Tories at war over ‘idiotic’ National Insurance tax increase

Ministers and MPs slam proposed health and care levy as Boris Johnson set to insist it is vital to save the NHS

Boris Johnson Telegraph cartoon
Boris Johnson could go as far as to hail the levy as a pro-Union move on the basis that it would be a UK-wide measure aimed at supporting the NHS and social care

Senior Conservatives were threatening open warfare over Boris Johnson and Rishi Sunak’s planned tax increase on Saturday night, as the Prime Minister prepared to insist it was vital to save the NHS.

Ministers, government aides and backbenchers lined up to denounce a planned National Insurance rise which was privately described by senior figures as “idiotic”, with one Cabinet member declaring the proposal “morally, economically and politically wrong”.

MPs warned that the hike would break a personal guarantee issued by the Prime Minister at the 2019 election, and result in younger workers subsidising care for older people.

The Telegraph understands that Mr Johnson will seek to justify the increase as necessary to clear the backlog of patients on hospital waiting lists, after official projections suggested the number could reach 13 million.

Mr Johnson, Mr Sunak, the Chancellor, and Sajid Javid, the Health Secretary, are preparing to announce a new three-year funding settlement for the NHS from next April, together with a “top up” worth billions of pounds to finance the health service’s efforts to tackle Covid and the backlog of elective treatment until the deal kicks in.

The new NHS and Social Care Levy, which would amount to an increase of at least 1p on employee and employer National Insurance Contributions (NICs), is expected to be imposed from as soon as April, to coincide with the rise in health service funding. Sources suggested Mr Johnson could go as far as to hail the levy as a pro-Union move on the basis that it would be a UK-wide measure aimed at supporting the NHS and social care. The Westminster Government would be unable to impose an income tax rise on Scotland.

This weekend, Conservative backbenchers were venting their fury about the rise in Tory WhatsApp groups, with a series of MPs preparing to meet to discuss plans to oppose the move when the Commons returns from summer recess. One Government source predicted “either a very big row or a f---ing almighty row” when MPs return to Westminster.

On Monday, Mr Sunak will address MPs at a reception hosted by the 1922 Committee of backbenchers, which will now become a rallying point for critics of the move.

On Saturday night, in a particularly extraordinary intervention, a Cabinet minister said: “Putting up National Insurance would be morally, economically and politically wrong. It kicks in at a low level and there are all kinds of exemptions which benefit the rich. If you get all your income from investments and property you don’t pay a penny but if you work your guts out for minimum wage you get clobbered.

“After all that’s happened in the last 18 months they can’t seriously be thinking about a tax raid on supermarket workers and nurses so the children of Surrey homeowners can receive bigger inheritances. It makes a total mockery of the levelling-up agenda and Red Wallers will be up in arms.

“That’s before you even get to the fact that a couple of years ago we promised not to do it.”

Steve Baker, the former Brexit minister, said: “Of all the ways to break manifesto tax pledges to fund the NHS and social care, raising NIC must be the worst. In this time of crisis, we need a zero-based review of what the state does and how it is funded.”

Writing in The Telegraph, Marcus Fysh, the chairman of the Economic Growth Group of Conservative MPs, stated that he is “alarmed” by the direction of the Government, which appears on course to “take a socialist approach” to the issue.

He stated: “I do not believe it is Conservative to penalise individuals of working age and their employers with higher taxes on their employment when our manifesto promised not to.”

Bridget Phillipson, Labour’s shadow chief secretary to the Treasury, said Mr Johnson was on course for a “hat trick” of broken manifesto promises this week, as he prepared to hike NICs, ditch the pensions triple lock, and drop a pledge to reach a consensus with the Opposition over a social care plan.

Separately, Sir John Major, the former prime minister, said: “I don’t think they should use National Insurance Contributions, I think that’s a regressive way of doing it. I would rather do it in a straightforward and honest fashion and put it on taxation.”

Sir Iain Duncan Smith, the former Tory leader, feared that if Mr Johnson pushed ahead with the move the Conservatives would end up presiding over “the biggest tax rises since Clement Attlee”. One senior loyalist said the plan was “idiotic”. Another Tory MP suggested the Chancellor was concerned about Britain becoming a continental-style economy with unsustainable public spending and state intervention.

