National Insurance and dividend tax to rise to pay for health and social care

10 Sep 2021

The UK Government confirmed on Tuesday that rates of National Insurance and income tax on dividends will increase by 1.25 per cent from next April ahead of the introduction in April 2023 of a standalone 1.25 per cent Health and Social Care Levy.

The proposals have been set out in a government policy paper, Build Back Better. Our plan for health and social care. They mean that:

  • From April 2022, rates of employer, employee and self-employed NI will increase by 1.25 per cent. It will apply to Class 1 and Class 4 NI, and to the main and higher rates
  • From April 2023, NI rates will revert to 2021/22 levels and be replaced by a dedicated levy
  • The levy will not be charged on companies employing apprentices under the age of 25, those under 21, veterans and employers in Freeports provided earnings are less than £50,270 (or £25,000 for new Freeport employees)
  • Unlike National Insurance, the levy will be paid by people over pensionable age who are still working
  • The money will be ringfenced for investment in health and social care
  • Dividend income tax rates will also increase by 1.25 per cent from next April

The changes will apply across the UK. Because health and social care policy is devolved, the governments of Scotland, Wales and Northern Ireland will receive a share of the money raised through the Barnett Formula. The UK government estimates that the way the money is allocated means that the devolved governments will receive around 15 per cent more than they would generate themselves, equivalent to around £300 million every year.

Legislation

The proposals have already been put to a vote of MPs, with a ways and means resolution authorising the levy and National Insurance increase passing the House of Commons by 319 votes to 248 on Wednesday evening.

The motion passed by MPs states that the proceeds of the levy are to be paid (together with any associated penalties or interest) to the Secretary of State for Health (and their equivalents in the devolved administrations) towards the cost of health and social care, but expenses incurred in collecting the tax are to be deducted and paid instead into the Consolidated Fund (ie the fund for general government spending).

Also on Wednesday evening, a seven clause, eight page Health and Social Care Levy Bill was published. This will establish the levy and implement the temporary increase in NI rates. It will go through all its Commons stages on Tuesday 14 September.

The dividend tax change will be legislated for in the next Finance Bill.

The Government case

Ministers argue that a national insurance increase is the fairest way to raise the funds needed for health and social care, and that the pandemic constitutes force majeure justifying the breaking of a manifesto promise not to increase NI.

Announcing the proposals in a House of Commons statement on Tuesday, the Prime Minister said: “Some will ask why we do not increase income tax or capital gains tax instead, but income tax is not paid by businesses, so the whole burden would fall on individuals, roughly doubling the amount that a basic rate taxpayer could expect to pay, and the total revenue from capital gains tax amounts to less than £9 billion this year.”

The Prime Minister said the new levy would share the cost between individuals and businesses, and everyone would contribute according to their means, including those above state pension age. “So those who earn more will pay more, and because we are also increasing dividends tax rates, we will be asking better-off business owners and investors to make a fair contribution too.”

He continued: “Of course, no Conservative government ever want to raise taxes, and I will be honest with the House: I accept that this breaks a manifesto commitment, which is not something I do lightly, but a global pandemic was in no one’s manifesto. I think that the people of this country understand that in their bones and can see the enormous steps this Government and the Treasury have taken.”

Opening Wednesday’s debate on the ways and means motion Financial Secretary to the Treasury Jesse Norman offered four reasons why a levy based on national insurance is the best way to raise the funds needed for the Government’s plan for health and social care:

“The first reason is that there is already a clear precedent. Indeed, in 2003 the then Labour Government increased these same NICs rates by 1% specifically to put more funding into the NHS. Within the NICs system there is, as Members across the House will know, already a long-standing ring-fenced proportion of receipts directed to the NHS.

“The second reason is that this is a fair method. Businesses will play their part. In fact, the largest 1% of businesses will contribute 70% of the revenue. However, existing NICs reliefs and allowances will also apply to the levy. That will mean… that 40% of all businesses will not be affected due to the employment allowance. When it comes to individuals, those earning more will pay more. Conversely, at least 6.2 million people earning less than the NICs primary threshold will not pay the levy at all.

“The third reason why a levy based on NICs is the right approach is that it has worked elsewhere. France, Germany and Japan have all increased social security contributions to fund social care provision. Finally, the question of how to fund health and social care is one that applies to a whole nation. NICs are set on a UK-wide basis, and the levy therefore provides a clear UK-wide solution.”

