Another day, another tax hike. This is presumably not how Boris Johnson saw his first term in office going; he’s reneged on manifesto promises left and right, including one that defines modern Conservatism: a healthy scepticism of tax rises. The new health and social care levy of 1.25 per cent for employers and employees (so, really, a 2.5 per cent levy) is now part of an emerging trend. This is not a one-off tax, but the follow-on from a March Budget that included £25 billion worth of tax hikes.
In fact, it’s record-breaking. The levy is estimated to raise an additional £12 billion a year extra for the Treasury's coffers. Combine that with March’s personal allowance tax freeze and corporation tax hike, and the Institute for Fiscal Studies estimates that Boris Johnson’s government has raised the tax burden to its ‘highest ever sustained level’ – that is, record levels of peacetime spending.
A bigger state is here to stay, and Johnson isn’t shying away from it. The Prime Minister opted not only to raise NI, but to increase the dividend rate by 1.25 per cent too. The bulk of the money is going to address the NHS backlog over the next few years, and with it, a promise to increase NHS capacity to 110 per cent, and deliver 30 per cent more elective procedures by 2024/25 than were taking place before the pandemic hit.
The NI increase is not the only manifesto promise scrapped today. It was also announced that the triple-lock on pensions is being suspended from 2022-2023. The move comes as statistical anomalies created by the pandemic would have led to an 8 per cent increase in the state pension, as a result of lots of young people losing their jobs due to lockdown. This payout was becoming increasingly untenable, especially with plans to ask younger, working-age people to pay more tax to cover elderly care. Under different circumstances, there might be more pushback from the Tories to sell the suspension as just that: a pause on the triple-lock, not a manifesto U-turn. But in today’s context, that would be a tough sell indeed.
The question now is what the public gets for all this? Tax rises, the triple-lock freeze: what will these billions of pounds deliver for the public in the coming years? On social care, there’s good reason to think today’s changes will deliver little-to-nothing in the way of better care. Keir Starmer accused the government of pushing a policy under which ‘quality of care will not improve. There’s no plan for that’. He’s completely right. The Dilnot proposals being implemented turn the taxpayer into an insurer, transferring the funding burden to make sure no one has to sell their home to pay for their care. Those are funding reforms, not care reforms, and do little to inspire the idea that the quality of care for the elderly will improve.
On the NHS, we wait and see. The NHS was an international laggard amongst developed countries long before the pandemic hit. Waiting lists have always been a problem for the NHS, as trusts often tried and failed to reach formal waiting times that were already too long, keeping people in pain waiting for serious care.
The government has set itself clear targets on what the levy will deliver, in terms of capacity and access to treatment. This makes it easier to judge if government makes good on its word. But there is no guarantee these targets will be met. And what then? Money is supposed to be reallocated towards social care in a few years time. Can anyone realistically imagine a scenario -- in which the NHS has succeeded or failed -- in which health chiefs (or government ministers) make the case that the NHS needs less money?
Unless decades of politicalisation and idolisation of the health service are undone overnight, and it becomes politically possible to critique the health service, this seems like a near-impossible situation. The only guarantee, then, is a new, higher tax burden. The levy (which is better read as an extension of income tax) continues to provide more money for the NHS, and perhaps we’re asked to pay even more to top up social care too.
This is one of the many problems with hypothecated taxes: they aren’t so much a specific funding stream, but a stealth way of bloating the state. Just as no one really thinks the NHS will lose funding in three years’ time, no one seriously thinks if levy receipts come in lower one year, that will mean less funding for health and social care. Already these funds are being touted to boost nurses pay, hinted at in July and reiterated today. For all the PM’s talk of this money ‘not (paying) for middle management’ and going ‘straight to the front lines’, the demarcation of what will be spent and where has become blurry, long before the tax hike even kicks in.
As I say in today’s Daily Telegraph, the Conservatives’ claims over being the party of business, and the party of taxpayers, is losing hold fast. It now needs to sell itself as the party of delivery. It’s not at all obvious yet they will successfully make this switch.