“We promise not to raise the rates of income tax, National Insurance or VAT. We not only want to freeze taxes but to cut them too.” That’s the Conservative manifesto in 2019. “I want to see... over time... lower rates of tax because I just believe that its nice for people to be able to keep more of their own money.” That’s Rishi Sunak in 2020.
So here we are, a year later, with a tax burden that is about to be one of the highest ever. The new health and social care levy is a 1.25% tax on income. Add it to the others (National Insurance and income tax) and the entry-level rate of income tax in England will now be 33.25% (unless you are paying back a student loan, in which case it is 42.25% – and yes, that is shocking).
The top rate of income tax in England is to be 48.25%; 49.25% in Scotland. You are about to get to keep rather less of your own money. The excuse for this is the pandemic. How could the Conservatives possibly have known? That question would have more resonance if this tax was as temporary as Covid-19 lockdown policies or a levy that could solve one of our major problems (the shocking inadequacy of the NHS or our ongoing social-care row).
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It isn’t either of these things. We are told (by a one-time small-state, low tax-loving party) that it represents a “permanent new role for government”. But we are also told that it is initially going to be used to cut waiting times in the NHS – and be used for the long-term funding of social care later. This seems unlikely. Money is never diverted from the NHS. It is always diverted to the NHS, and will be until someone somehow makes a genuine effort to reform it (they won’t). The Resolution Foundation reckons that by 2025 the Department of Health and Social Care will account for 40% of public spending, up from 28% in 2004. It won’t be long before your health and social care levy goes up again – to pay for social care.
A plan, but a lousy one
You could argue that there are positives here. At least there is finally a (sort of) plan for social care. We know who will pay what – and we know that few people will lose their home to care costs. However, while it might be a plan, it is still a lousy one. There is one perfectly acceptable alternative in a state-sponsored collective insurance scheme. There is a second: insisting that people use property wealth to pay for care.
The idea that houses are somehow sacred is very British (witness our inheritance-tax rules). But while our houses are often precious to us during our lives, they are generally nothing but representations of accumulated assets after our deaths. When we die our children don’t move into them as some kind of celebration of our lives. They sell them. In life a house is a home. In death it is just money. So why not use a type of state-backed equity release to pay for care?
The only vaguely positive thing I can say is that while the tax will fall predominantly on working people, it is at least being extended to dividend income. That makes sense. Much dividend income is paid instead of salary. If tax is going up for the salaried it should go up for those who earn via dividends too. However, tax is the one area where we wish Boris Johnson’s government would think more about levelling down than levelling up. Just like they said they would.
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