Political reaction – Labour frontbench

Labour have opposed the introduction of the levy and voted against it. Without being explicit about what they would do, Labour have suggested they would look for alternative tax increases focused on the wealthy and high earners.

In her speech on Wednesday, Rachel Reeves MP, Labour’s Shadow Chancellor, explained: “There are two tests for the package announced yesterday. The first: does it fix social care? The second: is it funded fairly? The answer to both is no. It is a broken promise, it is unfair, and it is a tax on jobs.” That was why Labour would vote against “this unfair, job-taxing, manifesto-shredding tax bombshell”.

Both Reeves and Labour leader Sir Keir Starmer drew attention in their responses to the promise in the Conservatives’ 2019 manifesto not to raise taxes on income, on VAT or National Insurance.

Responding to the Prime Minister’s statement on Tuesday Starmer pointed out that the Prime Minister had made his commitments on social care before the pandemic, and had said that he would pay for those commitments without raising taxes before the pandemic.

Starmer also claimed that the proposals being announced would leave poorly paid care workers paying more tax but without a penny more in their pay packet. He called the new levy “a tax rise on young people, supermarket workers and nurses; a tax rise that means that a landlord renting out dozens of properties will not pay a penny more, but the tenants working in full-time jobs will; and a tax rise that places another burden on businesses just as they are trying to get back on their feet.”

Starmer hinted at how Labour would have paid for increased investment in health and social care, saying: “We do need to ask those with the broadest shoulders to pay more, and that includes asking much more of wealthier people, including in respect of income from stocks, shares, dividends and property.” The Prime Minister was unimpressed, saying his plan would get the NHS back on its feet and deal with the backlog, while the Labour leader had “totally failed to explain how a Labour Government would do that.” “One year of capital gains tax would not even begin to deal with this problem,” he added.

Reeves was challenged during her speech on what Labour’s plan was. Her reply was that: “We should be looking at all forms of income, not just income from people who go out to work. A landlord who rents out a number of properties will pay nothing, whereas his tenants in work will. That is not fair, and that is why we cannot support the motion this evening.” She later added, more succinctly: “This Government are choosing to tax ordinary working-class people. Labour would ask those with the broadest shoulders—the wealthiest in our communities—to pay more.”

Reeves noted that those who get their income “from financial assets, stocks and shares, sales of property, pension income, annuity income, interest income, property rental income and inheritance income” would pay no more tax as a result of the announcement. She said that Amazon had reported an additional £1.9 billion-worth of sales, but is paying only £3.8 million more in corporation tax. By contrast, a graduate on a typical entry-level salary will now pay a marginal tax rate of almost 50%, said Reeves.

Reeves was challenged by a Conservative MP on whether Labour were wrong to raise national insurance for the NHS in 2003. She replied that the situation was different. “We had a clear plan to bring down waiting lists, a plan that this Government are sorely lacking. The economic circumstances are different, too. The Government’s tax on jobs comes at the worst possible time.”

Shadow Chief Secretary to the Treasury Bridget Phillipson wound up the debate for Labour. She complained that MPs were being asked “to approve, with almost no notice, an extra £11.4 billion of taxation on workers and businesses, and an extra £600 million of dividend taxes... When this Government need income, they do not turn first to those with assets, stocks and shares and property, or to those with the broadest shoulders who can afford a little more. No, they turn to working people: to those who work hard to earn their income, and their employers.” She concluded: “This is the wrong process to agree the wrong tax at the wrong time.”

Phillipson had earlier been challenged by a Conservative MP who pointed out that if someone holds their properties in a limited company and they take their profits through dividends, those dividends are taxed to include the social care levy. Phillipson responded that the MP was ‘simply not right’.

Labour’s amendment to the ways and means motion sought to impose two conditions which must be fulfilled before the levy and NI increase could be implemented. These were that the Chancellor must publish (a) an assessment of the impact of these measures on jobs and businesses, and(b) a distributional impact assessment of these measures on different income groups and regions.” The amendment was defeated 243-335.

Political reaction – other parties

The tax increase was also opposed by all eight other parties in the House of Commons (plus three Independents and five Conservative rebels): the SNP, Lib Dems, DUP, Plaid Cymru, SDLP, Alba, Green Party and the Alliance Party of Northern Ireland.

