MPs line up to criticise Health and Social Care Levy but it passes Commons
The Health and Social Care Levy Bill 2021-22 has passed successfully through the Commons.
The Bill is certified as a money bill which means now it has been passed by the Commons will become law after one month, with or without the approval of the House of Lords, under the terms of the Parliament Acts. Most of the MPs who took part in the debates in the Commons were critical of the Bill.
The Prime Minister announced plans to substantially increase funding for health and social care over the next three years, to be funded by a new tax: the Health and Social Care Levy (HSCL).
The Levy will be introduced in two stages:
- In 2022/23 the rate of primary Class 1 NICs for employees charged on their earnings, the rate of secondary Class 1 NICs for employers charged on their employees’ earnings, and the rate of Class 4 NICs for the self-employed charged on their trading profits, will be increased by 1.25 percentage points.
- In 2023/24 a separate levy set at 1.25 will be introduced, replacing this temporary increase in NICs rates. Liability to the levy will be extended to individuals in employment who are over State Pension age. At present pensioners are not liable to pay NICs on any earnings they receive from employment.
The Health and Social Care Levy Bill would provide for the temporary increase in NICs rates for 2022/23, and their replacement with the levy from April 2023. The Bill also makes provision for the Treasury to determine the allocation of the receipts from the levy between health care and social care, and the amounts to be split between England, Wales, Scotland and Northern Ireland. NICs is not a devolved tax. The Bill extends and applies to the whole of the UK. The levy is expected to raise an additional £11.4 billion a year for health care and social care, for the next three years.
Second reading debate
Labour is against the Bill and moved an amendment to kill it at second reading stage, but this was unsuccessful (327-249). Most of the speakers in the second reading debate were against the rise in NICs and the levy because of concerns it is not progressive, fair or likely to solve the problems with social care.
The Chief Secretary to the Treasury Steve Barclay explained that the levy is only coming in 2023 because HMRC need time to prepare systems for such a major shift. He declined to go into a discussion about the merits or otherwise of hypothecated taxation but said there is precedent for use of NICs in this way.
Barclay told Conservative Andrew Mitchell that there is no need for a Treasury minister to report back on the achievements of the levy every six months because there are regular fiscal events. He said existing NICs reliefs and allowances will also apply to the levy, meaning that 40 per cent of all businesses will not be affected owing to the employment allowance – adding that the top 14 per cent of taxpayers will pay about half the revenues. He claimed businesses would benefit from the NHS clearing its backlog.
Lib Dem health spokesperson Munira Wilson stated that ‘lots of people will try to avoid coming forward for care in the months before October 2023, and there will then be a massive surge’. Barclay replied this fiscal support is not in isolation and significant covid support has gone into the NHS. He believes that ‘borrowing even more today would just mean higher taxes in the future’.
Jeremy Hunt, Chair of the House of Commons Health and Social Care Select Committee, said we should give Health Education England the statutory responsibility to produce independent workforce estimates and create a discipline, a bit like the OBR does for Budgets, to make sure that we are training enough doctors and nurses. He said that we must not inadvertently ‘sleepwalk’ into another Mid Staffs where a target culture went too far and that it is essential to ring-fence the amount of money that goes to social care after those three years.
Marcus Fysh remarked that a NICs rise is not the most progressive way to deal with this matter. He suggested this measure will increase costs and cost pressures within the system that we are trying to help. He also noted that the plan will mean that private providers cannot cross-subsidise their state provision of residential care places with private places, which could risk taking capacity out of the system at exactly the wrong moment when we want to get health and social care operating correctly.
John Redwood is worried about the lack of a detailed social care plan. Redwood is very suspicious of hypothecated levies, adding that it is particularly dangerous to hypothecate a levy that is a tiny fraction of the budget one is trying to improve. The MP said it is a tax burden on people on quite modest incomes and those struggling in self-employment or trying to get their ‘little businesses going’.
Ruth Edwards backs the Bill, saying: “Like with pensions, we should be thinking about care provision, planning and taking responsibility for that provision from the start of our working lives.”
