Boris Johnson has unveiled an additional 1.25% levy on national insurance paid for by wage earners and employers, which will raise £14 billion a year to help pay for reforms in the NHS and social care. Coming on the back of increases in income tax and corporation tax announced in the budget in March, it is the latest example of the government using the tax hike to rein in public finances that have been hit by the cost of the pandemic.
We asked Alex de Reuter, professor of economics at Birmingham City University, to explain how this would affect different parts of society.
Question: How will the levy affect the different groups affected by it?
Increasing National Insurance (NI) contribution will adversely affect the wage earners. This means it will disproportionately affect ethnic minorities and women. Those working receiving Universal Credit will face the double whammy of being hit by a higher NI as well as losing £20 a week when the temporary hike for COVID ends on 6 October.
The major beneficiaries are going to be those who now stand to inherit what would otherwise have gone on to social care. They will be mostly of a middle class, white British background and their numbers are concentrated in the south-east of England. There is some unease among the so-called “Red Wall” conservatives – those in the north who reliably voted for Labor – but there is probably enough within measures to placate the lawmakers representing these regions.
Eventually, additional funding for the NHS becomes popular among this group, and while the £86,000 lifetime spending limit on social care costs is unlikely to benefit them as much as their southern counterparts, those in the state The increase in support will be between £23,000 and £100,000. The £40,000 three-bedroom terraced house would, for the pensioner in Hartlepool, have advantages (albeit much smaller than many in the leafy districts of southern England). The real losers will be those who don’t have assets.
Read more: Social care reform: Lifetime limits on costs may only partially protect assets
As far as employers are concerned, increasing their NI contribution will not necessarily mean that they pass on the costs to higher consumer prices. We know that corporation tax increases rarely, if ever, by the same amount of increase in price (after all, corporation tax is a tax on profit, not revenue). And prices depend on a variety of factors, including how much market power a company has in its area and the cost of imported raw materials. Also remember that controlling inflation is the job of the Bank of England and not the Treasury.
While employers paying higher NIs may affect the ability of employees to take advantage of labor shortages to demand wage increases, this potential exists only in jobs where workers have specialist skills and It cannot be easily substituted for something else. For example, lorry drivers benefit from the fact that not everyone can afford to obtain an HGV license.
This levy will not make any difference to you on social care. Aside from the fact that most of the £14bn it raises is likely to go to the NHS, you will need a root and branch shift to make a real difference in social care. This would mean paying employees a fair wage, improving facilities and eliminating the way it currently benefits those who can afford it. We will be talking about a full state provision compared to the NHS, to pay for which we will probably need to move away from income taxing property and property.
Read more: Social care reform: why Boris Johnson’s plan won’t fix the crisis – expert opinion
Question: How will the highest tax burden affect the economy since 1950?
It’s hard to talk about how consumption patterns will change without building a model, but talking about the tax burden is like a red herring because it depends on what you’re taxing. . The announcement is made to benefit the government’s traditional voter base: those who own a house and receive a pension.
Question: What are the consequences of shifting the taxation burden further to younger people?
Over time, we have shifted the burden of taxation towards income and consumption. One consequence is that we don’t tax assets enough, which creates a real fairness issue. It is not fair that the people who have inherited the property get all the benefits without doing anything for it.
And while it may be true that older people spend more than younger people, and so our consumer economy benefits from it, it doesn’t mean that older people spend less if you tax them more. will do. If I have £100,000 to buy a Jaguar, I probably have enough to pay £105,000 for it. There is more than enough evidence to show that the rich save while the poor spend. Since the wealthy tend to live longer, this suggests that they can spend more.
Question: Does tax-raising improve austerity?
The penance is not over. For government departments, which are not ring-fenced, more spending cuts are likely. Plus, tax-raising is only an improvement if you tax the right people. This levy by another name is just austerity by attacking the poor unaccountably.
As far as the notion that there is no magic money tree is concerned, we have seen that there was COVID. With interest rates at unprecedentedly low levels, the government has a lot more capacity to spend and help people than it otherwise would. Margaret Thatcher used to liken public finance to a house as an argument to “balance the books”, but government is not a house: it is collective and immortal.
Essentially I’m a Keynesian: If you invest in the economy, you’re increasing your productive capacity and that will enable you to pay off debt on time. I don’t want to set a limit on how far you can take this, but if the public debt is currently close to 100% of GDP, I would be comfortable under the terms of current borrowing if it were to gross domestic product. was 150% of the product. For example, Japan has a public debt of more than 200% of GDP.