Boris Johnson today announced manifesto-busting tax rises to pay for a major overhaul of the nation’s social care system and to boost the NHS.
The Prime Minister will hike National Insurance contributions by 1.25 per cent, leaving basic rate taxpayers approximately £180 a year worse off.
A tax on dividends will also go up by 1.25 per cent in moves which will generate an extra £12billion a year for the Treasury.
A social care shake-up will see a cap on costs set at £86,000 – the maximum anyone will ever have to pay.
Below is a breakdown of the key changes.
Boris Johnson today announced a manifesto-busting tax rise to pay for a major overhaul of the nation’s social care system and to boost the NHS
The Prime Minister will hike National Insurance contributions by 1.25 per cent, leaving basic rate taxpayers approximately £180 a year worse off
What has the Prime Minister announced on hiking taxes?
The Government is introducing a new Health and Social Care levy from April 2022.
This will see National Insurance contributions increased by 1.25 per cent. It will be paid by all working adults, including those who are over the state pension age.
The levy will be included in National Insurance contributions for the first year but from April 2023 the levy will be split off and will be visible on pay slips.
People who earn more will have to pay more.
So a typical basic rate taxpayer earning £24,100 will contribute an extra £180 a year, approximately £3.46 per week.
A typical higher rate taxpayer earning £67,100 will contribute an additional £7.16 per week.
Is that the only tax rise?
No. Mr Johnson is also increasing an existing tax on dividend payments to ensure that people who receive their income from dividends also contribute more to the cost of social care and running the NHS.
The dividend tax will also increase by 1.25 per cent.
Taken together, the increase in National Insurance contributions and dividend tax will generate an extra £12billion per year for the Treasury.
This extra money will be used solely by the NHS in the first three years – some £36billion – before then being diverted to the social care sector.
What are the new rules on paying for social care?
Currently, anyone with assets over £23,250 must pay their care costs in full, with an estimated one in seven people forking out more than £100,000.
But from October 2023 the system will change.
Anyone with assets under £20,000 will have their care costs fully covered by the state.
People with assets between £20,000 and £100,000 will be expected to contribute to the cost of their care but they will also receive state support. Their contribution will be means-tested.
Lifting the support floor to £100,000 will mean far more people are eligible to receive financial help from the state.
Meanwhile, a new hard cap on care costs will mean that no one ever has to pay more than £86,000 in total for care during their lifetime – equivalent to approximately three years of care.
Why are the PM’s proposals so controversial?
All MPs in Westminster are in agreement that the current social care system is unsustainable and it must be overhauled.
But it is the method by which Mr Johnson will pay for the shake-up that has sparked a massive backlash.
Mr Johnson’s decision to increase National Insurance contributions will break a cast iron guarantee in the 2019 Tory manifesto not to raise taxes.
Critics also point out that younger workers will be disproportionately affected by the hike, effectively subsidising care for sometimes-wealthy older people.
A tax on dividends will also go up by 1.25 per cent in moves which will generate an extra £12billion a year for the Treasury
Mr Johnson’s social care plans were signed off by his Cabinet this morning as ministers met in Downing Street
Many Tory MPs believe they will be hammered at the ballot box by voters furious at the broken manifesto pledge.
Meanwhile, Labour has signalled it will not support the move, with the leadership under pressure from union bosses to back a tax on the wealthy instead.
What happens next with the PM’s plans?
Mr Johnson will need to win the support of Parliament for his overhaul to take place.
The Government will table a vote in the House of Commons when MPs will be asked to support the package.
Reports have suggested that Mr Johnson could seek a snap vote on the issue, potentially as early as this week, in order to stop Tory rebels coordinating a campaign against the move.
If Labour does vote against the plans then Mr Johnson’s fate will rest in the hands of his backbenchers.
A massive Tory rebellion could torpedo the shake-up but it is currently unclear whether a sufficient number of Conservative MPs will be willing to rebel on such a crunch matter.