Andrew Griffith applauded the Government on their selection of national insurance, the tax with the broadest reach. He said: “It is progressive, and that is why so many of our European neighbours have chosen to fund their social systems through similar measures. It is a chimera to think that there is another way because the national insurance take is more than 10 times that of capital gains tax and inheritance tax combined.”
“This will cost jobs, and it will result in lower pay and higher prices,” said John Baron, who asked why wealthy non-working pensioners are exempt?
Craig Mackinlay is against the Bill, especially as he sees big windfalls coming towards the Treasury, in terms of IHT and capital taxes, which were never really forecast. He noted: “Since we are raising NICs -particularly employer’s NICs - it stands to reason that any employer with a pot that they were thinking about using to increase general salaries across their workforce will reduce that pot by 1.25 per cent.”
Dr Andrew Murrison backs the Bill if only because no alternative has been put forward that is ‘remotely credible’, in his opinion.
With our finances in a perilous state, we need to work our way out of this mess, not tax our way out, remarked Richard Drax.
Nickie Aiken hopes that the money raised from this levy will go towards helping partners who look after their loved ones with respite care, and towards providing care workers, whether in care homes or providing care at home, with the ‘pay and conditions that they deserve’.
In his summing up speech, Financial Secretary to the Treasury Jesse Norman said: “This Government are putting that sustainable social care funding in place. We are doing it with a levy that tracks many other countries that have social care levies in place. This is a progressive, long-term way to address a problem that has remained in front of us, but unaddressed, for far too long.”
The Labour party is against the HSCL, believing it fails to set a plan to fix the crisis in social care, improve pay and conditions for social care workers or clear the NHS waiting list backlog by the end of this Parliament.
Shadow Financial Secretary James Murray moved an amendment to kill the Bill. He complained that there are just a few hours of scrutiny on this entire Bill just one week after the Government first revealed their intentions.
Murray was unhappy that he saw no guarantee in the Bill that social care will benefit from the tax rise, which could leave councils with no option other than to raise council tax. He is also worried about a push from some MPs that people with private social care insurance should get a rebate from the new tax, creating a two-tier healthcare system. He suggested that the Government look to tax landlords and large online multinationals to pay for social care, rather than a tax rise on working people and businesses creating jobs.
Murray noted that there is nothing in the Bill about the Government’s promise to raise taxes on dividends, adding that it would raise only five per cent of the total revenue, with 95 per cent of the tax bill on employment. The MP said the Federation of Small Businesses, the British Chambers of Commerce and the CBI agree the NICs rise will scupper jobs growth.
Dame Margaret Hodge said: “These shambolic proposals… will not properly protect our NHS. They will further ravage struggling local authorities, and the tax proposals are needlessly regressive.” Hodge said the levy is an unfair hike that will hit younger working people the hardest. She noted HMRC’s view of the plan, set out in a Tax Information and Impact Note, that there may be an impact on family formation, stability or breakdown as individuals, who are currently just about managing financially, will see their disposable income reduce. She added: “The numbers do not stack up. The poor will pay for the rich. The young will pay for the old. The struggling tenant will pay for the wealthy landlord. The asset-poor worker will pay for the asset-rich retiree.”
Mick Whitley said instead of asking those with the broadest shoulders to contribute just a little bit more, the Government are intent on pursuing an utterly regressive tax on hard-working families and British businesses. And it will also deal a devastating hammer blow to many of the small and independent businesses that play such a ‘precious role in the life of our town’.
Helen Hayes, co-chair of the all-party parliamentary group on adult social care, warned that social care workers are not the only valued public servants who will face the punitive consequences of this Bill.
Rachael Maskell remarked that, with 84 per cent of care home beds owned by private investors, including private equity firms, who are not paying this levy and whose sole purpose is to profit, MPs should debate social care reform more generally.
Fleur Anderson opined that this is not solving the adult care crisis because it will go to fix the NHS backlog. How will we be able to cut that crisis in future years? she asked. This is a tax policy that is not progressive or fair because it is taking from the poorest and leaving the wealthiest relatively untouched.
Geraint Davies said we should tax the ‘bad things’—namely, climate change and pollution—not the ‘good things’ such as work and the economy.
