going to get any easier for taxpayers, and tax allowances are unlikely to get more generous.
"For savers and investors this means it’s well worth considering whether it makes sense to take advantage of current allowances while you still can.”
Social care reform has been on the agenda for a while, with successive governments promising to address the issue and then subsequently not following through with their promises.
The prime minister has promised repeatedly to 'fix' the social care system and the Conservative party manifesto promised to address the issue. In a speech in late June last year he said the government was ‘finalising’ plans to solve the issue.
Despite this, social care funding was once again absent in this year’s March Budget.
As part of the Queen’s Speech, delivered in May, the government said it was committed to improving the adult social care system but gave no further details on how it would achieve this.
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