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National Insurance hike will not help

The proposed increase falls short of what's needed to cover the social care for the elderly and vulnerable, and will hit the poorest workers hardest. The real solutions rely on taxing the rich, explains JAMES MEADWAY

REPORTS this week suggest the Prime Minister and the Chancellor of the Exchequer have agreed on a plan to raise the cost of national insurance contributions (NICs) by one penny in the pound to pay for the rising costs of social care for the elderly and vulnerable.

Pushing up NICs is regressive, hitting poorer workers hardest; it breaks a Tory manifesto pledge; and it will not resolve the crisis in care services.

Labour’s shadow front bench should make the party’s opposition clear and insist instead on a solution to the care crisis that is fair for all: a wealth tax to pay the costs, removing speculators and private finance from provision and serious improvements in the pay and conditions of those in the notoriously poorly-paid sector itself.

There should be no question that the Labour Party and the entire left should oppose this tax hike. After a lost decade for earnings under Conservative-led governments, with pre-pandemic average pay no higher than before the 2008 financial crisis, there is no justification for squeezing working people still further.

National insurance contributions are a uniquely regressive tax, with workers earning more than just £9,570 a year having to pay an extra 12p in every pound they earn: income tax only comes in at £12,570. But for those on more than £50,268 a year, the tax falls to just 2p in every pound.

If you are past retirement age, you don’t pay a penny. Raising NICs to cover the costs of social care means squeezing mostly younger, less-well-off workers to pay for many older, often richer, retirees.

During the first 18 months of the pandemic, it’s been lower-paid workers who have made greatest sacrifices — more likely to lose their job, less likely to be able to work from home and more likely, partly as a result, to get ill and die from Covid.

There can be no justification now for demanding bus drivers or Amazon warehouse workers be whacked with a tax hike. And there can be little justification for raising NICs for smaller businesses, themselves facing mountainous debts acquired during the pandemic.

Worse still is breaking a manifesto promise to do it. In 2019 the Tories, deliberately apeing Labour’s 2017 manifesto commitment to freeze workers’ taxes, promised that they would “not to raise the rates of income tax, national insurance or VAT.”

The proposed NICs hike would rip that to shreds and, of course, many will think that having broken one tax pledge “to hard-working families across the next Parliament,” there might be little to stop the Tories breaking others. It’s an abuse of trust that Labour should not fail to underline.

No-one doubts that the social-care system is in crisis and needs more support. But although the Tories may try and pretend the crisis in care is due to the pandemic, the truth is: the main part of the fault lies with them.

Everyone knows that an ageing population like we have in Britain will require more care into the future and this will cost more to provide. Proposals to resolve the brewing problem of funding in social care were presented under the last Labour government by then health secretary Andy Burnham.

Initially supported by the Tories as part of an effort to secure a cross-party basis for the long-term changes the system needs, David Cameron’s Conservatives pulled the plug on the proposals just ahead of the general election in 2010.

Citing plans to levy charges on homeowners to pay for the cost of all care, they won headlines about Labour’s “death tax” — no doubt helping them rinse out a few more votes in a tight election, but a thoroughly dishonest electoral ruse that has contributed to a decade of failure on the issue ever since.

Despite promises by successive Tory prime ministers, including Johnson claiming social care would be fixed “once and for all” shortly after entering office in July 2019, there has been no real progress. The major reform proposals of Andrew Dilnott’s review, reporting in June 2011, have languished untouched for a decade.

When the Covid-19 pandemic erupted last year, social care was treated as little more than a dumping ground for the NHS as the government hastily moved untested patients out of hospitals into the social-care system, helping to seed an appalling crisis.

Recovering from this disaster and stabilising the system will be expensive. The Health Foundation estimates that £14.1 billion extra will be required by 2030 to put the system back on its feet, improve access to care and make sure care staff have decent pay. That is even without including the likely long-term impacts of Covid itself.

The proposed NICs increase, bringing in £10bn, falls short, looking less like a serious long-term solution than a short-term solution to get the PM, aware of his past promises, out of a political fix by the autumn. The problem of long-term social-care funding will not be resolved.

The government may already be backing away from its own plans, Business Minister Paul Scully telling the BBC that the hike proposal was “not one I recognised.”

There are obvious funding solutions, but they won’t appeal to the Tories. Equalising capital gains taxes  — paid overwhelmingly by the wealthiest — and income taxes would mean those selling assets would face the same tax rate as those earning an income from work.

The IPPR think tank estimates this would bring in £90bn over five years, but Chancellor Rishi Sunak has already rejected the proposal. The LSE/Warwick University Wealth Tax Commission proposed a one-off wealth tax on millionaire couples that would raise £260bn, again over five years.

This is a rich country — one where every person could and should enjoy dignity in old age or proper care when they most need it.


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