Matt's cartoon for Sunday
Matt's cartoon for Sunday

A senior source claimed that negotiations over the proposed NHS funding settlement were still ongoing and “will run very close to the wire”.

Senior figures hope that by placing a ringfenced NHS and Social Care Levy on workers’ payslips, taxpayers will see a direct link between future calls for an increase in health spending, and the impact on their personal finances. But one government figure opposed to the move claimed: “It’s all just going to the same pot… Saying X tax pays for Y spending is just spin.”

Mr Johnson’s decision to link the tax increase directly to a new multi-year NHS funding settlement will be seen as an attempt to avoid a toxic clash with backbenchers over claims that he is breaking a manifesto pledge to fund an as-yet unspecified system of social care.

Sir Iain Duncan Smith, the former Tory leader, said: “If we start raising substantial sums of money without a proper solution we end up, if we’re not careful, as a high-tax, high-spend party and the problem not solved.”

A little over a week ago a senior government source said that decisions on NHS spending would “form part of the Spending Review” planned for the autumn. But now this newspaper understands that Mr Johnson is preparing to announce a three-year settlement along with the new levy on Tuesday.

Sources claimed negotiations over the size of the deal were “as much with the NHS as it is within Government”, as ministers sought assurances over how the NHS would use the additional billions of pounds to reduce the backlog of operations and treatment.

A government source said: “The NHS needs more money. By the time of the next election there could be 13 million people on waiting lists if we don’t act.

“No one should have to face lengthy waits for healthcare. We must do everything we can to properly equip the NHS to make sure everyone gets the treatment they need. This Government will not duck the necessary decisions needed to get the NHS back on its feet.”

Boris Johnson has 72 hours to persuade agitated party for NICs increase
Sajid Javid and Boris Johnson
Mr Johnson appears to be gearing up to ask for his party’s support for proposals to fund social care, without a proper plan for a new system to deliver the care Credit: Stefan Rousseau/AFP

The inside cover of the Conservatives’ 2019 election manifesto, headed “My Guarantee” emphasised six core pledges that Boris Johnson said voters could trust the party to deliver.

The final guarantee, sitting above Mr Johnson’s signature, stated: “We will not raise the rate of income tax, VAT or National Insurance.”

Now, barely 18 months on from the landslide win resulting from Mr Johnson’s campaign, the Government is preparing to announce a planned National Insurance hike that will break that pledge. The irony that Sajid Javid, now the Health and Social Care Secretary backing the move, was the chancellor who signed off on the manifesto, is not lost on senior Tories outraged by the apparent betrayal of Conservative voters.

This week, Mr Johnson and Mr Javid are expected to make the case for a National Insurance rise of between 1p and 1.25p to generate extra funds to finance the NHS and fulfill Mr Johnson’s earlier promise, in July 2019, to “fix the crisis in social care once and for all” with a plan which would “give every older person the dignity and security they deserve”.

The next 72 hours will likely determine whether Mr Johnson manages to persuade an increasingly agitated Parliamentary party of the case for pushing through the National Insurance increase, or if early signs of discontent, including fierce criticism on Tory WhatsApp groups, snowball into a seismic Conservative backlash.

Opponents call hike ‘morally, economically and politically wrong’

Tory opponents of the plan currently being finalised Mr Johnson, Mr Javid and Rishi Sunak, the Chancellor, generally fall into one or more of three categories: those who regard any tax rise as un-Conservative; those who believe that specifically targeting National Insurance as the vehicle for a tax rise would be disastrous; and those who fear that committing billions of pounds without a rigorous plan for a new social care system would be a catastrophic error.

Those expressing concern and, in some cases, barely-concealed anger, at the proposals include Cabinet ministers, government advisers, ministerial aides, former frontbenchers and backbenchers representing seats in areas from the South East to the so-called Red Wall conquered by the Conservatives in 2019.

In one particularly extraordinary intervention, a Cabinet minister said on Saturday: “Putting up National Insurance would be morally, economically and politically wrong. It kicks in at a low level and there are all kinds of exemptions which benefit the rich. If you get all your income from investments and property you don’t pay a penny but if you work your guts out for minimum wage you get clobbered.”

