Is Boris Johnson right to fund both health and care from a single levy?

Has Boris Johnson taken the biggest gamble in his tax hike? Credit: PA

Possibly the biggest risk Boris Johnson's has taken with his £12 billion a year of increased taxation to fund the NHS and social care is that people won't understand it. It is not pellucidly simple and transparent.

His plan includes a manifesto-busting increase of 1.25% in National Insurance (NI) paid by employers and employees, that in law must be spent on health or social care (to be clear, this law has zero economic substance, it is PR guff, since no pound being spent has a clue where it came from, and such a law would not prevent those parts of the health and social care budgets that are financed from general taxation being cut one day by an equivalent £12 billion).

To be clear, this is a big increase. It is the equivalent of a 2% increase in the basic rate of income tax.

Which is not small beer.

This is not so much a breach of Johnson’s election manifesto “no personal tax rise guarantee” as a total shredding of it.

From April 2023 that 1.25% increment will no longer be mainstream NI. Instead it will become a special health and social care levy, a special surcharge.

Also unlike normal NI, those above retirement age who are still working will pay it.

Finally, there will be an accompanying rise of 1.25% in the taxation on dividends.

With me so far?

For the first three years, most of that £12 billion a year will go to the NHS to clear a potential record and humungous backlog of 13 million procedures that is being spawned by the Covid-19 crisis.

After that most of the cash will be directed towards increased subsidies for social care - which will become necessary because of a twin set of associated reforms to limit social care costs for everyone, via an £86,000 cap on what each of us would pay in a lifetime of receiving care, and a £100,000 floor on our savings, which will be the threshold for getting any kind of means tested help.

Trying to boil this down, it is that personal and business taxes are going up by £12 billion a year, including for some on lower incomes and smaller companies, first to help the NHS catch up with all the important treatments and investigations that Covid put on hold, and then to create a broadly based state-insurance system for adult care.

There will be tons of criticisms of and quibbles with this plan, such as that

1) the burden of the tax isn't being shouldered enough by richer older people,

2) that it is a weird anomaly that rents aren't subject to the new levy,

3) that it is undermining devolution to use the UK-wide national insurance levy to fund it,

4) that it is unfair to deprive those already in care of the £86,000 cap on their costs,

5) and that the £86,000 cap will only turn out to be real if we see a massive increase in local authority funding.

Probably the most important concern is that the failure to ring fence this money strictly for social care right from the start means that in practice the social care system will never find itself properly funded, because the demands of the NHS will always take precedence, and that in three years time the NHS will be shouting and screaming that transferring the lion's share of the £12 billion to social care will leave hospitals in a parlous state.

Boris Johnson may be brimful of intent to build the Jerusalem of a care system fit for a rich country like the UK. But that's been promised so often over years and years, a degree of scepticism is not churlish.