A National Insurance Rise is the Worst Way to Pay for Social Care – Just Raise Income Tax instead

Social Care in the (Dis)United Kingdom is in crisis and has been for a very long time. It is criminally underfunded and many providers are inadequate to the point of negligence.

This is not a matter of opinion. Successive governments have admitted this for decades, but we are still waiting for a government, any government, to do something about it.

Theresa May put proposals in her 2017 manifesto but they were rejected to the point of probably costing her the slim majority she went into the election with. When Alexander Johnson became Prime Minister in 2019, he pledged to sort out the Social Care system, going so far as to say that he already had a plan and we’d get to see it in short order.

Two years later, we’re still waiting—although in fairness to Johnson there has been the small matter of a global pandemic to deal with which could well have contributed to the delay.

Last week, details began to leak out about aspects of the plan, primarily how it was going to be funded, and we are told to expect to see more details this week. We shall see if those details are forthcoming or not.

But the leaks we have seen have been, shall we call them “interesting.”

It seems that Johnson’s grand plan is the “go-to” solution of governments down the years—a National Insurance rise.

And in my opinion, this is the worst possible way to raise funds.

I hate National Insurance. It’s the worst tax in this country. Its name makes it seem like it’s not a tax at all but a form of insurance, which I believe was its original intent, but these days the funds raised from NI simply go into the same pot as all the other tax funds. The only sense in which it is “insurance” is that you need to have made NI ‘contributions’ in order to qualify for certain state benefits, most notably the state pension.

NI is paid by workers on earned income and by employers on the salaries of the workers they employ. It is, in a very real sense, a tax on employment. It is also paid by self-employed people on the earnings of their self-employment.

NI is not paid on unearned income—that is to say that it is not paid things like dividends on shares you hold, interest on funds you have in the bank, rental income on any property you own and, interestingly given the reason they are looking at raising it, pension income.

National Insurance has also provided something of a “cover” down the years for governments of all flavours to claim at the next election that “we didn’t increase income tax”. Strictly speaking, that’s correct, but in practical terms, it’s an outright lie for everyone who happens to be employed.

It also allows a Government to claim the “Tax-Free Allowance” is much higher than it actually is—in the tax year 21/22 the Personal Allowance is £12,750, but you start to pay NI when your monthly earnings go above £797, which for a twelve-month period is £9,564—that’s £3,186 less than the Personal Allowance.

So I have a fundamental problem with NI as a tax anyway. I think it’s way beyond time it was scrapped and replaced with an employment tax for employers and a massive restructuring of the income tax rates for individuals. But using NI to raise funds for the purpose of Social Care, as opposed to raising Income Tax for the same purpose, seems to me to be deeply, deeply unfair.

Are we really saying that only workers should pay for the national Social Care? That those living on Pensions, rental income, dividend income or interest shouldn’t have to make a contribution? Why is that? The only possible reason I can think of is that people in those four categories are, in a very broad generalisation, more likely to vote for Johnson’s Conservative Party than if they were not in one of those categories.

There is a suggestion that we may also see a tax on dividend income as part of the plans in a hastily added concession to people like me, but that doesn’t really alter that this rise should, quite simply, be on Income Tax rather than NI. And I think that choosing to hit NI is very cowardly of this government indeed.

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