The UK government is reportedly preparing to hike National Insurance by as much as 1.25 per cent to cover more of the nation’s social care costs.
Around 26m people will be affected by the tax hike, which is expected to be announced sometime next week, according to reports.
In return, prime minister Boris Johnson intends to cap the social care costs paid by any one person in their lifetime in the region of £60,000 to £80,000.
According to The Telegraph, the tax increase has been in the works for months but the size of the increase is still to be agreed.
Whilst the government is keen to settle on 1 per cent, it is potentially looking at a higher 1.25 per cent rise.
This means the NI rate paid on someone’s first £50,000 of income would increase from 12 per cent to 13 per cent. The rate applied to income above that would rise from 2 to 3 per cent.
Money from the increased tax hike will be split into two areas - one being a cap on social care costs, and the other being the NHS in order to cut down on wait times exacerbated by the pandemic, The Telegraph reported.
The former will work by the government stepping in to pay someone’s social care bill once they reach the cap.
This plan will include a ‘floor’ on the amount of assets people can have to be eligible for state help with their social care costs. Reports suggest this ‘floor’ could sit at around £100,000.
Currently, those with overall wealth of less than £23,250 are supported by the government for social care costs.
The tax rise, if announced, will break the Conservative Party’s December 2019 manifesto, which promised “not to raise the rates of income tax, National Insurance or VAT”, claiming the party’s focus was on cutting the tax.
It is expected to affect around 26m people who currently pay National Insurance in the UK, according to an estimate by the Resolution Foundation think tank.
According to reports, it could raise around £10bn a year for the Treasury.
In November, Chancellor Rishi Sunak provided local authorities with an extra £1bn of social care funding.
As part of the Chancellor’s spending review last year, the government said it was committed to improving the adult social care system and intended to bring forward proposals on how to do this in 2021.
ruby.hinchliffe@ft.com
