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.
Business
P&O Ferries chief executive Peter Hebblethwaite says he couldn’t live on £4.87-per-hour staff pay
The boss of P&O Ferries – known for its fire-and-rehire of nearly 800 workers – has said he could not live on the less than £5-per-hour some of his staff are paid.
The ferry company is paying employees an average of £5.20 an hour, two years after making 786 people redundant, and rehiring cheaper workers, P&O Ferries chief executive Peter Hebblethwaite told the Commons’ Business and Trade Committee.
Money latest: Britons prioritising Netflix over restaurants
Some earn as little as £4.87 an hour, Mr Hebblethwaite added, as MPs on the committee presented him with evidence that some staff were paid as low as £2.90 an hour for their first eight hours of work.
P&O chief executive Peter Hebblethwaite
During exchanges, committee chair Liam Byrne asked Mr Hebblethwaite: “Do you think you could live on £4.87 an hour?”
Mr Hebblethwaite replied: “No, I couldn’t,” before admitting he earned £508,000, including a bonus of £183,000 last year.
While he said he could not live on such pay, the CEO said the rates were “considerably ahead of international minimum standards”.
“These are international seafarers who we are, or our crewing agent is, recruiting from an international field, and we pay substantially ahead of the international seafaring minimum wage,” he added.
The UK national minimum wage is £11.44 since last month for people aged 21 and over.
But P&O Ferries uses maritime workers employed by an overseas agency, who work on ships which are foreign-registered in international waters, so the rates do not apply.
When he last appeared before the committee in March 2022, Mr Hebblethwaite said P&O Ferries workers would receive at least £5.15 every hour.
“People who could work anywhere in the world on any ship choose to come over to us and make a choice to come back,” he said on Tuesday.
Please use Chrome browser for a more accessible video player
P&O chose to break the law by not consulting before sacking 800 staff because it knew
Fire-and-rehire fallout
Despite the move to get rid of the nearly 800 staff in March 2022, Mr Hebblethwaite said P&O Ferries has always complied with national and international law.
That decision is still under investigation by the government.
While a criminal investigation conducted by the insolvency service concluded in August 2022 that it would not commence criminal proceedings, a civil investigation by the government body is ongoing.
“I confirmed that this decision was legal,” Mr Hepplethwaite added. “That is not to say I don’t regret it, I regret it. I am deeply sorry for the impact it had on 786 seafarers and their families. I wish we’d never had to have made that decision.
“We will never make that decision again.”
Read more
Carpetright to axe over 25% of head office staff
Had it not been made, Mr Hebblethwaite said the operation of P&O Ferries would have been at risk.
“Without that difficult decision I would not be here today and we would not have been able to preserve the 2,000 jobs that we have been able to preserve.”
Keep up with all the latest news from the UK and around the world by following Sky News
Workers rights
Despite the widespread condemnation and political lens that zeroed in on the company, a seafarers’ rights charter has not yet been signed by P&O Ferries.
Mr Hebblethwaite couldn’t say whether workers were allowed to leave the ship during a 17-week working period and will write to the committee with an answer.
“I believe they are, but I believe there are some technicalities,” he answered.
Responding to the evidence, the head of the TUC (Trade Union Congress) Paul Nowak said: “It beggars belief that P&O Ferries has faced no sanctions for its misdeeds and that its parent company DP World has continued to be awarded government contracts.
“For too long, parts of our labour market have resembled the Wild West – with many seafarers particularly exposed to hyper-exploitation and a lack of enforceable rights.
“It’s time to drag our outdated employment laws into the 21st century. Without this, another P&O Ferries scandal is on the cards.”
The government is “gaslighting” the public about the state of the economy, the shadow chancellor will say on Tuesday.
Rachel Reeves is set to attack the Conservatives in a speech in the City of London, as the opposition takes the fight to the government on their own turf ahead of the general election.
Running a strong economy has long been the focus of Conservative election campaigns.
And with a raft of economic data coming out this week, Ms Reeves will be looking to get ahead of the government’s messaging – saying Chancellor Jeremy Hunt and Prime Minister Rishi Sunak claiming the economy is improving is “deluded”.
The Bank of England will on Thursday make its latest decision on interest rates, with expectations that borrowing costs will be held at 5.25%.
The government wants this rate to come down, but the Bank sets the base rate independently.
There is also quarterly GDP data from the Office for National Statistics (ONS) coming this week, which will likely show the UK coming out of the technical recession it has been in.
Taking the front foot in the wake of the drubbing the Conservatives took in the local elections, Ms Reeves will say: “By the time of the next election, we can, and should, expect interest rates to be cut, Britain to be out of recession and inflation to have returned to the Bank of England’s target.
“Indeed, these things could happen this month.
“I already know what the chancellor will say in response to one or all these events happening. He has been saying it for months now: ‘The economy is turning a corner,’ ‘our plan is working,’ ‘stick with us’.
“I want to take those arguments head on because they do not speak to the economic reality.”
Please use Chrome browser for a more accessible video player
Local elections sent a ‘clear message’
She will add “During the local elections I travelled across the country. I spoke to hundreds of people. I listened to their stories.
“And when they hear government ministers telling them that they have never had it so good, that they should look out for the ‘feelgood factor,’ all they hear is a government that is deluded and completely out of touch with the realities on the ground.
“The Conservatives are gaslighting the British public.”
The shadow chancellor will say Labour will fight the election on the economy, point to previously announced policies such as a national wealth fund to deliver private and public investment, reform planning laws to build 1.5 million homes, and create 650,000 jobs in the UK’s industrial heartlands.
👉 Listen above then tap here to follow Politics at Jack at Sam’s wherever you get your podcasts 👈
Conservative Party chairman Richard Holden said: “The personnel may change but the Labour Party hasn’t. Rachel Reeves still hero-worships Gordon Brown, who sold off our gold reserves and whose hubris took Britain to the brink of financial collapse.
“Labour have no plan and would take us back to square one with higher taxes, higher unemployment, an illegal amnesty on immigration and a plot to betray pensioners, just like Gordon Brown did.”
-
Sports2 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports1 year agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Environment12 months agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Sports3 years ago
Team Europe easily wins 4th straight Laver Cup
-
Sports6 months agoGame 1 of WS least-watched in recorded history
-
Environment1 year agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Sports1 month agoStory injured on diving stop, exits Red Sox game
-
Environment1 year agoTesla advances Powerwall pilot project with German electric company