Tax rising

Boris mounts raid on NICs, dividends and pensions

Boris Johnson

Boris Johnson: reasonable and fair

A new health and social care tax will be introduced on all workers from next year along with a hike in tax on income from dividends and a lower rise in the state pension.

Prime Minister Boris Johnson said there was a need to raise revenue to help pay for the care that the public demands.

The health and social care tax will begin as a 1.25% rise in National Insurance for employees and employers from April 2022. It will then become a separate tax on earned income from 2023.

Downing Street said that a typical basic rate taxpayer earning £24,100 would pay £180 a year, while a higher rate taxpayer on £67,100 would pay £715 as a result of the new tax.

Dividends which are levied on business owners and investors, will also increase by 1.25% from April 2022, from 7.5% to 8.75%.

  • It will raise £600m from investors and self-employed
  • It is likely to hit company directors more than retail investors

The prime minister has insisted the new health and social care levy was “the reasonable and the fair approach”, despite the fact it breaks a key commitment in the 2019 election manifesto.

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While the new revenue is principally target health care in England the three devolved nations expect to benefit from an extra £2.2 billion a year, he said, adding that “this is about 15% more than they would contribute through the levy”.

In a letter to the First Ministers of Scotland, Wales and Northern Ireland, he said that by 2024-25 Scotland will benefit from an additional £1.1 billion, Wales from £700 million and Northern Ireland from £400 million.

It will be for the devolved nations to decide how to spend the money but Scotland’s First Minister Nicola Sturgeon today pledged her government would bring forward legislation within the coming year to set up a National Care Service.

Paul Johnson

Paul Johnson: not the right tax (pic: Terry Murden)

But Paul Johnson of the Institute for Fiscal Studies think-tank said National Insurance was “not the right” tax to put up to pay for social care reforms.

“Today’s announcements constituted a Budget in all but name,” he said. “£14 billion of tax raised through a supposedly new tax, equivalent increases in spending on health and social care, and an announcement of spending totals for the next three years certainly constitute a major fiscal event.

“It is disappointing that the government did not find a better package of tax measures to fund these spending increases. A simple increase in income tax would have been preferable.

“But  overall much needed reforms to social care are being introduced and unavoidable pressures on the NHS are being funded through a broad based and broadly progressive tax increase. That is better than doing nothing.”

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