The new social-care levy: an unfair tax that protects the “assetocracy”
The government’s regressive social-care levy will make Britain’s tax system even more complex. Root-and-branch reform is long overdue.

What has been announced?
The government is introducing a new tax to fund more spending on the National Health Service (NHS) and social care. From April 2022, national insurance contributions (NICs) will go up by 1.25 percentage points both for workers and employers, taking the standard rate to 13.25% for employees and 15.05% for employers. Self-employed people will pay 10.25%, compared to 9% now (on Class 4). From April 2023, the NI increase will be replaced with a separate “health and social care levy” that has the same effect, but will also be paid by pensioners still in employment (who don’t pay NICs). Of course, NICs are not an insurance scheme, despite the name. They are simply another form of income tax (with some different thresholds and exemptions, for added complexity), and a job tax paid by employers. This tax increase affects about 29 million workers, and means that people earning £30,000 a year – close to the average wage – pay £255 more per annum. For those earning £50,000, the bill is £505.
What about dividends?
In addition to NICs, there was also an unexpected 1.25-point rise in dividend tax rates, affecting investors in stocks and small business owners who pay themselves via companies. Basic-rate taxpayers will now pay 8.75% tax on dividends, higher-rate payers will pay 33.75%, and top-rate payers will pay 39.35% (on all dividends exceeding the £2,000 dividend tax-free allowance that sits on top of the £12,570 personal allowance). Many accountants see the dividend move as part of HMRC’s crackdown on “disguised employment” aimed at avoiding tax. For investors with extensive portfolios, the rise increases the incentive to hold dividend-paying stocks in individual savings accounts (Isas) or self-invested personal pensions (Sipps), which will not be affected.
How much will the government raise?
This “Johnson tax rise” amounts to £12bn per year (about 0.5% of GDP) for three years, says Liam Halligan in The Daily Telegraph. To that we can add the additional £25bn from the upcoming increase in corporation tax (from 19% to 25% in 2023) and freeze on tax thresholds. Together, these tax rises are the biggest in a single year since the 1970s, and will take the UK’s tax burden – meaning tax revenues as a share of GDP – to 35.5%, the highest since the 1940s. Nor should we rule out more rises in next month’s Budget (due on 27 October). “With public spending surging, and now at 42.4% of GDP, that can hardly be ruled out”, says Halligan. Even without more rises, it’s a strange time to be increasing taxes on business and workers – we are still emerging from a pandemic and evidence is mounting that the bounceback is already stalling.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Will it improve social care?
No one knows, since no social care reforms have been announced. A white paper is due within weeks. However, in the first instance the extra money is going to tackle the backlog in the NHS caused by the pandemic. There’s a risk that the NHS will permanently “swallow up” the whole £12bn, says the Institute for Fiscal Studies, leaving nothing to fund social care plans.
Are the rises fair?
They don’t look it, say many critics. NICs kick in at around £9,500, meaning that even some people too poor to pay income tax are caught in the net. Graduates repaying student loans will be taxed at 50% on any increase in salary above £27,288. This means “increasing taxes on the working poor to safeguard the assets of the stonkingly rich”, says Fraser Nelson in The Spectator. It only serves to protect the new “assetocracy” of home-owning millionaires. A quarter of those aged 65 or over (three million people) live in households with net wealth of more than £1m, compared to 7% in 2008. Another three million are worth more than £500,000. Boris Johnson has privately admitted this to his MPs – and it’s a sorry definition of conservatism: “a protection racket, where the tools of the state are used to extract money from minimum-wage workers and pass it on to the better off,” says Nelson.
What would have been fairer?
