Boris Johnson’s National Insurance increase could result in the breakdown of families and deter companies from hiring new staff and increasing wages, according to the Government’s own analysis.
A bombshell impact assessment produced by HM Revenue and Customs for the Treasury warned that one effect of the 1.25 percentage point tax increase “may be an impact on family formation, stability or breakdown as individuals, who are currently just about managing financially, will see their disposable income reduce”.
The disclosure comes as several MPs in Red Wall seats said they faced a major backlash from constituents over the move. One MP said they had received angry letters referring to the levy as the “poll tax 2.0” – a phrase that was also used spontaneously by voters in a focus group in a northern city last week.
The analysis states that the new health and social care levy “is anticipated to have a significant macroeconomic impact” with consequences “for earnings, inflation and company profits”. “Behavioural effects” of the increase, which will take effect in April, “are likely to be large”, the analysis states, “and these will include decisions around whether to incorporate or not, and business decisions around wage bills and recruitment.”
Downing Street is likely to face questions about why the assessment was not made available to MPs before they approved the plan last Wednesday.
The analysis is likely to dramatically increase the concerns of Tory backbenchers who already fear that the tax increase will disproportionately affect poorer families, particularly in Red Wall seats won by the Conservatives in 2019. It was signed off by Jesse Norman, the financial secretary to the Treasury, who said he was satisfied that it “represents a reasonable view of the likely costs, benefits and impacts of the measure”.
In other developments:
- Rishi Sunak was said to have privately stated that the tax rise was ultimately born out of a choice made by Mr Johnson, who insisted on delivering a generous state-run system to fund social care;
- In a speech this week, Liz Truss, the Trade Secretary, who is said to have opposed the rise, is expected to warn that the Conservatives must fight the expansion of the state and embrace free enterprise or risk making Britain poorer;
- Senior Tories expressed fury as it emerged that the Government had failed to secure new commitments from NHS England to demand the increased availability of face-to-face GP appointments, in return for a £36 billion funding settlement. A Cabinet minister said: “Every MP is getting complaints from their constituents that they’re not getting to see their GPs”;
- It emerged that at least one Cabinet minister considered resigning over the tax increase;
- Mr Johnson faces another rebellion on Wednesday when Labour is expected to force a vote on the Government’s plans to end the £20 uplift to the Universal Credit benefit payments introduced during the pandemic;
- James Jamieson, the Conservative chairman of the Local Government Association, which represents councils, told The Telegraph that Mr Johnson’s plan had “made the situation worse” for social care because private care providers would have to pay increased National Insurance Contributions (NICs);
- Labour analysis stated that council tax bills for the average Band D home would increase by £261 over the next three years due to Mr Johnson’s decision to initially funnel the proceeds of the new Health and Social Care Levy into the NHS rather than the care sector. Sir Keir Starmer said the rises would amount to an “extra clobbering” for workers and families.
Government assessment is ‘narrow’
On Saturday night, a government spokesman insisted the new levy was “fair, necessary and proportionate” and described the assessment as hypothetical and “narrow” because it was “designed to consider possible impacts of the levy rather than the massive health and social care reforms it enables”.
Assessments of the potential impact of tax changes on households, known as “tax information and impact notes”, are routinely produced by HMRC for the Treasury.
The assessments of the likely impact of the new levy come under the headings of “economic impact” and “impact on individuals, households and families”. “Actual losses for individual taxpayers will vary according to individual circumstances,” the document states, before describing the potential stability or breakdown of families containing individuals who are “just about managing financially”.
Under a section headed “Impact on business”, the document states: “This measure is expected to have a significant impact on over 1.6 million employers who will be required to introduce this change.
“One-off costs will include familiarisation with the change and could also include updating software or systems to reflect the change. A further one-off cost could include updating employee payroll records to reflect this change. This measure will also impact payroll software providers who will have one-off cost of familiarisation and will also be required to update software to reflect this change, the cost of which may be passed onto customers.”
Separately, the analysis states that the introduction of the new levy from April 2023, and the “transitional” NICs increase from next April, “will require changes to HM Revenue and Customs’ IT systems. There will also be extra staff costs supporting customers and ensuring compliance with the new system. Those costs are currently being quantified.” Ministers had insisted that the NICs increase represented an “off the shelf” model for raising additional funds for health and social care that would not require significant changes to government systems.
In a speech on Tuesday, which will be seen as a warning against further tax rises, Ms Truss is expected to warn that “the path to economic revival does not lie in retreating and retrenching from the global marketplace, or inexorably growing the size of the state”, adding: “That would leave us poorer, less free and consign us to decline.”
One source who had discussed the tax increase with the Chancellor suggested his view was that Mr Johnson had made a bold promise of a new social care system and “so then it was a case of what’s the mechanism by which you do it”, with Mr Sunak insisting on a tax rise rather than more borrowing.
Following last week’s leaks of the planned tax hike, at least one member of the Cabinet opposed to the plan considered resigning, but ultimately opted to remain in government. Private focus groups conducted last week found fierce opposition to the increase among voters in the North.
The government spokesman said the levy would ensure that “those who earn more, pay more”, adding: “Analysis which also takes into account the benefits of increased health and social care spending has clearly found that lower-income households will be large net beneficiaries from this package.
“The levy, ringfenced for health and social care, will fund our NHS to tackle Covid waiting times and end the catastrophic care costs that currently see one in seven people forced to pay more than £100,000 to fund their care.”