National Insurance (NI) contributions could rise by 1 percentage point to fund long-term care reforms, according to reports.
This implies the employee NI rate on earnings below £967 per week could rise from 12% to 13%.
At the moment NI contributions are only paid by those below the UK state pension age of 66.
Increasing employee NI rates would boost the attractiveness of salary sacrifice pension contributions.
Tom Selby, senior analyst at AJ Bell, comments: “After decades of prevarication by successive Governments, the Coronavirus pandemic may be the crisis that finally forces politicians to take meaningful steps to address the UK’s long-term care crisis.
“It is not yet clear what Prime Minister Boris Johnson’s long-term care solution will look like, although previous administrations have considered a cap on costs set somewhere between £50,000 and £80,000.
“Hiking National Insurance contributions – perhaps from 12% to 13% for employees – would be the simplest way to fund this reform as it utilises the existing tax framework.
“However, it would also break a central Conservative manifesto commitment and leave the Government open to accusations of an intergenerational raid, with younger people paying for reforms which immediately benefit older people, most of whom won’t be subject to National Insurance.
“If NI rates are increased then salary sacrifice pension contributions – which benefit from both income tax and NI relief – will become more attractive.
“The Government may try to badge this as a ‘social care levy’ separate to National Insurance contributions. This would, on the face of it at least, keep its pledge not to raise NI rates intact – although whether or not voters would see it that way remains to be seen.”