Health and Social Care Levy (Repeal) Bill
Tuesday 11th October 2022
(2 years, 1 month ago)
Commons ChamberRead Full debate Health and Social Care Levy (Repeal) Act 2022 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 11 October 2022 - (11 Oct 2022)
The Chief Secretary to the Treasury (Chris Philp)
I beg to move, That the Bill be now read a Second time.
Let me start by reiterating that the central and defining mission of this Government is growth. This Government are completely and unashamedly committed to achieving that objective—economic growth. However, we are not committed to it simply for its own sake or for some abstract reason; we are committed to growth because of the impact it will have in so many ways on people’s lives.
Growth brings higher wages, bringing prosperity to our constituents. Economic growth will create new and better-paid jobs and, critically, economic growth will create a sustainable tax base that will fund public services into the future. Without strong economic growth, we cannot have well-funded health services, education and police. It is quite clear that, with economic growth, everyone benefits—not in some trickle-down sense, but because it will elevate salaries for everybody, create jobs the length and breadth of the United Kingdom, and generate the tax income that will fund our public services.
Crucially, this growth agenda set out by the Chancellor two or three weeks ago will pursue growth in a way that is fiscally responsible, and on 31 October—in just under three weeks’ time—the Chancellor will set out in detail how that will take place, buttressed by a full scoring and forecast produced by the Office for Budget Responsibility.
The growth plan announced by the Chancellor just a fortnight ago is crafted to achieve 2.5% growth year on year. It aims to do so in a host of different ways. First, it will do so through lower taxation, because with lower taxation we incentivise companies to invest, we incentivise people to get into work, and we encourage companies and high-potential individuals to choose to locate in the United Kingdom as opposed to somewhere else. Many successful companies, and indeed successful people, have a choice about where they locate, where they do business and where they work, and by having internationally competitive rates of personal and corporate taxation we are encouraging them to make the choice to locate in the United Kingdom, all of which improves and increases economic growth.
There is of course more to the growth plan than just that. We are working on infrastructure—whether road, rail or energy infrastructure—and speeding up its development, as well as supporting skilled employment, removing barriers to investment, getting the housing market moving and removing obstacles, such as the recent IR35 changes that have caused difficulties for many self-employed people and contractors. Critically, the growth plan has moved at pace to help both households and businesses with the terrible crisis posed by Putin’s illegal invasion of Ukraine and its consequences for energy bills.
Just a few weeks ago, households and businesses in the United Kingdom were faced with the realistic prospect of domestic energy bills going up to £5,000, £6,000 or even £7,000 per year. The energy price guarantee takes that possibility off the table, not just for six months but for two years, ensuring that the average household will pay no more than £2,500.
Peter Grant (Glenrothes) (SNP)
Does the Minister accept that, regardless of what the Government have done, my constituents can expect to pay double for their energy bills this year compared with what they paid last year?
Chris Philp
The energy price guarantee ensures that the average household pays no more than £2,500 a year. The hon. Gentleman is correct that that is higher than average bills this time last year, and that is why the comprehensive package was put in place earlier this year. It amounts to a further £37 billion, and ensures that households on the lower one third of incomes receive £1,200 per year, which pretty much fills the gap that he described. The energy price guarantee, combined with that £37 billion intervention, is the kind of thing we can do as a Union and as a United Kingdom. It is the kind of thing we can do together that would be so much harder apart, and that is one of the benefits of our precious Union. There is a lot more in the growth plan, but I will not labour the point because we are here to talk about the health and social care levy.
Hywel Williams (Arfon) (PC)
Growth in Wales has for a long time—for many decades before and after devolution—been based partly on the idea of attracting high-worth individuals to invest in Wales. The mixed result of that gives me pause for thought as to that strategy. Does it do the same for the Minister?
Chris Philp
We will deliver growth if we encourage people across the whole income spectrum—people doing jobs on lower incomes, those on higher incomes, businesses big and small alike. We need to encourage the entire economy, which is why tax cuts in the growth plan are broadly based, like the tax cut we are debating now. We need to encourage them all, which includes companies and people who are internationally mobile. I used to be technology Minister, and most technology businesses have a choice about where they locate. They are very internationally mobile. They could go to New York, San Francisco, Singapore—they could go anywhere in the world. We need to ensure that every part of the United Kingdom is attractive to such businesses, and the growth plan intends to create those conditions that make us attractive as a nation.