SNP Westminster leader Ian Blackford attacked the Prime Minister for his statement that, in respect of the devolved administrations, the UK government “will direct money raised through the levy to their health and social care services.” “The Prime Minister can get his mitts off our health system,” said Blackford, “because the people in Scotland trust the Scottish Parliament and the Scottish Government to run health and they certainly do not trust the Prime Minister.”

Blackford condemned what he called “this regressive tax”, saying it would fall hardest on the young and the lowest paid, and the unfairness would be especially felt in Scotland. Calling it “another Tory poll tax” he said the Scottish Government already funds health and social care provision — including policies such as free personal and nursing care — from existing budgets and tax receipts, and so, “by raising this levy across the UK, the Tories are taxing Scottish workers twice and forcing them to pay the bill for social care in England as well as at home in Scotland.”

Responding, the Prime Minister said Blackford was “completely wrong in what he says about those who pay this tax. The burden falls most heavily on those who have the broadest shoulders, as it should, and it is the richest 14% who pay at least half the taxation.” He said this announcement constituted “a massive Union dividend of £300 million across the whole of the United Kingdom”. (The origin of this figure is that, according to the UK government, Scotland, Wales and Northern Ireland will benefit from this tax rise by an average of 15% more than is generated by their residents. That is £300 million a year on average.)

Speaking for the SNP in Wednesday’s debate Alison Thewliss said this was “a UK tax for an English policy crisis”. Observing that some had asked, “What’s your alternative?”, she responded that “fixing England’s social care crisis is not for the SNP to decide”. The previous day she had suggested that the Prime Minister was “intent on damaging the very fragile recovery”.

Liberal Democrat leader Sir Ed Davey also attacked the tax increase. He asked the Prime Minister what his message was “to the low-paid, the young and the small business owners hit by covid who now face his unfair tax?” The party’s Treasury spokesperson, Christine Jardine, asked MPs to consider “what this so-called plan will mean for the young people, the lowest-paid and the small businesses that will be hit hardest, because this is a tax hike for the low-paid and young people, which the Government promised there would not be.”

DUP Treasury spokesperson Sammy Wilson told the Prime Minister that most people recognised that if we want more services, we have to pay more. “But if we are going to pay, it should at least be fair. Despite your claim that this is a progressive tax, it is not. It is a flat-rate tax, the benefit of which will go mostly to better-off people.”

Political reaction - Conservative backbenchers

Conservative MPs mostly welcomed the announcement, and focused their questions on specifics about how the money raised will be spent. However five voted against the increase and a number of others abstained as they did not feel they could vote for higher taxes or, in at least one case, for this particular increase. Many of those who backed the proposals are looking for a commitment from the Government to lower taxes in the medium-term.

Treasury Committee chair Mel Stride thought, looking at the amounts involved, that there were only three taxes that could be considered: income tax, national insurance and VAT. If income tax was increased: “We would have had to have about twice the level of increase that we are looking at with national insurance to have raised the same amount of money.” Also, elements of income tax are devolved to other nations across the United Kingdom, so it would not be a UK-wide solution. If we put up VAT, that would be hugely regressive, he thought. Thus, national insurance. He praised the Chancellor for extending the tax rise to those beyond the state retirement age and those receiving income by way of dividends. “That critical move makes this, in general, the right approach.”

However he thought there were issues that the Treasury Committee would need to look at. “One of them is that a regrettable consequence of the increase in the employer’s national insurance rate is that it will exacerbate the so-called “three people problem”, whereby the different tax treatment of the employed, the self-employed and those receiving income through their own company will be widened, with consequences for IR35.” Another was the impact of different house prices across the country.

Other Conservatives to give the tax increase strong backing included Health Committee chair Jeremy Hunt, who said that raising taxes is “an incredibly difficult thing for any Conservative Government to do, so I thank the Prime Minister for biting the bullet on this intractable issue”. Gareth Johnson paid tribute to the Government “for having the courage to deal with one of the most difficult issues that faces British politics today.” Tom Hunt said that to rule out the increase because of what the manifesto had said was “like writing a manifesto in 1938 and then realising that thousands of Spitfires have to be built because the second world war is starting. The money has to be raised somehow, and to say, “We cannot possibly do that, because we cannot change the manifesto we stood on a year ago”, would be absolutely absurd.”

