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Highlights
- PM Boris Johnson declared that his government would raise taxes for funding social care reforms and the National Health Service.
- Johnson plans to increase the UK’s National Insurance levy by 1.25%, with taxes on shareholders also set to rise.
- The move is being opposed by lawmakers in PM’s own Conservative Party, due to fear of losing votes.
Prime Minister Boris Johnson on Tuesday announced his plans to raise National Insurance (NI) by about 1.25%, as per recent reports. National Insurance contributions are paid by the UK residents to qualify for State Pension and certain other benefits. The PM addressed the lawmakers regarding his plans to fix the social care system. But several of his own party members were infuriated about the whole hike, which is a clear violation of the pledges he made before getting elected.
As per a Reuters report, the Boris Johnson Government plans to subsidise care for pensioners, including wealthy retirees, by increasing the National Insurance (NI) tax which is being paid by approximately 25 million working people. After the fiscal spree due to the pandemic, the government is cracking on the social care system, which will witness increasing costs with the ageing population. The government has declared that it won’t hesitate to take the necessary decisions to provide treatment to NHS patients on the waiting list and fix the broken social care system.
ALSO READ: Looming crisis: NHS warns backlog could hit 13 mn if govt fails to give £10 bn
The demand to spend more on welfare has been faced by many western leaders, and Johnson too faced the same demand, after government borrowing inflated to 14.2% of economic output.
There will be an increase in the tax rates on shareholder dividends by the same amount as the new 1.25% health and social care levy on earned income across the UK. Initially, it will start as an increase on the currently prevailing National Insurance rate, i.e. a current tax on earnings, and from 2023, it will become a separate tax on earned income. According to the government, around £36 billion will be raised by increased taxes over the next three years, and the money from the levy will directly be channelised towards Britain’s health and social care systems.
Payments in full are to be made by anyone with assets over 23,350 pounds ($32,305) under the current care system, which can in turn lead to soaring costs and liquidation of someone's assets.
Bottomline
According to Patrick King, Partner at MHA, the criticism faced by the Boris Johnson government for this decision is blown out of proportion, as the immediate impact on individuals will be less in case of increasing NI contributions as compared to a tax hike, as the biggest part of the increase will be paid by businesses. NIC is a good place to start as it is a source of funds for the Treasury and has bought over £145 billion in 2019/20. The essentially needed funds can be received by increasing both the employee and employer contributions by 1%, which may add up to £10 billion or more. Now, Parliamentary approval is required before this plan can be enshrined into law.
ALSO READ: What's the buzz around National Insurance in the UK?
