National Insurance: will UK increase tax rates to cover social care reform costs - how much could they rise?

The Government is preparing to announce its long-awaited plan on how to reform and fund social care this week

Boris Johnson is under growing pressure from within his own party not to impose a manifesto-breaking national insurance hike to pay for social care.

Former prime minister Sir John Major on Saturday (4 September) joined the Conservatives warning against the widely-expected move targeting workers and employers by arguing it is “regressive”.

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Instead he called for the Prime Minister to take the “straightforward and honest” approach of increasing general taxation.

Here is everything you need to know about it.

Is National Insurance being increased?

The Government is preparing to announce its long-awaited plan on how to reform and fund social care this week, and will also include measures to finance the NHS’s efforts to tackle the huge backlog caused by the coronavirus pandemic.

Johnson, Health Secretary Sajid Javid and Chancellor Rishi Sunak have been thrashing out the details of the reforms.

The Sunday Times reported that lifetime contributions on care will be capped at about £80,000 and national insurance will be increased by 1.25 per cent to raise between £10-11 billion per year.

No 10 insisted on Sunday (5 September) the details of the social care plans were still being worked out, but vaccines minister Nadhim Zahawi did not rule out raising taxes in order to fund social care.

Asked if people should be paying more tax to get better social care, Zahawi said the Government is “committed to reforming” the adult social care system.

When pressed specifically on whether people should be paying more tax, he told the BBC’s The Andrew Marr Show: “We’ll bring forward our proposals and I’m very happy to come back on your programme when the details are published to discuss how we will pay for better and reformed adult social care.”

A source close to Health Secretary Sajid Javid this week strongly denied he had pushed for an increase to national insurance as high as 2 per cent.

But they did not dispute that he had argued for a rise of more than 1 per cent, which Chancellor Rishi Sunak is said to have opposed.

What has Sir John Major said?

(Photo: Leon Neal/Getty Images)

Sir John, speaking at the FT Weekend Festival, said: “The Government is going to have to take action to deal with social care and that is going to mean an increase in taxation.

“I don’t think they should use national insurance contributions, I think that’s a regressive way of doing it. I would rather do it in a straightforward and honest fashion and put it on taxation.”

Any increase in taxation would be a breach of the 2019 Tory manifesto, with it containing a personal “guarantee” from Johnson not to raise income tax, VAT or national insurance.

A significant number of Tories accept some sort of tax rise is necessary but, like former health secretary Jeremy Hunt, are calling for it to not take the form of a national insurance hike.

Why are the plans controversial?

Critics argue a raise in income tax, VAT or national insurance would disproportionately affect younger and lower income workers, while pensioners would not pay extra.

Tory MP Marcus Fysh said he was “alarmed at the apparent direction of travel” of the Government, warning against a “socialist approach to social care”.

“I do not believe it is Conservative to penalise individuals of working age and their employers with higher taxes on their employment when our manifesto promised not to,” he wrote in the Sunday Telegraph.

Labour has voiced its opposition to an increase to national insurance, but Sir Keir Starmer will come under pressure to set out how he would fund social care reforms.

Shadow foreign secretary Lisa Nandy has said Labour supports the “broad principle” of increasing taxes for the wealthy to pay for NHS and social care recovery.

A second electoral promise is expected to be broken in swift succession, with ministers reportedly preparing to announce that the state pensions triple lock will be temporarily replaced with a “double lock”.

This is because distortions to wages during the coronavirus crisis could mean pensioners would get a payment rise of as much as 8 per cent, while workers face tighter times.

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