A national insurance hike to boost social care would be built on a misunderstanding
Boris Johnson and Rishi Sunak have, it is reported, agreed to pay for long term reform of social care by raising national insurance by a penny in the pound for both employers and employees.
The move would raise an estimated £10bn annually.
The government is braced for unease among its backbenchers because the Conservatives promised not to raise income tax or national insurance in their election-winning 2019 manifesto.
It perhaps ought not to be too worried about that. The prime minister can always point to the crisis in social care and the need, more broadly, to repair the public finances after the COVID-19 pandemic.
The chancellor, meanwhile, can point out that one of his predecessors, Gordon Brown, did something similar in his April 2002 budget. Having pledged not to raise income taxes in Labour’s election-winning 2001 manifesto, Mr Brown broke the spirit of that promise, slapping more than 4 million workers with a 1% increase in national insurance.
The risk of breaking an election promise is the least of the problems with this proposal.
For a start, the move will perpetuate the myth that national insurance is some kind of special safety net, hypothecated to pay for pensions, unemployment benefits and other elements of the welfare state such as the NHS.
It is remarkable how many people still believe this when, for many years, national insurance has simply been income tax by another name.
Yes, there is something called the National Insurance Fund, but essentially it is a government accounting wheeze.
The money raised in national insurance contributions is insufficient to pay for the benefits and public services that many people think they do. It just disappears, effectively, into the government’s coffers and is spent in the same way that revenues from income tax, VAT and corporation tax are spent.
Because the UK state pension system is a so-called ‘pay as you go’ system, the national insurance paid by today’s workers pays the pensions of today’s pensioners, not their own.
This misunderstanding of national insurance may be precisely why the government is proposing going to go down this route.
The Treasury risks hurting those worst affected financially by the COVID crisis through any rise in NI contributions
Polling suggests people are happier paying national insurance rather than income tax because they genuinely appear to believe they are getting something, a benefit, for doing so.
It is why chancellors down the years have reached for national insurance as their favoured stealth tax. In 1979, national insurance receipts were equal to half of income tax receipts. This year, according to the Treasury, they will be equal to roughly three-quarters of income tax receipts.
There are also other problems with this proposal.
One is that it exacerbates intergenerational unfairness. Unlike income tax, workers of state pension age do not pay national insurance on their earnings, so the hike will fall entirely on younger workers.
Moreover, because national insurance – unlike income tax – is levied only on earnings, rather than other sources of income, such as interest on savings, the cost of this measure will fall disproportionately on younger people rather than older ones.
In other words, having made sacrifices throughout the pandemic to protect older people, younger people will again be paying through their earnings for a benefit that will benefit older people rather than themselves.
This move, then, may deepen the problems the Conservatives have with younger voters.
An explicit aim of reforming social care is to prevent people having to sell their homes to pay for such care. Younger people, unable to buy a home in the first place, may wonder why they are being asked to pay higher national insurance contributions so that others may keep theirs.
Others will criticise the lack of progressivity in this proposal.
All workers (other than those earning more than £100,000 annually and who do not benefit from the personal allowance) can earn up to £12,570 before they have to start paying income tax. By contrast, national insurance kicks in as soon as a worker has earned £9,568.
Accordingly, a wealthy pensioner living off a generous final salary pension or on income from their savings and dividends will not be paying this proposed hike, but a low-paid worker earning just £184 per week will be.
Another major problem with this proposal is the unwanted consequences it will have. Taxes, by their nature, reduce the activity on which they are levied. It is why chancellors tax smoking heavily.
Because this proposed national insurance will fall on employers, as well as employees, it will make the cost of hiring someone more expensive.
Higher payroll taxes mean fewer people in work and, potentially, lower growth. It is why, in response to Mr Brown’s national insurance hike in 2002, the then-Conservative leader, Iain Duncan-Smith, called the move a “tax on jobs”.
Gordon Brown introduced an extra tier of National Insurance in 2002
So, too, did David Cameron and George Osborne when Mr Brown ordered his chancellor, Alistair Darling, to announce a 1% rise in national insurance in March 2010 to pay for the financial crisis. Mr Darling had wanted to increase VAT instead. Mr Brown’s decision ensured Labour had barely any support from business in that year’s general election.
So, to conclude, what the PM is proposing is a tax increase that will disproportionately hit younger and low-paid workers while making it harder for employers to hire people.
Or, as Nick Macpherson, the former permanent secretary at the Treasury, put it on Twitter: “Rentiers and trustafarians won’t have to pay a penny. And the low paid young will subsidise the wealthy old. Higher spending does require higher taxes. But national insurance is a regressive tax on jobs.”
Quite.
The price of own-brand and budget products in supermarkets has been rising far faster than premium and branded items during the cost of living crisis, new figures suggest.
Which? tracked tens of thousands of products across eight major supermarkets – and while budget ranges had surged by as much as 18%, the price of premium lines was up 12%.
The sharpest rise was found in the cost of Waitrose’s chocolate chip shortbread. It was priced at 82p in the year to 31 October 2021 – but one year on, this had surged to £2.25.
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Farming union’s warning over food prices
Meanwhile, a chilli con carne ready meal from Asda would have set you back £1.20 last year – jumping 132% to £2.79 come 2022.
