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Ministers face dilemma on funding reform of UK social care system

Ministers risk being accused of making an “intergenerational raid” on taxpayers to fund the soaring cost of social care in the UK, according to financial analysts.
Reports on Monday suggested the Treasury is considering a rise in national insurance to pay for reforms after Prime Minister Boris Johnson refused to recommit to the Tory manifesto promise not to raise taxes.

Johnson, well known for making grandiose pledges, said in 2019 there was “a clear plan we have prepared” to fix the broken system “once and for all”. Two years later and no proposed legislation has been put forward, with the crisis deepening against the backdrop of the Covid-19 pandemic.

When pressed again at a news conference on Monday he once again said: “It won’t be too long, I assure you.”

Finance Minister Rishi Sunak was reported to be adamant that any potential tax rise must be agreed and announced at the same time as the new policy on care costs.

UK media reported on Tuesday that ministers were leaning towards a national insurance rise instead of an income tax hike, but either would break the spirit of the Conservative “triple tax lock” manifesto promise.

The Resolution Foundation thinktank said a 1p national insurance rise for employees and the self-employed would raise around £6bn a year. This implies the employee NI rate on earnings below £967 per week could rise from 12% to 13%, according to AJ Bell analyst Tom Selby.

Under the current system, people with assets over £14,250 have to pay for some of their care costs, while those with assets over £23,250 must meet their bills in full, resulting in large bills for those who need lengthy or intensive care.

“Tax rises will be needed to deliver decent social care, but a national insurance rise is a terrible way to raise the funds required. It’s a tax disproportionately loaded on to younger and lower-paid workers, compared to a fairer rise in income tax,” said foundation chief executive Torsten Bell.

“Why we would target a tax rise on the groups who have been hardest hit by the economic impact of this pandemic, while exempting older and wealthy individuals, is completely beyond me.”

AJ Bell’s Selby said that after “decades of prevarication by successive governments, the Coronavirus pandemic may be the crisis that finally forces politicians to take meaningful steps to address the UK’s long-term care crisis”.

“It is not yet clear what 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.”

“Hiking National Insurance contributions would be the simplest way to fund this reform as it utilises the existing tax framework (but) it would also break a central Conservative manifesto commitment and 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 National Insurance.”

Selby said the government may try to badge the change as a ‘social care levy’ to avoid claims of a broken election promise “although whether or not voters would see it that way remains to be seen”.

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