Boris Johnson faces ‘almighty row’ with Tory MPs and his cabinet over plan to increase national insurance to pay for social care as he is warned the tax hike is ‘morally, economically and politically wrong’
- Boris Johnson expected to increase national insurance to pay for social care reform
- But the prime minister faces growing backlash as Tory MPs and ministers blow up the plan
- Increasing National Insurance Would Break the Promise of the 2019 Tory Election Manifesto
Boris Johnson has faced mounting reaction from Tory over his plan to increase National Insurance to pay for social care reform, as he was warned the proposal is “morally, economically and politically wrong”.
The Prime Minister is expected to announce a new NHS and social care levy this week to fund healthcare and improve support for the elderly.
But the levy is expected to consist of at least a one percent increase in workers’ and employers’ national insurance contributions (NICs), putting millions of workers at risk.
Ministers, MPs and Conservative luminaries have all warned Mr Johnson not to go through with the move as it will break a key promise in the 2019 Tory election manifesto not to raise taxes.
There is also growing fear of a hammer on the ballot box in future elections of younger workers who will be disproportionately affected by the increase.
The spat comes amid growing Westminster rumors that Mr Johnson could reshuffle his cabinet as early as Thursday, as part of a plan to relaunch his government before the fall.
The rumors started after some advisers were told to “block their calendars” before the end of the week, with favorites of Secretary of State Dominic Raab and Education Secretary Gavin Williamson to be moved.
Boris Johnson faces mounting reaction from Tory over plan to increase national insurance to pay for social care reform
The Prime Minister is expected to announce a new NHS and social care levy this week to fund health care and review help for the elderly.
Who pays for the national insurance schemes and how much would an increase of 1% yield?
National insurance contributions, commonly known as ‘NICs’, are the second largest tax in the UK after income tax.
The system was introduced in 1911 as part of the first benefit system and was renewed after the Second World War.
According to the Institute for Fiscal Studies, the levy is expected to bring in nearly £150 billion for the Treasury in 2021/22, accounting for about 20 percent of all tax revenues.
The money generated is used to pay state benefits, such as the state pension.
It is paid by employees and the self-employed on the money they earn and by employers on the income of their employees.
An estimated 26 million people pay National Insurance. However, it is a direct burden on those who work. Benefits end when people retire and receive their state pension, meaning retirees are not affected by the move.
A one percent increase in the value of National Insurance would add a triple-digit hit to annual payments by all but the lowest paid, according to an analysis by accounting firm Blick Rothenberg.
No NI is paid on income less than £10,000. Those who earn that amount pay an additional £4 per year. Those with £15,000 would have to cough up an extra £54 a year, while those with £25,000 – below the UK average wage – would pay an extra £154.
The figure rises to £254 for those on £35,000 salary, £404 for those on £50,000 and £654 for those on £75,000.
A typical worker making £1,000 a week will not pay National Insurance on the first £184 in their pocket.
They then pay 12 percent, about £94, on the income between £184 and £967, and then two percent on the remaining income above £967.
That means the National Insurance payment for the week is just under £95, according to Treasury estimates.
According to the responsibility of the Office for Budget, NICs raised £145 billion for the treasury for the 2019-20 fiscal year – 17.5 percent of all tax revenues and equivalent to £5,100 per household.
This figure was higher than £56.9 billion 20 years earlier in 1999/2000. But as a percentage of GDP, it has remained fairly constant over the same period, varying between 5.3 percent and 6.8 percent.
The Conservative Party’s 2019 general election manifesto made a strong commitment not to raise taxes.
It read: ‘We promise not to raise income tax, national insurance or VAT rates.
“This is a tax guarantee that will protect the incomes of hard-working families in the next parliament.”
Tory backbenchers fear they will get a massive backlash from the public if Mr Johnson goes ahead with plans to increase National Insurance now.
Johnson said in his maiden speech as Prime Minister on July 24, 2019 that “we will resolve the social care crisis once and for all with a clear plan we have put in place to give every elderly person the dignity and security they deserve.”
He faced continued criticism from his political opponents and campaigners for not putting the plan forward.
Johnson is expected to argue that the new levy is needed to save the NHS and clear the rising backlog of appointments.
A one percent increase in NI would bring about an additional £10 billion for the Treasury.
But the prospect of a tax hike has enraged the Tory, with at least five cabinet ministers reportedly opposing the move.
The proposed increase is expected to dominate proceedings in Westminster this week as MPs and colleagues return to work after their summer break.
A senior government leader told the Sunday Telegraph that a tax hike would be “idiotic”, while a source said it will be “either a very big quarrel or an all-powerful feud” with Tory backseats.
A cabinet minister told the newspaper: ‘Setting up a national insurance policy would be morally, economically and politically wrong.
“It starts at a low level and there are all kinds of exemptions that benefit the rich.
“If you get all your income from investments and real estate, you won’t pay a cent, but if you try your best for minimum wage, you’ll get beat up.”
The minister warned of a ‘tax attack on supermarket workers and nurses so that the children of Surrey homeowners can get bigger inheritances’.
Steve Baker, the former Brexit minister, demanded a different approach, saying: ‘Of all the ways to break manifest tax commitments to fund the NHS and social care, raising NIC has to be the worst.’
Former Prime Minister Sir John Major echoed a similar sentiment when he said increasing National Insurance would be a ‘regressive way’ to generate additional revenue.
He called on the government to “do it in a simple and fair way and tax”.
The exact terms of the NHS and social care levy are yet to be finalized amid disputes over the size of the tax hike and future funding for health care.
Downing Street had hoped to reach an agreement with the Treasury on the new levy early yesterday and to announce the details on Tuesday.
But Mr Johnson and Chancellor Rishi Sunak are reportedly still on the same page about the proposal.
Early last night, Mr Sunak was still demanding the Prime Minister’s guarantee that, once introduced, the £10bn a year levy would cover the cost of clearing the NHS’s Covid backlog – and that he would not be forced would make additional money from depleted treasuries.