Laura Trott said that NI is imperfect in many ways, but noted that Tony Blair had said that “If we want sustained investment in the NHS over a period of time, we are going to have to pay for it.” And he had suggested that NI was the fairest and best way to do it. She agreed. David Morris suggested that what the Prime Minister was doing was what Andy Burnham wanted to do 10 years ago when he was the last Labour Health Secretary.

Education Committee chair Robert Halfon welcomed that paying for this proposal “is going to fall predominantly on the well off and those with the broadest shoulders.”  Miriam Cates thought that, on reflection, using NI to raise this levy was a fair way to proceed, especially given that dividends and working people of pensionable age are included. Sir Mike Penning was another who thought that, at the end of the day national insurance probably was the way to do this.

Lots of Conservative backbenchers accompanied their decision to vote with the Government on the motion with exhortations not to lose sight of the benefits of low tax levels for the economy. “A low-tax economy is a buoyant economy, and I hope that when this is all over, we can revert to proper Conservative economic policy,” said Lucy Allan. Gagan Mohindra said he was, fundamentally, a low-tax Conservative, and hoped that, “along with the increased resources, [in the future] there will be increased ambition to do things bigger, better, quicker and more efficiently, rather than just continually chucking money at things.” Robert Syms hoped “that we will get back to a more tax-cutting agenda as the years roll by.” Julie Marson stressed her belief that taxes should be as low as possible, but said “To lead is to choose”.

Huw Merriman was concerned too. “It cannot be right that a 27-year-old graduate who is paying back their tuition fees is seeing 42% of their pay go towards tax. That is not what Conservatives set out to do”. Merriman wondered why the Prime Minister had rejected insurance as a model. He praised a bill introduced by Lord Lilley, based on the German model. This “would see the Government set up a state insurer. Those retired householders would then pay a premium, which would be fixed as a charge, and then that charge would only be paid upon the death of that individual.” He asked: “Do not those models do a little more to intergenerational fairness?” The Prime Minister said the problem was “that we need to go for an insurance system that works and has a genuine chance of being set up, and the only way of encouraging the financial services industry to come in and offer products, whether they are insurance or annuities or whatever, is to take away that risk of catastrophic cost. That is a very substantial risk for too many people and it means that the insurance market has not been able to develop.”

Dehenna Davison also liked the sound of the insurance model which, she thought, “goes to the Conservative principle of personal responsibility”. As regards the NI increase she suggested the government could consider looking at regional disparities in house prices when setting the asset floor.

Two of the strongest speeches against the tax rise from Conservatives were delivered by Jake Berry and Steve Baker.

Berry began by congratulating the Government on grappling with a very difficult issue, but he did not think NICs was the way to do it. This was for three reasons related to his Lancashire constituency: (1) that it is an area with low incomes, and the lower a person’s income, the more that person pays, as a proportion of that income, in NICs; (2) that it is an area with low property values, so an £86,000 cap on contributions could mean people paying half of their property value in care home fees; and (3) that it is an area with historically high unemployment and NI is a jobs tax. He would have much preferred the Government to look at income tax instead, and also at an online sales tax. “This problem needs to be tackled with a cocktail of funding, not just one tax,” he thought.

His colleague Miriam Coates suggested using NI was a better way of sharing cost across business and employees than income tax, and would actually affect lower earners in our constituencies less than the income tax alternative. Berry disagreed.

Berry said he was greatly concerned that this tax “is not actually a health and social care tax; it is a Trojan horse for an NHS tax. The Government themselves say that in the first few years of this tax, nigh on 100% of it will go towards supporting the NHS. That is quite right, in that the NHS does need more money, but if it is an NHS tax, which will be hypothecated and listed on pay slips, we should call it that, rather than calling it a health and social care tax.”

Steve Baker speculated on what Labour would do if it were in power. “If I understand the Labour Front Benchers correctly, I think they suggested that they would use stamp duty or various transaction taxes on assets.” But, he said, “there is no way that the money needed would be raised” so we need to change one of the big taxes. He thought Labour would, after ruling out VAT and income tax increases, raise NICs as the government were doing.

The problem, said Baker, is not the NICs rise: “the problem is that we have no better ideas than putting up taxes to raise more money for public services.” He continued: “We have to show people that we can secure a bright, prosperous and free future that provides for their needs in their old age, but without coming back to higher taxes every time there is a squeeze on the public finances. Down that road is ruin.” For that reason, he said, he could not vote with the Government.

