National Insurance To Rise To Pay For Social Care


MPs have approved the biggest personal tax rise in two decades to pay for a £12 billion-a-year package for the NHS and social care reform, reports The Times.

The tax will be used to clear NHS backlogs caused by the pandemic before going towards the long-term reform of the social care system.

Every worker will pay the 1.25 per cent tax on their earnings as part of a “health and care levy”. It will become the first significant new tax since VAT half a century ago — highlighted on tax returns and distinct from national insurance contributions. The tax will also be payable on Dividends, taking the rate to 33% for higher rate tax payers.

Pensioners in work will pay the new levy in a move that was added to the package late on Monday evening to ease the concerns of Tory MPs. They had worried that the cost of paying for the reform would fall entirely on the shoulders of younger taxpayers.

What the new 1.25% levy means for you

Employed earner (all figs in £)

Income NIC at current rates NIC at increased rate* Annual additional cost
10,000 52 57 5
20,000 1,252 1,382 130
30,000 2,452 2,707 255
40,000 3,652 4,032 380
50,000 4,852 5,357 505
60,000 5,079 5,709 630
70,000 5,279 6,034 755
80,000 5,479 6,359 880
100,000 5,879 7,009 1,130
125,000 6,379 7,822 1,443
150,000 6,879 8,634 1,755
* 1.25% increase on both NIC rates (to 13.25% and 3.25%)
Source: The Times


Over the next three years social care in England will receive £5.4 billion of the £36 billion raised by the tax, with the remainder going to the NHS, public health and Covid spending, and the devolved administrations. After this period the government envisages that social care spending will amount to £5.4 billion per year.

The new taxes will allow the government to increase health and care spending to £171 billion by 2023, well in excess of the £114 billion spent on the state pension, winter fuel allowances, pension credit and pensioner housing benefit.

Self-employed earner (all figs in £)

Income NIC at current rates**  NIC at increased rate*** Annual additional cost
20,000 1,097 1,228 130
30,000 1,997 2,253 255
10,000 197 203 5
40,000 2,897 3,278 380
50,000 3,797 4,303 505
60,000 4,016 4,647 630
70,000 4,216 4,972 755
80,000 4,416 5,297 880
100,000 4,816 5,947 1,130
125,000 5,316 6,759 1,443
150,000 5,816 7,572 1,755
** Includes Class 2 NIC paid at weekly amount currently £3.05 (assumed no change to this) *** Includes Class 2 NIC paid at weekly amount currently £3.05 (assumed no change to this) but increase of 1.25% in both main and lower rates (to 10.25% & 3.25%)
Source: The Times


Cap on care costs
The central new reform is a cap on individual care costs from October 2023, as Johnson finally enacts proposals first put forward by Sir Andrew Dilnot a decade ago and repeatedly put off by ministers. The cap will be set at £86,000, after Rishi Sunak won the argument over Johnson who wanted it set at £50,000, saving the Treasury about £1 billion a year.

The reform also includes a more generous means test, so that those with assets of less than £20,000 pay nothing and those with assets between £20,000-£100,000 get state help meeting the cost. They pay no more than 20 per cent of their assets each year with the state paying the rest of the bill.

In addition, people living in care homes still have to make a contribution to their food and accommodation costs of about £200 a week.

Ministers also promise to end “persistent unfairness” for those who pay for their own care, with fees 40 per cent higher than those paid by councils, pledging that everyone will be able to access local authority rates.

Dedicated health and social levy
National insurance will rise by 1.25 per cent next year but from 2023 Johnson aims to transform this into a permanent tax that will appear on payslips next to income tax and national insurance.

This is arguably the most significant new tax since the creation of VAT in the early 1970s. Johnson said it would be “required by law to go directly to health and social care”.

The Institute for Fiscal Studies pointed out that only 2 per cent of the money raised would come from pensioner households, compared with 14 per cent if the money had come through income tax, which is paid on pension income.

If you would like more information centred on your own personal circumstances, please contact us >>

Written by Colin Caulfield | Director

Colin is a Chartered Financial Planner & Pension Adviser Of the Year Read more >>

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