Alex Cunningham (Stockton North) (Lab)
The Minister seems to have mentioned everything except the need for a healthy workforce. Local authorities spend £1.2 billion every year on social care needs caused by smoking, and that will get more expensive if the Government fail to address the issue of tobacco. This morning the Health and Social Care Secretary hinted that she will do less, not more, to tackle the dangers of smoking. Will the Minister join me and press her to bring forward the tobacco control plan, to help protect the health of the nation and save health and social care costs?
Chris Philp
I do not think I should trespass into the realm of my right hon. Friend the Secretary of State for Health and Social Care and Deputy Prime Minister. She will make her own views and policy on that issue without intervention from me. We are ensuring that the NHS is well funded so that it can provide the treatment our constituents need. Our commitment to NHS funding is undiminished.
Let me turn to the Bill, which repeals the health and social care levy. Members will recall that the health and social care levy was originally announced in September last year, and the Health and Social Care Levy Act 2021 received Royal Assent on 20 October last year. The levy had two phases: first, a temporary 1.25% increase for employers and employees in the current tax year; and then from April 2023 a formal surcharge of 1.25%, which would have affected not just those of working age but also those of state pension age. The Bill repeals that Act with elegant simplicity. Clause 1 states simply:
“The Health and Social Care Levy Act 2021 is repealed.”
James Cartlidge (South Suffolk) (Con)
This is my first opportunity to congratulate the Chief Secretary on his appointment. What he said on the energy support for my constituents and all our constituents is very important, and I very much welcome that. However, on repealing the levy, he is of course aware that one of the most important things that it was going to fund was the welcome cap on care costs introduced by the Government, which had been promised by successive Governments with many a White Paper and many a Green Paper. How will we now pay for that?
Chris Philp
I thank my hon. Friend for his kind words. We are long-standing colleagues, and I look forward to working with him for many years to come. To be clear, the funding that was to be provided via the levy for both health and social care, which in the case of social care amounted to £5.4 billion over the three-year spending review period, is completely unaltered. There is no change to that funding at all.
My hon. Friend asked about funding for social care. The funding envelope for all public services will be set out by my right hon. Friend the Chancellor on 31 October via his medium-term fiscal plan. We will ensure that we are responsible custodians of the public finances by sticking to the spending plan set out in spending review 2021. We will be disciplined about doing that. We will ensure that we generally exercise spending restraint, mindful of the fact that we cannot have public spending forever increasing at faster and faster rates. We will be disciplined about how we manage the public finances.
I also point to economic growth. If, or rather when, we are successful in delivering the growth plan’s mission to elevate trend growth from 1.5% to 2.5%, with an extra 1% per annum over a consistent period of time—for example, five years—by the fifth year that additional growth will deliver about £47 billion of extra tax revenue, as set out in the table on page 27 of the Blue Book that accompanied the growth plan. I hope that gives my hon. Friend a hint about our thinking, but really the medium-term financial plan on 31 October will provide the most complete answer.
Hywel Williams
The Chief Secretary is being generous with his time. I should say that the table on page 27 shows a target, rather than anything that will stand closer examination. However, in respect of the decision to increase national insurance to pay for social policy—in England, I might add—the Welsh Government had no say whatsoever, just as they had no say in the now paused policy of scrapping the additional rate of income tax. Does the Minister not think that the Welsh Government, who are, after all, responsible for social care in Wales, warrant consultation on a fundamental matter such as this?
Chris Philp
I do not think that the Government in Wales complained too loudly when they were provided with extra money to fund social care in Wales. On the hon. Member’s point about page 27 of the growth plan, he is right that it is a target, but it is a target accompanied by a plan to deliver it. There is a clear path to how we will achieve the increase in growth that I referred to.
Let me return to the repeal of the health and social care levy. To be clear, the Bill will repeal the legislation from last year, reversing the temporary increase in national insurance contributions from 6 November—in just a few weeks’ time. Additionally, it will ensure that no new levy comes into force in April 2023. Members will understand that it takes a little time for His Majesty’s Revenue and Customs and businesses to prepare their systems for such tax changes. That is why we chose 6 November as the date of implementation, but that will ensure that the extra money gets into people’s pockets as quickly as possible.
