Boris Johnson has abandoned his pledge not to raise the main rates of tax, as he set out plans to overhaul adult social care and deal with the Covid backlog in the NHS.
Here is what the proposal entails and who it will affect the most.
What are proposals?
The government is lining up an increase to National Insurance - a tax deducted automatically from workers' payslips - to fund the government’s long-awaited social care reforms.
Mr Johnson said the additional revenue would pay for the biggest catch-up programme in the history of the NHS in England, with £12 billion a year over three years to help deal with the backlog of cases built up during the pandemic.
It is estimated therefore that the move will raise £36 billion in total, with the vast majority going to the NHS and £5.4 billion funding social care.
Of that £5.4 billion, £2.9 billion would be left over three years for reform.
Meanwhile, from October 2023, anyone with assets under £20,000 will have their care costs fully covered by the state, while those with between £20,000 and £100,000 will be expected to contribute to their costs but will also receive state support. Nobody will have to pay more than £86,000 for care costs in their lifetime from October 2023.
When will they come in?
The changes to National Insurance will kick in from April 2022, the start of the new financial year.
It's important to note that this new lifetime limit of £86,000 on care costs applies only for those starting in care from 2023.
This means those already in care would have no cap on costs and face using up all but £23,250 - the current limit at which state support ends - of their savings.
What you pay would be towards care:
How is it being paid for?
A new UK-wide 1.25% rise in National Insurance contributions as a 'health and social care levy.'
This means someone earning £30,000 would pay £255 more in a year.
In addition to the health and social care levy, there will also be a 1.25% increase in the dividend tax – to ensure those who receive their income from shares also contribute.
Who does it affect?
National Insurance contributions are based on weekly financial thresholds, with 0% due on the first £184 earned, 12% on sums between £184.01 and £967, and 2% on remaining earnings.
According to the Office for National Statistics, the average weekly wage in Great Britain is £576, with a weekly National Insurance contribution amounting to £47.04 (8.16%).
So anyone whose primary earnings are above the £967 (2%) threshold, or just over £50,000 a year, ultimately pays a proportionately lower rate than those who have the bulk of their earnings in the 12% threshold.
As such, much of the criticism of the plan revolves around the unfair impact a National Insurance hike would have on young and lower income workers.
How it works with devolved powers?
The social care plan applies to England only, but Scotland, Wales and Northern Ireland will receive an additional £2.2 billion in additional health and social care spending from the levy.
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