Prime Minister Boris Johnson has announced that the Government is set to introduce a £12bn-a-year tax hike from April 2022 to address NHS backlogs and overhaul social care.
The tax rise will consist of a 1.25% jump in National Insurance (NI) contributions, levied on both employers and employees.
A tax on share dividends is also set to be increased 1.25% in a move that is expected to raise £600m.
The raising NI, which represents a breaking of the Conservative manifesto pledge, is due to be rebranded as a “health and social care levy”.
In total, Johnson claimed that the new levy will raise almost £36bn towards the UK budget across the next three years.
The majority of initial funding will be funneled to the NHS, with care receiving £5.3bn of the total extra cash injections over the coming 36 months.
However, from October 2023, nobody will have to pay over £86,000 for care over their lifetime, with those with assets under £20,000 having their care costs fully covered by the state from April 2022.
Following Johnson’s announcement, Labour leader Sir Keir Starmer told MPs that the plan is simply “a sticking plaster over gaping wounds”.
Johnson replied that it was “deeply irresponsible” of Labour and Starmer to have “absolutely no plan” regarding the NHS backlog and social care problems.
Reacting to the announcement, Praveen Gupta, national head of tax at Azets, said: “This increase in National Insurance (NI) tax will impact the younger population more severely than older generations, at a time when the unemployment rate among under-25s is already rising.
“1.25% represents a significant tax rate hike and will have a meaningful impact on SMEs as they continue to rebuild from the pandemic and pivot their businesses in the post-Covid world.”
He added: “For SMEs, there is now even more of a need to focus on NI strategies, such as salary sacrifice measures that could provide businesses and individuals with tax savings.”