The government's reported plan to tackle social care reform, by hiking National Insurance contributions, has sparked criticism from the industry over its “regressive” nature, which will see younger workers shouldered with the cost.
The rumoured NI hike, which is expected to be announced next week, is anticipated to be anywhere between 1 and 2 per cent, with health secretary Sajid Javid reportedly pushing for the higher rate.
The proceeds will then be split between funding care costs above a certain cap, and providing funds for the NHS.
But as it is National Insurance, as opposed to any other tax such as income tax, the increase will only apply to the 26m people in active employment, not pensioners.
With no clear plans to make National Insurance payable on earned income over the state pension age, experts have aired their concerns over how this tax increase will impact younger savers.
Shaun Moore, tax and financial planning expert at Quilter, said prime minister Boris Johnson “clearly hasn’t read the room since the plans were last floated and then shelved in July”.
He added: “The cabinet threatened a revolt then, and they are making the same threat now given the regressive nature of a hike in National Insurance.
“Those on lower incomes and the young will pay relatively more, and those working over state pension age pay nothing at all. The optics of such a proposal are not great.”
In July, Johnson, Javid, and Chancellor Rishi Sunak came close to announcing the tax rise, but then had to isolate due to Covid-19. With just a week until parliamentary recess, the plans were shelved.
“The PM had the time to go back to the drawing board over the summer recess but decided to make no changes. He could have instead favoured an increase in income tax, or a removal of the National Insurance exemption for those above state pension age," Moore said.
“Removing the National Insurance exemption won’t raise that much in the grand scheme of things, but it would at least make it seem that everyone is in the same boat.”
Keeping it fair
In an interview with Radio 4, former health secretary Jeremy Hunt agreed a National Insurance rise was unfair in nature.
“Since older people are the biggest beneficiaries, it’s fair they should make a contribution,” he said. Instead, he suggested an alternative tax rise, which doesn’t “disproportionately target the young”.
Representative body the Independent Care Group, whilst welcoming the reform, echoed Hunt’s sentiments.
Chairman Mike Padgham said: “Personally, I think an increase in income tax might be a fairer way to do it, but no doubt the details will be ironed out in the future.”
He said the ICG had waited 30 years for reform, with 1.5m people currently not getting the care they need.
As part of the National Insurance rise, the NHS would benefit from the funds too in order to help cut down wait times. According to reports, the hike could raise around £10bn a year for the Treasury.