Last weekend, the biggest news in Britain was a proposed permanent tax rise on National Insurance (NI) to finance the NHS backlog from coronavirus, then social care.

The NHS needs £10bn within the coming months to begin to take care of the missed appointments, treatments and operations caused by coronavirus. In 2025, the revenue will go towards social care, legislation for which is non-existent at present.

For a low-tax party, the Conservatives have managed to increase taxes to their highest level since the Second World War. Britain has had Conservative prime ministers since 2010:

This is the current situation:

The TaxPayers’ Alliance posted a petition against the NI tax rise:

The TaxPayers’ Alliance has been keeping a gimlet eye on public sector expenditures, including ‘golden goodbyes’ for senior civil servants.

On Sunday, September 5, the Telegraph‘s Christopher Hope reported (emphases mine):

More than 1,000 senior civil servants have received six-figure “golden goodbyes” worth over £100 million since MPs passed a law five years ago to outlaw them, The Telegraph can disclose …

The Enterprise Act – which was passed into law in May 2016 – expressly put a £95,000 cap on exit payments in the public sector.

However, it was not actually implemented until Nov 2020. It was in place for just three months before a court challenge overturned it.

This has allowed senior civil servants to continue to pocket payments of more than £100,000 each.

Analysis by the TaxPayers’ Alliance of severance payments in departmental annual reports in 2017/18, 2018/19 and 2019/20, as well as including those reports filed so far for 2020/21, found 1,032 civil servants had received the sums.

In the most recent year The Treasury – which is in charge of the policy – was one of the biggest offenders handing £100,000 payouts to seven civil servants.

Returning to the NI tax rise, Hope retweeted the link to his article on Tuesday:

On Monday, September 6, it appeared that a number of Conservative MPs would rebel on Wednesday, the 8th, when the vote on the measure was held.

Christopher Hope reported on the fact that this tax is likely to affect low-income earners much more than the wealthy:

One Cabinet minister described it as “a tax raid on supermarket workers and nurses so the children of Surrey homeowners can receive bigger inheritances”

Former minister and Tory MP Jake Berry told the BBC that the rise would disproportionately affect working people “on lower wages than many others in the country”, who would end up “paying tax to support people to keep hold of their houses in other parts of the country where house prices may be much higher”.

Robert Halfon, chairman of the education select committee, and a former deputy chairman of the party, added that “it’s going to hit the low paid, then I think that would cause me huge worries”.

On Tuesday, the day when Boris Johnson introduced the proposal to MPs, various think tanks said the same thing. Paul Johnson of the Institute for Fiscal Studies said why NI was being targeted instead of, say, income tax. Both employer and employee will pay a quick and consistent source of revenue:

A levy of 1.25% on employee earnings and on employer wage costs (so a 2.5% overall increase in the tax rate on earnings), will raise £14 billion a year. The extension of this levy to those over state pension age and to dividends is welcome, but this remains a tax which will be overwhelmingly borne by workers with very little coming from pensioners. This continues a trend seen over many decades of the burden of tax being shifted towards earnings. The creation of an entirely new tax will mean yet more quite unnecessary complexity.

CAPX had more on tax disparity, especially for young people, and public sector inefficiency:

… raising NI has been called a ‘reverse Robin Hood’ tax. The beneficiaries of hikes to NICs would be the already wealthy and their relatives, especially as you don’t have to pay NI on income from investments or rental properties.

Meanwhile a 1% rise would see the average earner’s tax bill go up by £204 and those earning over £50,000 a year will pay an extra £404 a year. Worst of all, unlike income tax, those on the very lowest wages still have to pay NI. That particularly rankles coming from a party that has spent so long talking about ‘taking the lowest paid out of tax’ by increasing the personal allowance …

As set out in a previous Adam Smith Institute paper, social care is already cursed with being run by inefficient government bodies. With staff shortages, an ageing population and an inundated NHS, this is a sector facing myriad problems that a tax hike alone won’t get near solving. As the ASI’s Eamonn Butler puts it, throwing money at the sector without fixing its underlying problems is ‘like pouring oil into a rusty engine – it still gets you nowhere’.

That said, if you are going to raise money for the sector, there are some obvious places to look before raising taxes on working age people. We could start by means-testing some of the universal benefits given to pensioners, such as free bus passes and the Winter Fuel Allowance. If the Government is determined to fund it through NICs, at least change the system so that working pensioners pay it as well.