That brings me to the rationale for why we are repealing the levy. First, it is so that people can keep more of their own money, particularly at this time when that is so critical with the cost of living. In Treasury questions earlier today, many Members on both sides of the House referred to the cost of living challenges, most of which follow from Putin’s illegal invasion of Ukraine. By reducing this tax and urgently alleviating the tax burden on our constituents, that will immediately assist with cost of living pressures. I am not saying that it will solve them, but it will certainly assist with them.
John Glen (Salisbury) (Con)
I, too, congratulate my right hon. Friend on his new role.
I acknowledge the narrative of growth and the therapeutic effect of the combination of supply-side reforms and tax cuts to generate growth. My concern is the interval between his assertions today and the medium-term fiscal strategy that will be announced on 31 October, and the markets’ confidence in that interval. Today we see a welcome announcement by the International Monetary Fund on the enhancement to growth, but we also see reference to the enduring effect of inflation. We have also seen in recent weeks the effect of interest rate changes on the cost of living challenges for families up and down this country. Will my right hon. Friend please take account of the interaction of those two conflicting realities?
Chris Philp
I thank my hon. Friend for his question. I pay tribute to him for his extraordinary service as City Minister. I think I am right in saying that he is the longest-serving City Minister ever—I think it was four years—and, I should say, he is the best to date. I pay tribute to him for his long and distinguished service.
My hon. Friend raised a couple of points. One was the interaction between the announcements and the OBR’s scoring. There was a desire to get the growth plan done quickly and with a sense of urgency, and the energy price guarantee was something we wanted to do straight away. Families were genuinely worried. They had huge anxiety about the prospect of facing £6,000 or £7,000 bills this winter. We wanted to take that off the table immediately. We also wanted to alleviate the tax burden that we are discussing today as quickly as we could. By doing this so quickly, assuming the Bill passes, on 6 November—in just a few weeks’ time—our constituents will be alleviated of this burden at this time of cost of living challenges.
As companies make decisions about where to invest—in the UK or elsewhere—they can do so in the knowledge that corporation tax in the UK will remain low. That is why we acted so quickly. I do, however, recognise my hon. Friend’s point about the need for market confidence, and that is why my right hon. Friend the Chancellor announced just yesterday that the medium-term fiscal plan would be brought forward from 23 November to 31 October. He recognised exactly the point that my hon. Friend made and similar points made by my right hon. Friend the Member for Central Devon (Mel Stride), the Chair of the Treasury Committee.
The point about inflation came up repeatedly in Treasury questions earlier. We should be clear that we are in a global interest rate up cycle. In, for example, the United States of America, base rates set by the Federal Reserve have increased by three percentage points this year—from 0.25% in January to 3.25% now. The equivalent interest rate set by the Bank of England, the base rate, has also increased, but only by two percentage points from 0.25% to 2.25%. So we have seen higher base rate increases in the USA in the year to date than we have here. As a consequence, the base rate in the USA is a full percentage point higher than in the United Kingdom, and we should keep that international context firmly in mind.
As I explained, we are repealing the levy so that people can keep more of their own money and so that we can help with the cost of living challenges at this time as a matter of urgency on 6 November and not delay any longer. I and the Chancellor think it is also important to boost incentives to work. We want to make sure that working is as attractive as possible and, by lowering the taxes on work, I believe that we will do that.
Steve Brine (Winchester) (Con)
I add my voice to those who have welcomed my right hon. Friend to his role. I think he will do a good job.
Here is what is worrying me. Yes, we want work to pay, but we also want work to be available. There are lots of vacancies in the labour market, but there are also labour shortages. Lots of people, as we have heard today, are economically inactive, many of them because they are on the NHS waiting list. As my right hon. Friend the Chief Secretary will know, the first part of the levy was to fund the catch-up programme. I was in my local hospital on Friday to see how we are getting on with the catch-up programme. We are still waiting for news of our elective hub at the Royal Hampshire County Hospital in Winchester, which would help with the catch-up and get people back into the workforce. Is that affected by my voting for this repeal today?
Chris Philp
I can categorically assure my hon. Friend that that is not affected. The £8 billion that was allocated over the spending review period to catch up on the elective backlog is completely unchanged by this measure, and the funding for social care—£5.4 billion over three years—is also unaffected. The rest of the money, because that is not all of it, will continue to be available to the Department of Health and Social Care to spend on the NHS and social care precisely as was intended. As a result of repealing the Health and Social Care Levy Act 2021, not a single penny less will go to social care or the NHS, or in particular the elective programme that he refers to. I cannot answer on Winchester hospital, but I am sure that the Health Secretary would be delighted to discuss that with him.