Kim Johnson complained: “This package will leave a key worker earning £26,000 a year facing a hike in their Nl contributions, on top of a pay freeze, rising council tax, and a frozen personal allowance for income tax—and all this at a time when food, fuel and energy prices are increasing.”
Catherine West predicted that the lowest paid will not only be paying for a ‘whopper’ of a tax increase—the biggest since the 1950s—but will be faced with rising council tax bills and the precept for social care, because this measure will not adequately look after the local government aspect of social care.
If a tax has to be raised, it should be fair across income groups and generations, said Shadow Exchequer Secretary Abena Oppong-Asare, and the national insurance rise fails to pass these tests. It is a tax rise that leaves many graduates with a marginal tax rate of nearly 50 per cent and that comes after this Government is already hitting working families with higher taxes and a freeze in the income tax personal allowance.
Oppong-Asare complained the Government has chosen not to extend the health and care levy to rental income, even though 67 per cent of people who own buy-to-let properties are in the top fifth of income distribution, or looked properly at financial assets, stocks and shares, or income from other forms of wealth. A fragile recovery is being put at risk at precisely the time we need businesses to create jobs, she said.
SNP Spokesperson on Treasury matters Alison Thewliss complained that we have a means of raising taxes, but no detail on how the money is to be spent. The SNP demands urgent clarity about every penny of Barnett consequentials that will be given to the devolved administrations. In line with SNP’s manifesto, any additional money that Scotland gets will be spent on health and social care, but there must be no attempt by the UK Government to sell Scotland short by clawing back Scotland’s share through cuts in other devolved policy areas, she said.
Thewliss said the levy is ‘disproportionate and unfair’. Scotland will have to pay for England’s social care crisis, which is completely unjustifiable, she argued, adding that this is also a tax on jobs and the recovery.
Lib Dem Treasury Spokesperson Christine Jardine said: “It is a tax that will disproportionately hit low earners, at a time when families are already seeing their income squeezed by the pandemic. Instead of boosting hiring and spending, it will damage confidence and investment.”
Lib Dem Tim Farron said we should raise income tax so that this is paid for by people who have the wealth and ability to pay for it – not by national insurance, which often will disproportionately fall on younger working-age people.
DUP’s Jim Shannon remarked: “Whatever process the moneys come through, I would like to see them ring-fenced, because as departments bid for funding, there is every possibility that the money will be deflected from doing good to simply being abused.”
Committee of Whole House
There were a number of amendments and new clauses tabled during the Committee stage of the Bill. These were debated together with all the Bill’s clauses in a single group at Committee of the Whole House.
- Nigel Mills, Conservative, proposed amendment 8 which would have required the Government to publish in advance of the levy coming into force its assessment of the extra costs of collecting the levy.
- A group of Conservative backbenchers tabled amendment 7 which calls for the remainder of the proceeds of the levy and any relevant penalties or interest to be paid by HMRC to the Secretary of State towards the cost in current or future years of health care and social care in all four Home Nations.
- The SNP tabled amendments 2 and 3 seeking to introduce a requirement that the funds allocated by the Bill would be given to the nations of the UK in accordance with the Barnett formula. This would allow devolved administrations to spend the sums as they wish.
- Plaid Cymru tabled amendment 1 seeking to require agreement between the Treasury and the devolved administrations of Wales, Scotland and Northern Ireland as to the shares of the proceeds of the levy that are allocated between health and social care and between England, Wales, Scotland and Northern Ireland.
- The SNP tabled amendment 4 to require joint agreement between the Treasury and the governments of Scotland, Wales and Northern Ireland as to how the levy proceeds are to be shared between the four areas and between health care and social care.
- SNP amendment 5 would have prevented the money given by the Bill being accompanied by reductions in other areas of devolved spending.
- SNP amendment 6 would have required any spending related to the Bill in the devolved nations to be made only by the relevant devolved administration except in cases where a devolved authority makes a specific request of a UK department or authority to spend directly.
- The SNP’s New Clause 1 sought an equality impact assessment of the Bill covering households at different levels of income and wealth; equality between different ages; and the impact between the nations of the UK and regions of England.