Both Berry and Baker abstained, but five Conservatives did vote against the motion: Sir Christopher Chope, Esther McVey, Philip Davies, John Redwood and Neil Hudson. Perhaps surprisingly none of the five spoke during the debate. Chope did question the Prime Minister after his statement, asking how, if there had been no pandemic, this reform of social care would have been funded without having to raise taxes? The Prime Minister did not reply directly, simply saying that the pandemic and the cost of the pandemic have impacted both health and social care systems and the best way to put them on a sound footing for the future is to put in place the levy.

Among those reluctantly voting for the motion was Ben Everitt who said: “There are never any good options for raising taxes, but I happen to think that raising taxes on having a job should possibly be at the bottom of the list when we look at new areas of income. “ Paul Bristow said he did not like tax increases, “but I also understand that an enormous thing happened between the manifesto and now. There has been a global pandemic, and Labour Members seem to have missed that fact. We need to shorten waiting lists, we need to do something about it and we need to correct it.”  

Mike Wood said he believed that raising taxes was a bad option, but “the alternative — not acting — is far, far worse.” The new levy was ‘the fairest way’ he said, dismissing opposition ideas as ‘fanciful’. Jack Brereton said increasing taxes was not something he takes lightly, and it goes against much of his belief, but we must invest more in health and social care.

Richard Drax said the Conservative way to raise revenue is to lower taxes, not raise them. The Prime Minister agreed with that general proposition, but said that in the current circumstances, it was right to take the steps being put forward. Drax remade his point the following day, arguing that “to generate the revenue we need, we lower taxes—that is proven. We do not raise them, because if we do, all we do is damage our economy and have less money to spend on the things we need, like social care and the NHS.”

Sir Edward Leigh said it was easy to attack this measure but much more difficult to provide an alternative. “I am afraid that all this talk of a wealth tax or a tax on dividends does not even begin to meet the problem. If we have a wealth tax, what happens in respect of two old-age pensioners who have almost no income and just have a capital asset?” He thought the Government should look at innovative solutions to encourage people to take more control of their healthcare: “John Major was hardly a fanatical right-wing Conservative, but he offered tax relief to pensioners who took out healthcare — we have never even considered that. The argument could be made that rather than having arbitrary limits such as £86,000, we could base this on the value of the house. So there are alternatives available.”

Bim Afolami said NI was better to use than income tax because NI is paid by both individuals and employers: “it is a broader-based tax, which raises more money.” As for a wealth tax, “I am afraid that we are dealing with billions of pounds—£12 billion, £13 billion or £14 billion—and no wealth tax in the world has been designed to yield anything like that amount, so that would not deal with the problem.” He challenged the contention that the new levy would be regressive, noting that the smallest 40% of companies will pay nothing extra as a result of this measure. Somebody who earns a very high amount—let us say £1 million a year—will, by his maths, be paying £12,500 extra as a result of this measure, while a basic rate taxpayer pays something like £3.40 a week.

Kevin Hollinrake said funding of social care had been debated in the Commons many times over recent decades. “I blame colleagues from either side of the House—from both the Labour and Conservative parties. Whether it is the “death tax” or the “dementia tax”, people have come forward with proposals only to be rubbished by the other side for political purposes.”

Hollinrake drew the House’s attention to a recent report from a joint inquiry by the Health and Social Care Committee and the Housing, Communities and Local Government Committee on the future funding of social care, on which he sat. “It says: “We therefore recommend that an earmarked contribution, described as a ‘Social Care Premium’, should be introduced, to which individuals and employers should contribute. This can either be as an addition to National Insurance, or through a separate mechanism”.” He noted 12 opposition members had signed up to the report.

He thought this solution was ‘the least worst’ but better solutions could be developed down the line. He had concerns about hypothecation. “Hypothecated taxes simply do not work, and we see that time and again. It would be better to develop this into a proper social insurance system with not-for-profit providers, so that it does not go into the private sector, but instead the money could be paid in on a proper hypothecated basis to deal with the long-term problem of social care.”

Peter Bone said he was unhappy with the procedure being followed. By voting for the Ways and Means motion MPs are creating a new tax. “We are doing that, though, without having the detail. If this was a Budget, the Chancellor would stand up and make a powerful speech, and there would be an immense amount of applause on that day for what he said. People would then read the Red Book, for five days they would unpick the Budget, and then we would vote on the Ways and Means motion.”

