Long-awaited plans for an overhaul of the UK’s social care system have been delayed again until autumn, though industry experts are already assessing the impacts a National Insurance increase could have.
The government is rumoured to be planning a 1% National Insurance (NI) increase to fund social care reforms and support the ageing population, according to original reports in The Times.
It has since been reported that, with Boris Johnson, chancellor Rishi Sunak and health secretary Sajid Javid all self-isolating, final decisions on the being issue are being delayed until autumn. Though no announcement is imminent, these plans may prove controversial with some.
Darren Cooke, Chartered financial planner at Red Circle Financial Planning, is angry that the government is proposing a backtrack after the issue of social care has been left untouched for decades.
“It should have been dealt with 20 years ago, we knew this problem was coming then, long before then even,” said Cooke. “Successive governments have ducked the issue because it is very difficult and will require raising taxes which no government likes to do because it isn’t popular.
“I think it’s horrible to ask the young to pay for the care for the older and particularly through NI which will hit the lowest-paid disproportionately.”
It is estimated that raising NI could generate £10bn a year to fund social care but would break a Conservative manifesto pledge that it would leave the three biggest taxes – income tax, VAT and NI – alone.
The wait continues for details, but industry experts have been quick to analyse this long-running issue and the potential solution of a NI increase.
Successive governments have toyed with the notion of social care reform, but this issue has become exacerbated due to the Covid-19 pandemic which has disproportionately hit those aged over 50.
“The fact that we’ve seen so many ideas floated in recent times suggests that a firm policy is a little way off yet,” reflected Stephen Lowe, group communications director at Just Group.
“The suggestion of increasing NI to provide further funding for the NHS and social care is one of a number of ideas we’ve seen recently but we don’t yet know which of these, if any, will actually turn into proposed policy.”
The dilemma comes from the fact funding social care reform has become a politically sensitive issue. As well as the fact the government will have to backtrack on a manifesto promise, this would cost younger people more than those who are older.
“It would leave the government open to accusations of an intergenerational raid, with younger people paying for reforms which immediately benefit older people, most of whom won’t be subject to NI,” commented Tom Selby, senior analyst at AJ Bell.
“If NI rates are increased then salary sacrifice pension contributions – which benefit from both income tax and NI relief – will become more attractive.”
To an extent, experts concede that the Chancellor’s hands are tied. Social care reform is a long term issue and one that has to be seen to for such a large ageing population. Something Steven Cameron, pensions director at Aegon, pointed out: “The government needs to gain public support for a deal which is fair across wealth bands and generations.
“The government committed not to raise rates of income tax, NI or VAT, but sticking to this would leave the chancellor’s options very limited. Social care funding is a very long-term problem, extending well beyond a term in government, so there is justification for looking beyond these temporary ‘tax’ commitments even if that means breaking a manifesto commitment.”
As of yet, details are scant about how this could impact taxpayers beyond a 1p increase in NI contributions. However, there are possible solutions on the table.
One way to reform social care that could win over some members of the public is to cap social care costs. This is a concept that was first tabled 10 years ago in economist Andrew Dilnot’s proposals.
“It is not yet clear what Boris Johnson’s long-term care solution will look like, although previous administrations have considered a cap on costs set somewhere between £50,000 and £80,000,” said Selby.
“Hiking NI contributions – perhaps from 12% to 13% for employees – would be the simplest way to fund this reform as it utilises the existing tax framework.”
Whatever the option pursued, this will be a difficult one for the Conservatives to sell with criticisms of ‘intergenerational raids’ likely to be made.
“The generation coming into care now have, by and large, been a golden generation,” he said. “They have benefitted from final salary pensions the young can only dream about, massively rising property prices which mean the young struggle to even start buying a home, surging stock markets on any investments they held and high interest rates on any sayings through the 80s and 90s.
“I admit they also suffered higher unemployment, higher inflation and higher costs of borrowing but that did not affect all and the positives outweigh the negatives. By and large, the retired generation is the wealthiest we have ever had.”
Providing a social care solution that works for those who need it, and is fair to those who fund it, is not easy but there are some elements of policy spin available to the government.
“Removing the NI exemption for those above state pension age won’t raise that much in the grand scheme of things, but it would at least make it seem that everyone is in the same boat,” added Rachael Griffin, tax and financial planning expert at Quilter.
“Whatever the proposed solution, it looks like we’ll have to wait a while yet to find it out. It could be a case of going back to the drawing board on funding, potentially with an additional 1% hike in income tax rather than NI which will alleviate concerns that it would hit low-earners and those working under state-pension age the hardest.”