Kate Andrews Kate Andrews

A tax rise for care won’t solve the problem

(Photo by Hugh Hastings/Getty Images)

The tax burden in the UK is nearing a 70-year high — but that’s not stopping ministers from mulling over plans to hike taxes further. According to reports this morning, Boris Johnson and Rishi Sunak are close to agreeing an increase to national insurance to help address the NHS backlog (five million patients in England, and counting). They also want to fill the long-standing black hole in the social care budget: something Johnson promised he’d address nearly two years ago to the day when he first entered Downing Street.

The rumours have immediately led to criticism of the government’s willingness to break its manifesto pledge, not to raise income tax, national insurance or VAT. Last week’s vote in the Commons to roll back the UK’s foreign aid spending laid the groundwork to further pivot away from the manifesto — but to break the ‘triple lock’ on taxes promised in 2019 would be seen as ripping up the manifesto completely.

But frankly, breaking another promise would just be the tip of the iceberg. Hypothecated taxes — designating a specific tax to fund a specific purpose — don’t work. They’re too volatile, especially for something as important as healthcare. If the government sticks to ring-fencing, then the thing that is being funded (in this case health and social care) will be subject to the ebbs and flows of the economy, which can see tax revenue go down as well as up.

Hypothecated taxes — designating a specific tax to fund a specific purpose — don’t work

Take the rumoured proposal: a 1 per cent increase on national insurance to plug holes in health and social care. The Resolution Foundation estimates that 1p on the pound would translate to £6 billion extra tax revenue a year to be spent on the NHS and care homes. What happens if there’s another lockdown (given the government’s language around so-called ‘freedom day’, nothing can be ruled out) that sends unemployment higher, or a recession triggered by something else, and NIC receipts fall? Would the government be comfortable with letting health and social care spending rise and fall with tax receipts?

Almost certainly not.

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