While Aldi and Lidl are generally the cheapest of the big chains, Which? research suggests they are actually the worst supermarkets for overall inflation – with prices at both up by an average of about 19%.
Asda was third in these rankings on 15.2%, followed by Morrisons on 14.4%, Waitrose on 14.2%, Sainsburys on 13.7%, and Tesco on 12.6%. Ocado had the least inflation overall – but prices still rose by 10.3%.
Despite budget lines being hard hit by the cost of living crisis, Which? has urged supermarkets to work harder in ensuring they are available throughout all branches – including in smaller convenience stores.
Which? head of food policy Sue Davies said the data paints a bleak picture – but the consumer watchdog hopes it will help “millions of people find the best possible value with their weekly shop”.
She added: “We know the big supermarkets have the ability to take action and make a real difference to people struggling through the worst cost of living crisis in decades. That’s why we’re calling on them to ensure everyone has easy access to basic, affordable food lines at a store near them, can easily compare the price of products to get the best value, and that promotions are targeted at supporting people most in need”.
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‘Glimmer of hope’ food costs will fall in 2023
Aldi said the rising price of milk in its stores was due to its decision to pay more to suppliers – benefiting British dairy farmers.
Meanwhile, Lidl has disputed the data and said: “Prior to the press release being issued to media, we made Which? aware of multiple discrepancies within the data concerning Lidl prices. This included over 100 separate pricing inaccuracies, which were clearly highlighted to Which? Despite this, they have chosen to mislead consumers by reporting data that they know to be incorrect.”
Asda said it was focused on keeping the prices of branded and own-label products in check, with Morrisons vowing to remain competitive during an “unprecedented period of inflation”.
Waitrose warned “no retailer is immune to inflation”, with rising production costs and the war in Ukraine just some of the factors that have driven prices up. Meanwhile, Sainsburys said it is investing £500m to reduce the price of items that its customers buy the most.
A Tesco spokesperson said it has locked the price of more than 1,000 household staples until 2023 and is “keeping a laser focus on the cost of the weekly shop”.
Ocado declined to comment.
Rishi Sunak will speak to his cabinet about rail strikes today after a union announced days of extra strikes over Christmas in the long-running dispute over pay, jobs and conditions.
On Monday, the Rail, Maritime and Transport union (RMT) confirmed it would go ahead with two 48-hour strikes next week and will also walk out from 6pm on 24 December until 6am on 27 December.
Strikes affecting 14 train companies will go ahead next week, although talks will continue with the Rail Delivery Group today.
Union boss to meet with rail operators – politics latest
Mick Lynch, the RMT general secretary, said it was unfortunate that the union had been “compelled to take this action due to the continuing intransigence of the employers”.
He said: “We remain available for talks in order to resolve these issues but we will not bow to pressure from the employers and the government to the detriment of our members.”
The additional Christmas strikes are intended to target engineering work as no services run on Christmas Day or Boxing Day, Mr Lynch told the BBC.
He conceded that there will be disruption on Christmas Eve, saying that the “wind down” will happen earlier than usual.
Nick Gibb, the schools minister, told the RMT rail union not to “hold the country to ransom” as they prepare strikes in the run-up to Christmas.
The rail dispute is one of many threatening to deliver a winter of discontent as unions seek pay rises in line with the rate of inflation to help shield their members from the cost of living crisis.
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Rail strikes to disrupt Christmas
Read more:
Strikes every day before Christmas – where and why?
Ministers treading careful line between being tough and human on strikes
There is the looming threat of action by nurses, firefighters and National Highways staff.
It is building on a wave of strikes among other professions, including teachers and bus drivers.
Angela Rayner, Labour’s deputy leader, said: “I don’t want to see industrial action because I see workers losing their pay and I see the public inconvenience.”
She added: “I want to see our trains running on time and the work is being paid fairly and decently, and I think that there is a deal to be done to get there.”
Asked what she thought of Labour politicians being on the picket line, she said: “I don’t have a problem with [it].”
Earlier in the year, Sir Keir Starmer told Sky News “you can’t sit around the cabinet table and then go to a picket line”.
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Transport secretary on rail strikes: ‘We did our bit’
Later today, the GMB union is expected to announce the dates of ambulance worker strike action after members backed walkouts across nine trusts in England and Wales.
Over the weekend, the government confirmed that hundreds of troops are on stand-by to cover for ambulance crews, firefighters and Border Force staff as ministers prepare for a wave of strikes across public services before Christmas.
The Cabinet Office said that about 2,000 military personnel, civil servants and other volunteers from across government have been training as part of the government’s contingency planning.
Speaking to Sky News’ Sophy Ridge on Sunday programme, Conservative Party chairman Nadhim Zahawi said it was the “right and responsible thing to do” as ministers sought to minimise the disruption to the public.
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Commuters react to rail strikes: ‘They shouldn’t inconvenience people’
As well as ambulance staff, nurses in the NHS are due to hold two days of strikes this month while junior doctors are also set to be balloted on industrial action.
The Fire Brigades Union is also balloting its members and industrial action is continuing at the Royal Mail.
Onay Kasab, national lead officer at Unite the Union, told Sky News that taking co-ordinated action “makes absolute sense”, adding that union members have “significant public support”.
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