My hon. Friend also made a good point about vacancies. We have a lot of vacancies in the economy. Earlier this year, I believe for the first time in history, there were more vacancies than there were people in unemployment. If we are keen to tackle poverty and help people into a more prosperous future, getting them off benefits and into work is clearly the answer.
Karin Smyth (Bristol South) (Lab)
To follow on from the former Health Minister, the hon. Member for Winchester (Steve Brine), if it is true that the levy was essentially not needed for the social care reforms and the catch-up, and that everything is still staying, will the Minister tell us what advice he has had from the DHSC about what it will not do now that, presumably, there is less money for the other things that it was going to do?
Chris Philp
The funding provided by the Treasury to the DHSC is completely unchanged as a result of the reversal of the NIC increase. That applies both to the money that was essentially hypothecated to the DHSC and its other budget. It is completely unaffected, so we are not moving money from one part of the health service budget to backfill something else. The complete health service budget is unchanged. There is not a penny less for the health service in any way as a result of the changes, but we are changing the way we fund the expenditure. Instead of funding it from the health and social care levy, it will be funded differently, partly by general taxation and other means, which will be set out in the medium-term fiscal plan. However, not a single penny less will go to the health service as a result of this change.
Several hon. Members rose—
Chris Philp
I am spoilt for choice; I will start with my hon. Friend the Member for South Suffolk (James Cartlidge).
James Cartlidge
I am lucky to have a second intervention already. I know that as a former businessman, the Minister cares passionately about growth, and I respect that. However, as a businessman, he must also know that the single most important factor for business is confidence and stability. When we speak to businesses at the moment, we hear that they are worried about the lack of stability. They want certainty and confidence. He needs to explain the basic question about the £17 billion of revenue from the levy to fund social care and the NHS. If the levy is going, surely that implies that borrowing fills the gap or some other change fiscally. Is it the case that that will be confirmed on the 31st?
Chris Philp
Yes, it is. My hon. Friend is asking entirely reasonable questions, but we have to look at this issue in the round across the entirety of public expenditure. The Chancellor will set that out in detail on 31 October to the House, accompanied by the OBR scoring.
Alex Cunningham
The hon. Member for South Suffolk (James Cartlidge) has made this point: if £17 billion is being removed from the Exchequer, how can we have all that extra spending on the NHS and on social care if there is no additional taxation?
Chris Philp
As I pointed out, we will set that out on the 31st. The Chancellor has a number of measures in mind to make sure, over the medium term, that this is fully funded, and critically, so that we can do this and the other things in the growth plan—this is obviously only one measure among many—to make sure that we get debt falling as a proportion of GDP. Hon. Members are asking entirely reasonable questions, but the point of the medium-term fiscal plan, and the details that will accompany it on 31 October, is to answer precisely those questions.
Let me set out the benefits that the move will confer on employees earning more than £12,570 and self-employed people earning more than £11,909. The average saving for people in work who are earning more than those thresholds will be approximately £330 next year. Combined with the increase in the threshold that took effect last July, the saving for the average worker earning above those thresholds will be £500 next year. That will clearly be welcome at a time of economic challenge. Moreover, almost a million businesses—920,000—will get an average tax cut of just a shade under £10,000 next year: £9,600, to be precise. That will be very welcome indeed.
It is worth being clear that the increase in the threshold that was put through a few months ago means that people on lower incomes pay very little in national insurance or income tax these days. I am sure that Members of this House who want to see the burden of taxation made as light as possible, particularly for those with lower incomes, will strongly welcome the increase in the threshold. It follows the very substantial increases in the income tax threshold over the past 12 years, from about £6,500 back in 2010 to £12,500 today, which have lifted people on the lowest incomes out of national insurance and out of income tax entirely.
I have already made the point that the reversal of the levy is part of a much wider plan. Over the coming days and weeks, my colleagues the Secretaries of State for various Departments will announce further supply-side measures to stimulate growth in our economy, including by making the planning system faster, making sure that business regulations are not unduly onerous, improving childcare, addressing questions concerned with immigration and agricultural productivity, and improving digital infrastructure. As I have said, we will do so in a way that makes sure that debt over GDP falls over the medium term.
