The proposed “social care tax” is the government’s first step to break the “triple lock” promise, as it looks to repay the enormous cost of the pandemic and the country’s crippling national debt, say leading tax and advisory firm Blick Rothenberg
Nimesh Shah, CEO at the firm said: “Today’s suggestion by the Justice Secretary, Robert Buckland, proposes a minimum universal 1% increase to National Insurance, which could raise £38 billion over three years. The money would be directly channeled to the NHS and for social care.”
He added: “The National Insurance increase would impact employees, employers and the self-employed. The severe risk for the government is that the move is a tax on jobs, which dampens the economic recovery.
“The estimated £38 billion over 3 years would still only scratch the surface of the £300 billion cost of the pandemic, and £2 trillion of national debt.”
Nimesh said: “Simply put, this move breaks the triple lock, however the government decides to badge the tax increase, and could cost the average earner £200 a year.
“The Chancellor, Rishi Sunak, had tempered talk of tax increases to pay for the cost of the pandemic in recent months, as the economy strengthens. As the Chancellor starts to prepare for his Winter Statement, the government has made its first noises around future tax rises.”
He added: “There has also been growing pressure for the government to break the pensions “triple lock”, which could see the state pension increase by a staggering 8% costing the government around £7 billion a year.
“The amounts raised from a 1% National Insurance hike would serve cover the state pension increase, leaving a modest £5 billion leftover for social care (if that is actually the target). Perversely, pensioners would not be affected by the National Insurance increase, as over-65s do not pay this (unless you are self-employed).”
Nimesh said: “The government appear more reluctant to scrap the pensions ‘triple lock’, at the risk of upsetting a key part of the electorate. However, it would be grossly unfair if pensioners did not share any of cost burden, yet benefitted from the continued state pension increase.”
He added: “This first serious move by the government to increase National Insurance could now open the door to other tax increases, potentially adding more to income tax, harmonising capital gains tax rates and reforming inheritance tax. Corporation tax is already confirmed to increase by 6% from 1 April 2023.”