The proposal signals the revival of Boris Johnson’s health and social care tax, which the former Tory PM set out in September 2021. The National Insurance-style levy was designed add 1.25% to NI bills, raising an estimated £12billion a year to cover the NHS Covid backlog and long-term social care costs.
Johnson’s NI levy was to be paid by workers, the self-employed and employers. Crucially, pensioners would have had to pay it as well.
This would have been a radical change, because while pensioners continue to pay income tax in retirement, they don’t pay NI.
I warned at the time that Johnson’s levy would be the thin edge of the wedge. Once pensioners were hooked into the NI system, that 1.25% charge would inevitably rise over time.
Johnson’s social care levy was axed by former chancellor Kwasi Kwarteng, a rare popular move in his otherwise disastrous mini-Budget in September 2021.
Now the UK’s most respected expert on how to finance social care has said we need it back.
The difference is that this time pensioners would have to pay NI at the standard rate, which is 8% not 1.25%.
Pensioners will be horrified at the suggestion, especially in the wake of chancellor Rachel Reeves’ decision to scrap the winter fuel payment last Monday.
At the same time, Reeves announced that she would abandon the proposed cap on how much families pay towards long-term nursing home care.
This was another Johnson idea and was due to come into force in October 2025. It would have limited the amount of families spend on social care at £86,000.
The idea would be to prevent people from having to sell family homes to pay the cost, as thousands do every year.
Scrapping the cap will save Reeves an estimated £1billion, but as I wrote on Saturday, this leaves families facing a callous social care lottery. It could cost many their homes, savings and inheritances as they struggle to pay nursing home fees averaging £56,056 a year.
Now Sir Andrew Dilnot, who came up with the original social care cap proposal in 2011, has waded into the row.
If I was him, I’d be furious. Sir Andrew worked hard to find a practical solution to the social care crisis, only for politicians to play silly buggers for the subsequent 13 years.
Now he’s broken his silence.
Sir Andrew said he was “shocked and deeply disappointed” by Reeves’ announcement, saying his plan would have “taken away the fear” surrounding social care costs.
Then came his new proposal. I suspect pensioners won’t like it.
Sir Andrew is calling on Reeves to make pensioners pay NI to cover care costs. People who continue to work past the state pension age would pay NI on their earnings, which they don’t today.
From what I gather, this won’t be at 1.25% but the full rate of 8%.
Sir Andrew said that pensioners already pay income tax and indirect taxes such as VAT. But they don’t pay NI contributions.
“I think if a government does decide to have a tax that is used explicitly to pay for [social care] in part, then it does seem reasonable to have pensioners covered by that tax, just as those of working age are.”
Alternatively, Sir Andrew suggested the Government could raise income tax by a penny.
He said this should raise £7.5billion a year by the end of the decade, which should more than cover social care costs.
Sir Andrew did add one proviso: “I don’t think pensioners should foot all of the bill, because all of us are going to become pensioners.”
This is a huge issue. One in seven people over-65s will face care costs of more than £100,000 over their lifetime, the Department of Health and Social Care says.
Local authorities are buckling under the cost, forcing them to slash other services.
Ultimately, taxpayers will pay one way or another. Either everyone shares the burden through tax and NI, or the unlucky ones pay with their homes, savings and inheritances.
So far, Reeves has decided the second solution is the safer one, politically. Families facing massive social care bills are unlikely to agree.