- The SNP’s New Clause 2 sought an economic assessment of the Bill on investment, employment, productivity, growth and poverty in the devolved nations and English regions.
- Labour’s New Clause 3 would have required the Chancellor to report to the House on the impact of the Act on tax revenue derived from different sources of income.
- Labour’s New Clause 4 would have required the Chancellor to report to the House on the impact of the Act on the operating costs and profits of different sizes of business enterprises.
- Labour’s New Clause 5 would have required the Chancellor to report to the House on the equality impact of the Act.
- Labour’s New Clause 6 would have required the Chancellor to report annually to the House on the share of the levy spent on health care and on social care.
- Labour’s New Clause 7 would have required the Chancellor to report to the House on levy revenue derived from those working in the social care sector.
- Labour’s New Clause 8 would have required the Chancellor to report to the House on how the revenue the levy is expected to generate could be raised by increasing tax rates on income derived from wealth instead.
- A number of Labour backbenchers tabled New Clause 9 which sought to make the introduction of the levy dependent on the Chancellor first having laid before the House an assessment of the merits of raising the same money instead by means of a wealth tax on those with assets of £5 million or more.
- Conservative MP Nigel Mills’ New Clause 10 would have required the OTS to publish by September 2022 its assessment of the merits of the levy in comparison with the increase in National Insurance, including costs of compliance with and collection of the levy.
Debate on all clauses and amendments to the Bill
Opening frontbench speeches
Financial Secretary to the Treasury (FST) Jesse Norman argued that it is only right that individuals of all ages pay the new levy because it raises funds for health and social care. Norman said private insurance models have severe limitations that would not make them appropriate and no country in the world has a purely private insurance model.
Norman said when an employer benefits from a zero rate of secondary class 1 NICs, such as employers of people under 21, of apprentices who are under 25, of veterans or of employees in freeports, those earnings that are subject to the zero rate will not be liable for the levy. That will ensure that businesses continue to invest in young people developing strong skill sets, and in those who have served this country, he said.
The FST denied there would be ambiguity in the language on payslips when it shows the levy, ‘but of course it might not be clear that it is not the totality of the funding that goes through government’, he accepted. HMRC provisionally estimate the operational costs of implementing the levy at between £40 million and £50 million (set up costs but may be incurred over more than one year), which Norman said is not substantial in the context of the overall amount being raised.
Nigel Mills intervened and suggested combining the existing NICs that are allocated directly to the NHS and do not go into the National Insurance Fund; they are around £26 billion each year, which would effectively treble the amount of money in the levy. That would make it much clearer that people are paying all of it towards the health system, rather than having two different taxes doing exactly the same thing in slightly different ways, argued Mills. Norman replied that he would reflect upon Mills’ suggestion.
Commenting on the amendments, Norman said the Government will publish the final estimates before the levy comes into effect in April 2022.
Sir Christopher Chope, Conservative, intervened to suggest a social care levy standing on its own, asking: “Is it not the case that the Government do not want to have a social care levy on its own because they know that, if there were transparency, it would be obvious that we were reneging on our manifesto commitment of two years ago?” Norman denied this, saying there is an overlap between social care and some aspects of health and adding that having the levy on the payslip enables taxpayers to see that this new tax is clearly represented.
Norman said that NICs collected in one year are used to pay for the NHS and contributory benefits paid out in the same year. The pay-as-you-go basis provides a clear precedent for how the levy should operate and that also ensures simplicity and consistency across the NICs system, he argued.
On the SNP and Plaid Cymru amendments, Norman said this legislation mirrors existing legislation on how NHS allocation is divided between England, Scotland, Wales and Northern Ireland; the Government will work closely with the devolved administrations on the implementation of the levy and the devolved administrations’ overall funding will continue to be determined by the Barnett formula, so that this process will just determine the element provided by the levy. The FST argued that the Treasury already consults devolved administrations very closely on many aspects of tax policy, adding that following an existing hypothecation “gives direct support to devolved administrations that they will be able to receive the Union dividend, which is generated and delivered by this policy.”