Many MPs are concerned about the “optics” of increasing a tax from which those aged over 66 are exempt in order to fund social care for millions of pensioners. In an attempt to sweeten the pill, the Government is expected to announce a temporary halt to the pensions “triple lock” – another manifesto commitment – to avoid the same group of people benefiting from a 8.8 per cent increase in their state income.

Tim Pitt, a former Treasury adviser to Mr Javid, insisted that the inter-generational argument should not be “overplayed”, as “half of the adult social care budget is spent on under 65s”. But one concern emanating from discussions with Tory backbenchers this weekend was that such a move would put an uneven burden on younger people who have already been hardest hit by the pandemic. Mr Pitt acknowledged that “the stakes are high” and that the move could “easily backfire”, potentially resulting in an about-turn from Number 10.

Mr Johnson versus his backbenchers

Mr Johnson’s attempts to persuade his backbenchers to support the move are likely to centre on several arguments that were being rehearsed behind-the-scenes this weekend. The first is that major reform, including a cap as low as £50,000 on individual care costs, will cost an annual sum easily running into the billions, which could only realistically be generated by raising VAT, National Insurance or income tax, in the absence of eye-watering additional borrowing.

Some Tories see one upside of a National Insurance hike as the ability to explicitly list a new NHS and Social Care levy as part of the deduction set out on workers’ payslips – allowing the public to see a direct link between increases in government spending, and tax rises.

“The only time we lose the arguments on increasing taxes is when we’re talking about the health system,” said David Davis, the former Brexit Secretary. “In that case, let’s tell [taxpayers] exactly what they’re spending. Then when nurses and doctors say ‘we want a 10 per cent pay increase’ we can tell people what it means for them.”

Another argument being discussed by proponents of the National Insurance Contributions (NICs) rise is that NICs are a UK-wide levy set by the Westminster Government, meaning that any new NHS and Social Care levy would be built into the tax across the Union.

By contrast, any decision on an income tax increase in Scotland would be down to the Scottish government, which could reject the move and create a major divide between the nations.

Advocates of the increase

Advocates of the proposed NICs rise also argue that an equivalent increase in income tax would result in a much more significant “direct” hit to households, because it is only paid by workers, as opposed to being split between employers and employees. Mr Pitt said: “To raise £10 billion, you need to put income tax up 2p; NICs only 1p.”

Mr Pitt acknowledged that increasing employers’ share of the tax would ultimately “feed in” to workers, including by impacting wages. But he added: “People don’t see that immediately in their payslips.”

The tax hike is also seen as a way to urgently generate billions for the NHS, amid fears in Whitehall that the number of patients on hospital waiting lists could soar to 13 million over the coming months as a result of Covid-19 and successive lockdowns. 

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In remarks studied closely in Downing Street, Jeremy Hunt, the former health secretary, said: “The attraction of a Health and Social Care levy is it would fund the NHS backlog in the short term and desperately needed improvements in the social care system in the medium/longer term.” 

Mr Hunt said that the billions raised by a 1p levy – estimated to be about £10 billion per year – is “more than the social care system needs or could cope with right away”, meaning that the proceeds could be directed towards the NHS until a new system is up and running.

Murmurings on Tory WhatsApp groups

But one of the most common criticisms on Tory WhatsApp groups this weekend was that Mr Johnson appears to be gearing up to ask for his party’s support for proposals to fund social care, without a proper plan for a new system to deliver the care.

One exasperated loyalist Conservative MP said: “What’s the reform programme? What’s this for? How is this going to work?” Another Tory, a former minister, said: “The Government shouldn’t underestimate the level of concern about this. It would be unwise of them to draft the budget before consulting fully with the Parliamentary party.”

Labour is gearing up to oppose the tax rise and make hay of the Conservatives’ broken pledge on National Insurance. The Opposition might also be forgiven for accusing the Tories of a third breach of the party’s manifesto, given that its 2019 commitment on social care was to “build a cross-party consensus to bring forward an answer that solves the problem, commands the widest possible support, and stands the test of time”.

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