Why no one likes the government’s proposed national insurance hike to fix the NHS and social care crises

Proof that we are living in the matrix? Over the last few days, the Resolution Foundation, the TUC, the Institute for Economic Affairs (IEA), the Labour Party and former health secretary Jeremy Hunt have all said much the same thing. They all think the government’s preferred way of dealing with the funding crises in social care and the NHS is wrong.

So either a) Britain is experiencing some kind of glitch in said matrix (and Keanu Reeves and co are on their way to fix it) or b) the government has come up with a really, really bad idea.

That idea is to increase personal and employer national insurance contributions to raise the necessary funds. So congratulations if you answered b (although I know the other option was tempting, given what’s been going on).

An NI increase – which would be branded as a “social care levy” – comes with the advantage that it would raise plenty. Resolution puts the figure at £13bn for a 1p increase, which would obviously go a long way.

The problem is that the impact of such a tax hike would disproportionately fall upon two groups – the young, and the low-paid – both of which have been, to quote the IEA, “knocked sideways by the pandemic”.

And it’s not just the pandemic. Young people bore the brunt of the austerity years, during which the tandem of David Cameron and George Osborne chipped away at the support available to them while keeping their grandparents sweet, up to and including the retention of things like free TV licences, bus passes and winter fuel payments for those rich enough not to need them.

The working-age population is also faced with the prospect of having to shell out for the ludicrous (and it’s certainly that this year) “triple lock” on pensions, which sees rises linked to whichever is highest: earnings growth, inflation, or 2.5 per cent.

The earnings part of the equation has been heavily distorted by dint of workers’ inactivity during lockdown. With the economy reopening, they now have their noses to the grindstone again and are thus earning a lot more than they were, which has produced an overall figure for wage rises of 8 per cent.

The signs are that chancellor Rishi Sunak will act to prevent a state pension increase of this magnitude, not least because the cost to Britain’s already battered public finances would be prohibitive.

But even if he protects younger workers from having to pay for that, hiking national insurance to fund social care and the NHS would still result in a government that bangs on about “levelling up” kicking them when they’re already down.

It’s not as if there aren’t plenty of fairer potential alternatives when it comes to raising the money. On the contrary. Hunt has suggested tax increases, which might violate a (pre-pandemic) manifesto pledge if income tax was targeted, but would ensure that working pensioners who don’t pay NI were contributing.

Resolution this morning proposes extending any NI rise to them, raising £100m, while increasing the threshold to £10,000 to protect low earners (which would cost up to £1bn), but also increasing dividend and capital gains taxes alongside NI (raising around £2bn). This would fix some of the flaws in the government’s mooted proposals.

The IEA, as you might expect, prefers a private-sector solution. “Families with a lot of capital at risk from prolonged need for social care should have the responsibility to insure rather than look to – often much poorer – workers to support them,” it says, which is fine, but you do have to find a way of persuading them to take it out.

Long-term care insurance has been around for a long time but has struggled to find traction. There would be no social care crisis if it had. Certain forms of tax relief, the think tank suggests, could help address the problem, but they would obviously have to be costed.

Perhaps the best suggestion comes from the TUC. It would more aggressively target capital gains tax, which is only paid by the wealthy. A sharp increase would help to address the issue of private-equity moguls owning care homes and sometimes paying lower marginal rates of tax than the minimum-wage carers they employ (because of the way they are paid).

It would also help to fund a minimum wage of £10 an hour for carers, which would assist with the problems of staff turnover and shortages the sector is grappling with. You simply cannot leave care workers out of the equation if you’re trying to fix the social care crisis.

But really, take your pick. What unites these disparate ideas is that they’re all better than the iniquitous route the government seems minded to go down.

If elements from across the political spectrum say you’re prescribing the wrong medicine, then you’re probably prescribing the wrong medicine, and it’s time to change tack.