On SNP and Labour calls for the Government to review and report on the impact of the revenue effects of the levy, Norman countered that the Government has already provided a number of assessments of the levy’s impact, including a distributional analysis of the impact of the combined tax and spending announcements that shows that lower-income households will be large net beneficiaries from the package.
Norman also pointed to the technical annex in the Government’s plan for health and social care that shows that 70 per cent of the money raised from businesses will come from the largest one per cent of businesses, while 40 per cent of all businesses will pay nothing extra. And the TIIN is a third form of assessment which sets out the equality impact of the levy specifically.
The FST said the Government already routinely publish data on departmental spending throughout the year, including at main and supplementary estimates. This reporting shows, for example, exactly how much revenue NHS England receives from national insurance contributions. In future, this will show the contribution that this levy makes to the budgets of the Department of Health and Social Care and the Ministry of Housing, Communities and Local Government. On the levy revenue derived from those in the social care sector, existing data sources do not include or reliably collect data on employment by sector.
On Nigel Mills’ call for the OTS to publish an assessment of the merits of the levy, Norman said it is not the role of Parliament to commission work from the OTS.
Labour’s Shadow Financial Secretary to the Treasury James Murray said there is nothing in this Bill that will guarantee a penny going towards social care, saying ‘it is entirely possible that not a single penny of any money raised will ever go towards the social care sector’.
Murray slammed the Government for choosing not to raise taxes for those with large portfolios of stocks and shares, and for landlords renting out multiple properties, and for a Bill that even lacks any mention of promised taxes on dividends. He said that the London School of Economics, Warwick University, the Institute for Public Policy Research, the Social Market Foundation and many others have all come forward with other ways of raising the money than the levy.
The shadow minister said that the income gap between the richest in society and the rest of the population has widened over the last decade. A tax rise that singles out income from employment can only make this inequality worse, he argued. In areas where average wages are lower and fewer people get income from other assets, the impact of the national insurance rise and the levy will be more acutely felt. He said : “A tax increase that ignores income from renting out properties and selling financial assets, and that seeks to fund a plan that ignores differences in house prices and care costs between different regions, is destined to make inequality worse.”
Conservative backbench speakers
Marcus Fysh wants the Government to focus on a way of looking at the future costs of social care and how to finance them more creatively. He is disappointed that the Government is not thinking about applying some of the funds from an element of national insurance or something related to it to help incentivise pooled saving schemes.
Nigel Mills spoke about the likely extra payroll costs for businesses and new systems for HMRC and wonders if these extra costs makes it pointless to tax people over retirement age: “We are creating a whole new tax to raise less money than it costs to collect it, for no real advantage other than a presentational one.” He added: “If we really believe that we want a separate levy to show what people are paying directly for health and social care, I think that we should move the existing two per cent of national insurance that goes directly to the health service into the levy, so there is one hypothecated payroll tax that goes to the NHS on people’s payslips, rather than it being hidden in a part of national insurance.”
John Redwood warned against hypothecated taxation, saying it does not always cover the right amount of revenue or the purpose may become less popular. Redwood said: “My big worry about this hypothecation is that the sum of money for social care - when we eventually get to that point after three years - collected by the so-called social care tax – will be only about one fifth of the actual costs of social care to the public sector.” He also shared Mills’ concerns about gross and net when it comes to the levy.
Sir Christopher Chope asked why the very rich should have unrestricted access to a free NHS? He wants to see a government strategy to encourage more investment by ordinary individuals in the healthcare system. Chope said: “If we have 1.6 million people providing free care for their loved ones, why are we choosing to impose upon them an extra levy, an extra tax? Surely it would be reasonable—clause 4 enables this to be done by subsidiary legislation—to exclude those who are looking after their loved ones, doing the right thing and saving the state a lot of money. We could say, “In return for doing that, you will be exempt from the 1.5 per cent levy.”
Other Opposition speakers
Nadia Whittome (Labour) remarked that the Government is choosing to protect the interests of the wealthy who fund them at the expense of low-income workers and renters. While landlords and the super-rich who are hoarding wealth and housing pay nothing under this new tax, ‘my constituents will be having their pockets raided’. Whittome said it is time to get serious about taxing wealth, saying that taxing wealth progressively between £1 million and £10 million, with all wealth beyond £10 million taxed at three per cent, would bring in a total of £55 billion over five years. Why was such a wealth tax not considered by the Government instead of the levy.
