Last September, Boris Johnson broke a manifesto pledge by announcing a 1.25 percentage point rise in national insurance contributions. On Wednesday, that extra deduction from pay packets took effect, albeit with an important adjustment. In last month’s spring statement, the chancellor raised the threshold at which national insurance is paid from £9,800 to £12,570 – cancelling the tax hike for around 70% of workers.
That gives the lie to Mr Johnson’s previous claim that the rise was a “health and social care levy” with just under £12bn in receipts strictly hypothecated for those causes.
The pledge of increased spending stands. It will be covered not by a “levy” but from general exchequer receipts, as was bound to be the case. To meet that and other spending obligations, the overall tax burden is rising towards its highest level since the 1940s. This is achieved by stealth, since Rishi Sunak wants to be known as a tax-cutting chancellor. He has scheduled an income tax cut for 2024.
The prospect of an election that year is more relevant to the timing than any thought of fiscal sustainability, but that is true of every aspect of government policy. The “health and social care levy” label was itself a sleight of hand to make a short-term electoral expedient sound like a long-term strategy. Confronted with a huge backlog of treatments in an NHS strained by the pandemic, the prime minister faced a choice between breaking a manifesto commitment midterm and fighting for re-election with the health service on its knees. He chose the former, while using social care as camouflage. Since financing the needs of an ageing population is widely recognised to be a thorny and perennial policy problem, the claim to be grappling with it at last helped deflect the backlash from the broken tax promise.
In reality, the crisis of social care funding is unsolved. That was made clear in a largely unremarked vote in the House of Lords earlier this week. Peers voted to include local authority contributions in totals spent within the cap that is meant to protect people from open-ended financial liability for social care. The government had tried to exclude council help from the calculation, meaning more people would have to pay much more from their own pockets before reaching the point of protection under the cap. The bill under dispute is now caught in legislative “ping pong” between the two chambers of parliament.
It is a technical issue pointing to a wider problem – the government is not being straight with people about the complexity of the social care challenge and the collective financial adjustments that society has to make to meet it.
Instead, Mr Johnson and Mr Sunak are engaged in an increasingly elaborate game of smoke and mirrors to raise revenue while pretending to cut taxes and brand it all in terms that work for a Tory re-election bid. Wednesday’s national insurance changes are the emblem of that approach. The economic outlook and political context may have changed since the “levy” was announced; the government’s dishonesty on the matter is constant.