Sadly, as The Sun‘s Harry Cole tweeted, this tax will only increase:

Worst of all, at the moment, NI revenue doesn’t stay segregated. It is used for all and sundry expenditures, as the i paper’s Mark Wallace pointed out:

It isn’t an “insurance” scheme at all. It’s just a second income tax.

There is no “pot” being paid into, no “contributions” in any meaningful sense, and no deal by which what you pay in buys you the benefits that are supposedly purchased. When you “pay in”, your money just goes into general taxation, to be spent on whatever the government of the day wants

At best, the money you pay goes back out of the door in the form of pensions and benefits to an earlier generation of workers. Fulfilling the salesman’s promise with the fees of new customers is a Ponzi scheme tactic that Bernie Madoff himself would recognise.

As well as being immoral, this framing distorts our political debate. The confusion makes NI easier to exploit than plain old income tax – as YouGov found in a recent poll, raising the former is sizeably more popular than raising the latter.

Prior to Boris’s announcement to MPs, the Government issued MPs with the plan for health and social care funding:

He also sent a detailed letter to the First Ministers of Scotland, Wales and Northern Ireland, whose nations will also benefit from this revenue.

In his statement to MPs, he explained why he broke his party’s manifesto commitment not to raise NI contributions:

He concluded his statement with this:

After all the extraordinary actions that have been taken to protect lives and livelihoods over the last 18 months, this is the right, reasonable and fair approach, enabling our amazing NHS to come back strongly from the crisis; tackling the covid backlogs; funding our nurses; making sure that people get the care and treatment they need, in the right place, at the right time; and ending a chronic and unfair anxiety for millions of people and their families up and down this country. I commend this statement to the House.

Sir Keir Starmer, Labour leader, gave the Opposition’s response, which was negative. Labour, incidentally, were in power for 13 years — 1997 to 2010 — and never came up with a social care plan, needed then as much as it is needed now.

Boris Johnson responded:

He added:

Let us be in no doubt: if we did what we have heard from the Labour party over the past few weeks, we would still be in lockdown, because the right hon. and learned Gentleman opposed coming out of stage 4; we would have absolutely nothing by way of dealing with the NHS backlogs; and after decades of inertia from the Labour party we would have absolutely no way of dealing with the anxiety of millions of families across this country who face the prospect of catastrophic social care costs.

This Government are dealing with those things—we are dealing with all of them. We are getting on with it. We are taking the decisive action. We are doing it all together. This is the Government who get on and deal with the people’s priorities; this is the Government who tackle social care; and, indeed, this is the party of the NHS.

The House of Commons voted on the NI increase on the following day, September 8.

That morning, some in the business world grumbled (Rishi Sunak, Chancellor of the Exchequer, pictured below):

Health Secretary Sajid Javid vowed to make every penny count …

… however, the NHS plans to press on with hiring more useless managers who earn much more than the Prime Minister:

By the time the debate before the vote took place, most Conservative MPs had calmed down.

The New Statesman, a Labour-supporting magazine, explained why:

What has changed? The main thing is the Tory sense of pragmatism that has seen the party shapeshift, change leaders and directions time and again to electoral advantage. One Conservative MP says they understand that this health and social care levy is a “flagship policy” of the government – not one they can rebel on lightly without inflicting serious harm on their own brand. A cynic might also wonder if rumours of a cabinet reshuffle before Conservative Party conference … have helped to inspire loyalty in the Conservative ranks.

There is a second factor that has influenced those on the back benches. Conservative MPs have reluctantly concluded that they will be in a weak position to ask for more money for the NHS in their constituencies if they oppose a levy designed to raise funds for it. Tory MPs are competing against each other for money from the towns fund, levelling-up fund, and for a piece of the pie in new funding for NHS hospitals. They know their negotiating hand is weakened if they rebel.

The third factor in squeezing the rebellion is, quite simply, that Tory MPs think the Prime Minister’s plan is better than they had initially feared. The proposal was first reported over the weekend, before the government had decided the final details of the policy, leaving critics time to get ahead of the story without anyone from No 10 making the case for it. Expanding the national insurance levy to include pensioners in work has done something to allay Tory fears that this is an unfair tax on younger people, as has the dividends tax hike.

In the end, the NI increase was voted in comfortably — 319 to 208:

Only five Conservative MPs voted against the bill:

However, 37 Conservatives abstained.

The public are divided on increasing NI, according to Opinium (more here):

However, YouGov’s poll results were much closer:

It will be interesting to see what happens in 2025, when the NI increase is shifted from the NHS to social care, because the NHS always demand more money:

And what happens if Labour are in charge again someday?

I might not like it, but I hope this works, for Conservatives and the UK.