Richard Burgon wants the Chancellor to look at different taxes to raise income, saying we have a tax system rigged in favour of those who already have wealth. The Government could reform capital gains tax, so that instead of lower taxes for wealthy people, that money could be used to fund social care. They could raise many more billions of pounds by a direct wealth tax on the richest one per cent with assets of more than £5 million.
Stephen Flynn, SNP Spokesperson on Business, Energy and Industrial Strategy, claimed the Government is scared of an equality impact assessment because it would put in black and white what all the pressure groups are telling us. He said: “It will be coming primarily from younger people, who are the very people whose horizons have been shortened by Brexit, and whose job opportunities, career opportunities and educational opportunities have been hammered by the pandemic.” He added that the cut to universal credit and the increase in NICs is a ‘double whammy’ on those in society who can least afford it. He cited the Federation of Small Businesses saying that the proposal will force 50,000 into unemployment.
Ministerial wind-up speech
Closing the Committee stage, Jesse Norman responded to some of the points raised by MPs. He said the dividend tax rise will appear in the forthcoming Finance Bill. He said the Government’s plan is ‘perfectly explicit’ as to where the money is going with regard to social care and how much is going to social care.
Responding to Nigel Mills, Norman said that the reason there is a new tax is that this is a fundamental change in how we have been thinking about social care. Andrew Dilnot in his review said that he does not think it inappropriate to have a new tax to support this, said Norman.
The FST went on to say there is already an existing level of hypothecation within the NICs system and this plays off that. He told John Redwood that these are net revenues – revenues that have been calculated net of the effects.
On the tax’s progressivity, Norman said that the Government’s package means that the 20 per cent of highest income households will contribute 40 times the amount contributed by the least well off 20 per cent of households.
He said that the Wealth Tax Commission, which is independent of government and (he claimed) “dedicated to the idea of arguing for a wealth tax”, had acknowledged that the UK is on par with G7 countries as regards taxation of wealth.
The SNP pushed amendment 4 to a vote (the amendment would have required joint agreement between the Treasury and the governments of Scotland, Wales and Northern Ireland as to how the levy proceeds are to be shared between the four areas and between health care and social care). But it was defeated (324-56).
Labour’s New Clause 3 would have required the Chancellor to report to the House on the impact of the Act on tax revenue derived from different sources of income. It was pushed to a vote but was defeated (320-236).
And finally, Labour’s New Clause 5, which would have required the Chancellor to report to the House on the equality impact of the Act, was defeated in a vote (320-240).
Third reading debate
FST Jesse Norman explained that many talk loosely of it as being based on national insurance contributions, or indeed as being a national insurance contributions Bill, but it is of course a separate Bill to introduce a 1.25 per cent health and social care levy based on national insurance contributions. He said the levy will enable the Government to tackle the backlog in the NHS. It will provide a new, permanent way to pay for the Government’s reforms to social care and will allow the Government to fund our vision for the future of health and social care in this country over the longer term, he added.
Labour’s Shadow FST James Murray said: “While the Bill lacks a plan for social care or any commitment that a plan will ever be in place, or even that any of the money that the levy raises will ever go to social care, it does include a tax rise—a tax rise that hits working people and businesses creating jobs. We know what that will mean for people across the country: combined with the cut to universal credit and the freeze in personal allowances, hospitality workers, teaching assistants, supermarket workers and social care workers stand to lose more than £1,000 next year.”
The SNP’s Treasury Spokesperson Alison Thewliss said this is “a tax on jobs, undermining recovery at a time when we need to be thinking about getting people into work, not making it harder for businesses to employ them. It is also a tax on the many who have been completely excluded from UK government support throughout the pandemic.”
The Bill was read a third time and passed (307-251).
It will go through its Lords stages on 11 October.
By Hamant Verma, Senior External Relations Officer at Chartered Institute of Taxation (CIOT)