ALEX BRUMMER: The devastating national insurance tax couldn’t come at a worse time. The hike MUST be spiked
All of us who have had to help our elderly family members navigate through the trauma of social care know that the system is in urgent need of a fix.
Over the years, my family and I have experienced both the exorbitant cost of care homes and the inadequacies of social care in a family setting.
The bravery and kindness of the individual carers we’ve met has been nothing short of heroic. But the system in which they work is dysfunctional in the extreme.
No one wants to see hard-won personal savings or family homes snatched away in someone’s final years to meet the crippling cost of essential care. That is why the Mail has relentlessly campaigned for a better solution.
And when this Government finally made good on its long-standing promise to announce a fix for social care in the form of the 1.25 per cent National Insurance contribution increase, we welcomed that step with open arms.
It was a high-risk announcement, involving one of the biggest personal tax increases in modern times. Back in September, it felt like a bold move; a robust solution to a difficult problem.
But since then, economic conditions have changed out of all recognition and the only sensible response is to scrap the proposed tax hike.
Indeed, last night, Britain’s leading and respected economic think tank — the Institute for Fiscal Studies (IFS)— backed a delay of the increase for at least a year.
Since Chancellor Rishi Sunak introduced the Health and Social Care Levy in his September Budget, it has become something of an albatross around the Government’s neck. Today, with the country in the grip of a cost-of-living crisis, the looming April tax rise could not be coming at a worse time.
‘No one wants to see hard-won personal savings or family homes snatched away in someone’s final years to meet the crippling cost of essential care. That is why the Mail has relentlessly campaigned for a better solution’
The levy, which will raise £12 billion a year over the next three years, will impose an average bill of £600 a year on ordinary working families — families already feeling the pinch as inflation takes hold.
But the most frustrating aspect of the NI hike is that the new funding it provides won’t make the slightest difference to the provision of social care in the short term.
Initially, we are told, it will act as a post-pandemic boost for an already well-resourced but appallingly run NHS, before the money will then shift to social care.
What ministers failed to allow for — or rather badly misjudged — when they unveiled this levy was the savage impact of the pandemic on global supplies of goods and services, and the cost of energy in particular.
The result is the new tax is due to be applied just as the cost of living crisis reaches its peak, causing severe difficulties for families, individuals and businesses big and small.
The surge in consumer prices to a 30-year high of 5.4 per cent in December, with the prospect of it reaching 7 per cent or more by the spring, was plainly missed by policymakers.
As recently as November, the Governor of the Bank of England, Andrew Bailey — the person charged with combating inflation — described the post-Covid jump in prices as ‘transitory’.
It was only last month, as prices began to rise around the globe, that Bailey did a U-turn, raising the super-low official bank interest rate of 0.1 per cent to 0.25 per cent, and increasing mortgage costs for many homeowners.
There is no doubt spiralling energy prices have been the biggest factor in the inflationary surge.
They have been caused by factors largely beyond the Government’s control and, going forward, will be governed by global events such as how the terrifying military stand-off over Ukraine pans out. But these rises, in turn, have had a knock-on effect in the form of increased production costs in the manufacture of basic elements of household budgets, including food and clothing, which have all become more expensive.
Until now, the rise in the cost of fuel hasn’t been felt in personal energy bills. But come April — the same month the NI hike will kick in — the price cap is due to be revised, with gas and electricity bills for some 11 million households set to rise, potentially to more than £2,000 over a full year.
The impact will be punishing, with hard-pressed families and pensioners already agonising over impossible decisions, such as the ‘heat or eat’ dilemma: choosing whether to warm your home or feed your family.
In times of national emergency, governments have an obligation to act.
At the start of the pandemic, Boris Johnson and the Chancellor showed steely determination to prevent irreparable damage to jobs and companies through the furlough scheme, guaranteed loans for struggling businesses and individuals, and tax cuts for hospitality.
Now they need to do the same to avert the double whammy of higher inflation and spiralling household bills, paired with a big tax rise in April. Do nothing and they risk undoing all the good work on economic preservation throughout the pandemic.
The inflation and energy price shock may be beyond Whitehall and the Bank of England’s immediate control; but an artificially imposed tax hike can be spiked.
Cost of living rises aside, public finances are, of course, still going to be distressed as a result of unprecedented pandemic spending. The Treasury initially considered a levy on employers’ contributions of one per cent to fund social care, but Chancellor Rishi Sunak went far beyond that with the 1.25 per cent surcharge on employers and employees. In other words, a tax on jobs and work.
This was, of course, designed to bring down the huge Covid-induced Budget deficit as much as to deal with the needs of the NHS and social care.
But as the Government attempts to restore stability to the national debt, it is worth bearing in mind that it is still way below where it has been in times of war.
Borrowing has come down sharply, with the return of growth in many sectors, and there is also no shortage of buyers for UK government gilts (bonds issued by the Government to help finance public spending).
All of which means ministers do have the ability to roll back a tax rise, even if it means an emergency mini-finance bill to re-determine how funding is allocated.
Meanwhile, the idea the NHS is in desperate need of this fresh funding needs to be challenged. Anyone with any recent experience of healthcare will have witnessed at first hand the huge wastage of resources.
New data just released by the Office for National Statistics shows that, even before the pandemic, efficiency in the NHS was in decline, with productivity dropping by 1.9 per cent in the financial year ending in April 2020.
There’s a huge opportunity to improve performance without any new money.
And make no mistake: if the proposed tax hike goes ahead, it will be a devastating blow to the whole economy.
At present, the UK is forecast to be the fastest growing of the richest G7 economies as we bounce back from Covid.
A swingeing tax increase this spring, on top of the looming inflation threat, would derail the nation’s progress and, in the process, punish individual families.
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