The straightforward alternative to raising £12bn a year via this “dog’s dinner” would be a two percentage-point rise in income tax, says David Smith in The Sunday Times. The government hopes to bamboozle voters by using the “more mysterious and widely misunderstood” NICs instead. The result is something that “has further complicated our ludicrously complex tax system and introduced a bigger discrepancy into the tax treatment of the employed and self-employed”. What’s more, income tax is going up next year anyway. This supposedly low-tax government is stealthily freezing the personal allowance and higher-rate threshold for four years – creating 1.3 million new taxpayers and one million more on the higher rate, as well as bigger bills for all income-tax payers than if those allowances had risen with inflation.
Why not remove existing exemptions?
One of the reasons NICs are seen as an unfair tax is that pensioners – even wealthy ones with high incomes – don’t pay it. Nor is it paid on investment or property income. What’s more, the employee contribution falls from (currently) 12% of income to 2% on earnings over £50,270 a year, meaning that high-earners pay a lower proportion of their earnings in NICs than low earners. Removing all existing exemptions and earnings limits could raise considerably more than £12bn a year, making room for a cut rather than an increase in the overall NIC rate, according to a report by researchers at the London School of Economics and Warwick University, says Smith. But what’s really needed is a root-and-branch simplification of the tax system that merges income tax and NICs; equalises the rate of capital gains tax and dividends; and completely overhauls property taxes, says The Times. That would be fairer, simpler, and give taxpayers a clearer view of our ever-increasing tax burden.
Simon Wilson’s first career was in book publishing, as an economics editor at Routledge, and as a publisher of non-fiction at Random House, specialising in popular business and management books. While there, he published Customers.com, a bestselling classic of the early days of e-commerce, and The Money or Your Life: Reuniting Work and Joy, an inspirational book that helped inspire its publisher towards a post-corporate, portfolio life.
Since 2001, he has been a writer for MoneyWeek, a financial copywriter, and a long-time contributing editor at The Week. Simon also works as an actor and corporate trainer; current and past clients include investment banks, the Bank of England, the UK government, several Magic Circle law firms and all of the Big Four accountancy firms. He has a degree in languages (German and Spanish) and social and political sciences from the University of Cambridge.
-
The 30 house price hotspots
While we have seen house prices sliding, these sought-after locations have seen prices jump by at least 5% over the previous 12 months
By John Fitzsimons Published
-
Working parents will be entitled to 15 hours free childcare for two-year-olds from next year
The government has extended free childcare hours to working parents of two-year olds but it won’t be automatic so make sure you don’t miss out
By Marc Shoffman Published
-
How to cut the cost of home insurance
Home insurance policies are becoming increasingly expensive, but there are several ways you can keep costs down.
By Ruth Jackson-Kirby Published
-
Are lifestyle funds still fit for purpose?
Lifestyle funds have failed to do what they were supposed to do – shield savers from risk in the run-up to retirement.
By David Prosser Published
-
NatWest-owned Ulster bank boosts easy access savings rate to 5.2%
Rates on easy access savings accounts have hit over 5%, with Ulster Bank now giving savers the chance to earn 5.2% on their cash savings. We have all the details.
By Marc Shoffman Published
-
Moneybox raises market-leading cash ISA to 5%
Savings and investing app MoneyBox has boosted the rate on its cash ISA again, hiking it from 4.75% to 5% making it one of top rates. We have all the details.
By Ruth Emery Published
-
October NS&I Premium Bonds winners - check now to see what you won
NS&I Premium Bonds holders can check now to see if they have won a prize this month. We explain how to check your premium bonds
By Kalpana Fitzpatrick Published
-
October’s NS&I Premium Bond winners revealed - have you scooped £1 million?
Two lucky NS&I Premium Bond winners are now millionaires this October. Find out here you are one of them
By Kalpana Fitzpatrick Published
-
The best packaged bank accounts
Advice Packaged bank accounts can offer great value with useful additional perks – but get it wrong and you could be out of pocket
By Tom Higgins Published
-
Energy bills to fall 7% under new price cap
Energy bills could fall by an average 7% from October under the new Energy Price cap announced today. We explain what the new cap mean for you and when it will come into play
By Pedro Gonçalves Published