Kieran Mullan challenged the Labour narrative around what was fair in relation to paying for social care. “A person from a middle-income family could pay significant amounts in tax over many decades and buy their home but then see that home and nearly every penny of what they saved taken off them to pay for social care. They could live next door to someone who has paid perhaps no tax or a low rate of tax and gets everything paid for them. They end up in exactly the same boat, with nothing to show for what they saved, despite the huge difference in what they put in through taxes. That is simply not fair. In this case, people on lower incomes will continue to benefit from essentially free social care; they are just being asked to contribute a little bit more, and inevitably a little bit more will be spent on them. That is fairness, too.”

A number of MPs, among them Nickie Aiken, asked for reassurance that local authorities would be adequately funded for their social care responsibilities. “Absolutely”, responded the Prime Minister to Aiken. “This is a legally hypothecated levy, but we will ensure that the funds that are fixed for social care go to social care so that we deal with the problem of the catastrophic costs. This will not be dispensed by the NHS, but by the Treasury in the normal course of government spending.”

Political reaction – Labour backbenchers

Labour MPs uniformly condemned the National Insurance increase. Some went further than their frontbench in calling for a wealth tax.

Dame Margaret Hodge accused the Prime Minister of choosing “what I consider to be the least progressive option to fix both our health and social care system. It is unfair between generations, unfair between individuals and unfair between those who derive their income from assets or from work. He is ignoring a raft of better alternatives: raising income tax; and making dividend tax equivalent to income tax or capital gains tax.” The Prime Minister responded that none of the alternative measures raises anything like the funding that is needed.

Dame Angela Eagle, the senior Labour member of the Treasury Committee, observed that when the Prime Minister signed the guarantee on the tax lock in the 2019 general election campaign, he also told the country that he had an oven-ready plan for reforming social care, prior to the pandemic? “He cannot have signed the tax lock, as well as having a plan for social care, if one of those things was not exactly true,” she thought.

Eagle said the tax change “continues the shift in tax liabilities away from those who make their income from owning assets to those who work. It exacerbates the three-body problem with self-employment, encouraging evasion, and it leaves wealth largely unscathed.”

Asked why she voted for the 2003 NI increase, Eagle replied: We had the Wanless report, rising real wages and a buoyant economy, and we did a lot of work with civil society and communities before we introduced the rise. We did not just pull it out of a hat like a rabbit. It led to a 6% increase per year in funding for the NHS, not the 3.5% that this measure will lead to.”

Jon Trickett suggested the expenditure cap would be the Prime Minister’s poll tax. “In his Uxbridge constituency, the average price of a house is £500,000; in parts of mine it is £130,000. That would leave people in his constituency with an inheritance of more than £410,000 per family, and in mine £44,000 per family. That is unjust and unfair.” The PM replied that this was “a massively progressive measure that increases the floor on people’s liabilities four times.”

Catherine West asked the Prime Minister what assessment he had made of the number of jobs where employers will look at the extra national insurance contributions and say, “No, I do not think I will take on those extra staff”? The PM replied that 40% of companies will not be affected at all by the increase, and the labour market is “so buoyant that not only are there huge numbers of vacancies, but wages are rising”.

Clive Betts, Chair of the Housing, Communities and Local Government Select Committee, warned that the money from the tax increase “goes nowhere near funding the current gap, let alone bringing about any improvements or bringing people into the social care system who are currently excluded”. He noted that the Government say they expect “demographic and unit cost pressures” will be met “through council tax, social care precept”. That suggested above-inflation council tax increases again. “If we say national insurance payments are regressive, council tax is now regressive, too,” he argued.

Challenged by Conservative Kevin Hollinrake on whether he still supported the 2018 select committee recommendation to fund social care through the national insurance system, Betts said yes, but that it was a slightly different recommendation from what the Government are proposing now? “We talked about the rate at which national insurance would be paid… We talked about paying right the way up the income scale. We talked about extending it to pensions and unearned income, and about it not being paid for by the under-40s, who have been really badly hit by this pandemic, and we ought to be doing our best to protect them. In paragraph 95, we also made the important point that people should not have to sell their homes to pay for social care and proposed instead “that a specified additional amount of Inheritance Tax should be levied”.”

