Jacob Rees-Mogg fires warning shot over national insurance hike to fund social care
Concern at the top of government over a rise to national insurance has spilled into the open after a senior minister suggested that voters would remember broken promises on tax.
Leader of the House of Commons Jacob Rees-Mogg used his weekly segment in the Sunday Express newspaper to republish a famous quote by former president George Bush senior: “Read my lips: no new taxes”.
Mr Rees-Mogg wrote that “voters remembered those words after president Bush had forgotten them”.
Many blamed the broken tax pledge by George Bush senior for his downfall. Pic: AP
The 1988 promise was broken by the former American leader and cited by many as a reason for his loss of the White House four years later.
While Mr Rees-Mogg did not reference national insurance directly, his intervention is representative of concerns among some cabinet ministers about the planned move.
Boris Johnson is expected to announce a long awaited plan to reform social care this week, together with an increase in national insurance to fund it.
The policy would go against a promise made by the Conservative Party in the last election not to increase income tax, VAT or national insurance.
Conservative donor and former deputy chairman of the party Lord Ashcroft tweeted the 2019 manifesto pledge with the comment “a reminder”.
Downing Street has not confirmed details of the announcement but a senior government source said ministers “will not duck the tough but necessary decisions needed to get the NHS back on its feet”.
Tackled on Sky News over a threatened rise in national insurance, government minister Nadhim Zahawi did not rule out raising tax in order to fund social care.
He told the Trevor Phillips On Sunday programme: “We are absolutely committed to the social care reform and we will be coming forward by the end of the year with those details.”
However, there is also concern about the prospect of taxing younger workers to subsidise the care and protect the homes of older people.
One minister told Sky News: “It doesn’t sit well with an across the board subsidy to help a few who have assets to protect.”
The social care plans are likely to include a cap on costs designed to stop assets like property needing to be used in full to fund care fees.
But this has provoked concern among some MPs because of the possibility of those with high value homes benefitting the most.
“I’m very concerned about the fact we seem to be protecting the inheritances of those with means at the same time as stripping the £20 uplift [in universal credit]”, said one newly elected MP.
A senior Conservative said “it seems like a tax on middle England … it does not seem very Conservative”.
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Social care: What govt hopes to do this week
Former prime minister John Major told the FT Weekend Festival that the policy was regressive and should be done in a “straight forward and honest fashion” through taxation.
Trade union boss Frances O’Grady also criticised the proposal saying it “wasn’t right” to hit young and low paid workers with a tax increase while “leaving the wealthy untouched”.
The TUC general secretary instead called for the government to increase capital gains tax – a levy on profits made when selling assets like property or shares.
Much of the criticism has stemmed from the fact that national insurance is not paid by people older than the state pension age.
The tax is also only paid on earnings, so wealthier individuals who live off rental income, savings or dividends do not contribute.
TUC chief Frances O’Grady says the move will hit young and low paid workers
Labour frontbencher Lisa Nandy told Sky News her party supported the “broad principle” of increasing taxes for the wealthy to pay for NHS and social care recovery.
Speaking Trevor Phillips, she said: “I think the broad principle that Frances O’Grady is laying out – that those with the broadest shoulders should take some of the burden – is absolutely right.
“Fixing the social care crisis is going to cost a great deal of money and the prime minister’s plan as we understand it… is that he’s going to break his 2019 promise to not raise national insurance contributions and load the entirety of the cost of social care on to supermarket workers, delivery drivers who are already suffering with high childcare costs, high housing costs and who kept us going through the pandemic.
“I think that’s a really difficult ask of a group of people who haven’t done well under this Conservative government over the last 11 years.”
With national insurance also paid by employers, business groups have also criticised the plan.
Rachel Reeves has told Sky News she is looking at both tax rises and spending cuts in the budget, in her first interview since being briefed on the scale of the fiscal black hole she faces.
“Of course, we’re looking at tax and spending as well,” the chancellor said when asked how she would deal with the country’s economic challenges in her 26 November statement.
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Ms Reeves was shown the first draft of the Office for Budget Responsibility’s (OBR) report, revealing the size of the black hole she must fill next month, on Friday 3 October.
She has never previously publicly confirmed tax rises are on the cards in the budget, going out of her way to avoid mentioning tax in interviews two weeks ago.
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Chancellor pledges not to raise VAT
Cabinet ministers had previously indicated they did not expect future spending cuts would be used to ensure the chancellor met her fiscal rules.
Ms Reeves also responded to questions about whether the economy was in a “doom loop” of annual tax rises to fill annual black holes. She appeared to concede she is trapped in such a loop.
Asked if she could promise she won’t allow the economy to get stuck in a doom loop cycle, Ms Reeves replied: “Nobody wants that cycle to end more than I do.”
She said that is why she is trying to grow the economy, and only when pushed a third time did she suggest she “would not use those (doom loop) words” because the UK had the strongest growing economy in the G7 in the first half of this year.
What’s facing Reeves?
Ms Reeves is expected to have to find up to £30bn at the budget to balance the books, after a U-turn on winter fuel and welfare reforms and a big productivity downgrade by the OBR, which means Britain is expected to earn less in future than previously predicted.
Yesterday, the IMF upgraded UK growth projections by 0.1 percentage points to 1.3% of GDP this year – but also trimmed its forecast by 0.1% next year, also putting it at 1.3%.
The UK growth prospects are 0.4 percentage points worse off than the IMF’s projects last autumn. The 1.3% GDP growth would be the second-fastest in the G7, behind the US.
Last night, the chancellor arrived in Washington for the annual IMF and World Bank conference.
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The big issues facing the UK economy
‘I won’t duck challenges’
In her Sky News interview, Ms Reeves said multiple challenges meant there was a fresh need to balance the books.
“I was really clear during the general election campaign – and we discussed this many times – that I would always make sure the numbers add up,” she said.
“Challenges are being thrown our way – whether that is the geopolitical uncertainties, the conflicts around the world, the increased tariffs and barriers to trade. And now this (OBR) review is looking at how productive our economy has been in the past and then projecting that forward.”
She was clear that relaxing the fiscal rules (the main one being that from 2029-30, the government’s day-to-day spending needs to rely on taxation alone, not borrowing) was not an option, making tax rises all but inevitable.
“I won’t duck those challenges,” she said.
“Of course, we’re looking at tax and spending as well, but the numbers will always add up with me as chancellor because we saw just three years ago what happens when a government, where the Conservatives, lost control of the public finances: inflation and interest rates went through the roof.”
Pic: PA
Blame it on the B word?
Ms Reeves also lay responsibility for the scale of the black hole she’s facing at Brexit, along with austerity and the mini-budget.
This could risk a confrontation with the party’s own voters – one in five (19%) Leave voters backed Labour at the last election, playing a big role in assuring the party’s landslide victory.
The chancellor said: “Austerity, Brexit, and the ongoing impact of Liz Truss’s mini-budget, all of those things have weighed heavily on the UK economy.
“Already, people thought that the UK economy would be 4% smaller because of Brexit.
“Now, of course, we are undoing some of that damage by the deal that we did with the EU earlier this year on food and farming, goods moving between us and the continent, on energy and electricity trading, on an ambitious youth mobility scheme, but there is no doubting that the impact of Brexit is severe and long-lasting.”
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