An independent think tank has warned of the “hidden” and “significant inequalities” embedded within the government’s new social care policy, which will affect generations.
Yesterday (7 September), the prime minister confirmed a 1.25 per cent hike in National Insurance alongside a further 1.25 per cent dividend tax to fund a cap on social care costs.
The tax rises - renamed a ‘health and social care levy' by the government - will affect a broader section of society including workers over the state pension age.
However, UK think tank Resolution Foundation said the changes will still have “a clear generational impact”, and that this has been “hidden within the broad focus on the progressive impact across the income distribution”.
Calling the tax rises “anything but straightforward”, the think tank said they “too-narrowly fall on the earnings of the working-age population”, rather than on wider sources of income, or on those aged 66-plus.
“This creates significant horizontal inequalities, where people who should be treated in a similar way very much are not,” it said.
The think tank’s report, published today (8 September), calculated that the typical 25-year-old will pay an extra £12,600 over their working lives from the employee part of the government’s new tax rise alone.
This is compared to nothing for a pensioner relying on pension income. “Pensioners with earnings will have to contribute something, but only 17 per cent of pensioner families are in that position,” the report highlighted.
Some 65 per cent of pensioner families receive some private pension income, which is exempt from NI and will not attract the new dividend tax either.
And whilst pensioners are more likely to hold shares, many will be unaffected by the change in dividend taxation because of the £2,000 threshold and the fact ISAs are tax exempt.
Policy ‘may not live up to marketing’
The think tank has also accused the government’s new social care policy of potentially not being all it’s cracked up to be.
As a result of the tax hikes, Johnson has promised to cap the cost paid by any one person for social care in their lifetime.
Set at £86,000 for people entering care from October 2023, the subsidy will help those with assets under £100,000.
“The policy may not live up to its marketing,” the think tank said. “With those in modest homes with few financial assets still needing to put a charge on their homes if they need significant residential care.”
Resolution Foundation’s analysis suggested the cap will offer most protection to those living in high wealth parts of England.
It said a cap set in cash terms “offers far more protection to those with higher-value assets to lose”.
It added: “The way in which care costs are likely to be calculated will also mean that those in more expensive areas will hit the cap more often (and therefore benefit more from the policy existing versus the status quo of no cap).”