Betts continued: “We all agreed to that. That system is a lot fairer; people would pay according to the value of their home and it would not be that people in constituencies … where house prices are relatively low, end up paying a bigger percentage of the value of their home to fund care than people in areas with higher house prices. I stand by that recommendation. It is a different proposal from the one the Government are now putting forward.”

Sarah Owen said that she had been a care worker and the job “deserves decent pay and recognition, not a Tory tax hike”. Jack Dromey similarly asked the PM how he could justify to care workers “a tax rise that not only breaks a promise, but hits them hard in their pockets”. Nadia Whittome said she also used to work as a care worker and now the pockets of her former colleagues “will be raided with a tax that will hit hardest those who are older, young and less well-off”.

Whittome also spoke in the following day’s debate, arguing for “a national care service funded by progressive taxation, including a wealth tax”. Why, she asked, is Amazon paying only 7.5% of its income in tax while a graduate on a standard starting salary is expected to give up around 50%? She lambasted the government for taking money from those who have been on the frontline “and not from the billionaires who have profited from the pandemic, increasing their wealth by more than a fifth.”

Richard Burgon said that a 10% tax on the wealth of those with over £100 million would raise £69 billion. “Surely a wealth tax is how we should be funding these vital services.”

Sam Tarry also called for more progressive taxation measures to be considered, such as a wealth tax. “Let us be really clear about what has happened in the past 18 months: Britain has created a record number of millionaires and billionaires during the coronavirus pandemic. Their wealth has surged—the combined wealth of billionaires in this country grew more than 20%. Instead of raiding the pockets of the lowest paid and of small and medium-sized enterprises, who may struggle to afford it, why are the Government not closing the tax loopholes and targeting the tax havens?”

Lloyd Russell-Moyle suggested the Government could have lifted the 2% lower rate of NI to 12%. “That would have provided £14 billion in one stroke and not affected any hard-working person in our country. It would have already raised more than this non-existent plan. They could have looked at a wealth tax for people who have wealth higher than £5 million, an amendment that I and other colleagues tabled for today; capital gains reform to bring it in line with income tax, for example; or making inheritance tax fair so it is based on what you receive, not necessarily on what you give, so that those in large families can receive a fair amount while ensuring that everyone pays their contribution.”

Zarah Sultana said the NI hike would “hit low-paid and young workers the hardest, while doing absolutely nothing to tax the wealth of the super-rich.”

Rachael Maskell argued for “a fair taxation system that falls on those who can pay the most”.

Meg Hillier, chair of the Public Accounts Committee, said the proposal was “about protecting the capital assets of the wealthiest. I am a London MP, and this proposal will protect a lot of people in London who are like me: a homeowner in London with a wealthy asset for whom £86,000 is a small percentage of the home I own.”

Clive Efford described the NI increase as “a point of no return for the Tories” and “the biggest single tax increase in 70 years”. Steve McCabe noted that, “Only last year, the Government were boasting about raising the national insurance threshold and now they are squeezing the very same people.”

Political reaction – backbenchers from other parties

SNP MP Gavin Newlands asked why the increase was necessary at all. “This will raise about £12 billion a year, but the Prime Minister’s Brexit bonus of £350 million a week would aggregate to £18 billion a year. So where is this money, or did it never exist?” The Prime Minister replied that the country has been through a pandemic that obliged the Treasury to spend £407 billion on protecting people, jobs and livelihoods by furlough and other measures across Scotland. It is now “the reasonable and responsible thing to do now to put the NHS back on its feet with the funding it needs, and to sort out social care at the same time. That is what we are doing.”

Richard Thomson (SNP) asked the Prime Minister to “explain what it was that persuaded him to embed the advantages of inherited wealth and privilege, and instead shift the burden for paying for this policy on to the lowest earning and the youngest in society—those with the least assets”. The PM replied that he found it “extraordinary that the Scottish nationalist party would rather not have the Union dividend that this programme produces”.

Munira Wilson (Lib Dem) said that, a little over two years ago, the Prime Minister had stood on the steps of Downing Street and promised the nation an oven-ready deal on social care, yet the announcement of a tax on jobs only promises a plan later this year.

Jim Shannon (DUP) asked for reassurance that SMEs will not shoulder the burden of the tax increase. The Prime Minister assured him that the Chancellor would keep bringing forward “business-friendly, supply-side measures which will drive a very strong economic recovery.”