Chris Philp
I was about to finish, but as the hon. Member is an old friend, I will give way one last time.
Alex Cunningham
I am grateful; I enjoyed my time dealing with justice issues opposite the right hon. Member. Twelve years ago, one of his predecessors—a Lib Dem, in fact—cancelled the new hospital for Stockton. The need for one is far greater than ever and the Chief Secretary seems very capable of splashing the cash, so will he finally approve funding for a new hospital in Stockton?
Chris Philp
The Government have a commitment, which we stand by, to build I think 40 new hospitals in the coming years. Of course, the details of that programme are in the hands of my right hon. Friend the Secretary of State for Health and Social Care. I am sure she would be happy to discuss a hospital for Stockton with the hon. Member, who is an eloquent advocate for his home town, as ever.
Making sure that we act in a fiscally responsible way is a responsibility that falls partly on me as Chief Secretary. I have already said that we intend to stick to the limits set out a year ago in the comprehensive spending review—a three-year spending review, of which we are in the first year. We will exercise restraint in public expenditure, because we simply cannot have a state that continues to consume ever larger proportions of national income. Of course we need to make sure that public services are properly funded, but we need to do so in a way that does not impose excessively onerous burdens on taxpayers—our constituents who work hard day in, day out to earn a living and pay their taxes.
Growing our economy is our central and defining mission. The United Kingdom needs a Government who are wholeheartedly and unequivocally committed to economic growth. We stand committed to growth in a way that the anti-growth coalition arrayed against us does not. This Government have a very clear growth plan. The reversal of the levy and of the temporary national insurance increase is an important part of that growth plan, which is at the heart of this Government’s mission. I commend the Bill to the House.
James Murray (Ealing North) (Lab/Co-op)
Just over a year ago, Opposition Members stood in this Chamber urging the Government to drop their plans to hike national insurance contributions and to introduce a new levy on working people and their jobs. It was not just my Opposition colleagues and me making the case against this tax rise; the Government were warned by so many others, from the Federation of Small Businesses to the British Chambers of Commerce, the CBI and the TUC. Ministers were warned from all sides of the harm that their approach would cause. The Government were warned by their own Back Benchers. Ministers at the time even warned themselves. The tax information impact note on the tax rise was signed off by the Minister who took the original legislation through Parliament, and that note said:
“There 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.”
In relation to businesses, it said:
“Behavioural effects are likely to be large, and these will include...business decisions around wage bills and recruitment.”
Yet the Government pressed ahead with the tax rise, supported in the Lobby by the current Prime Minister and the Chancellor. The Government kept supporting it until the then Foreign Secretary became Prime Minister and decided to perform a U-turn.
We welcome this U-turn, as it puts an end to a tax rise that we said was wrong from the very start. It is, of course, not the only U-turn that we have seen under this Prime Minister. Just last week the Government U-turned on their damaging and misguided plan to cut the top rate of tax for the very highest paid, so our current message to the Prime Minister and the Chancellor is to keep on U-turning.
James Cartlidge (South Suffolk) (Con)
Will the hon. Gentleman clarify something? Would he keep the social care cap and the spending on the backlog, and if so, given that he supports repeal, how would he fund that?
James Murray
The truth is that we are having this debate as part of a wider Government economic strategy that has caused economic chaos, and contains no plan for growth and no plan to fund public services. Even when we were discussing the original Bill last year, there was no plan for social care: there was no guarantee that a penny of the money would go into social care. So I will not take lectures from the hon. Gentleman.
James Murray
I am going to make some progress. I may let the hon. Gentleman intervene again in a few moments.
As I was saying, right now our message to the Prime Minister and the Chancellor is to keep on U-turning. They need to U-turn on their whole disastrous approach to the economy, which the Chancellor set out just over two weeks ago. That Budget—in all but name—was the most destructive, unfair and irresponsible fiscal announcement in a generation.
The Prime Minister and the Chancellor should now U-turn on their decision to lift the cap on bankers’ bonuses. They should U-turn on their refusal to ask oil and gas giants to put some of their eye-watering excess profits towards helping keep to people’s energy bills down. They need to U-turn on their discredited, dangerous trickle-down approach to the economy. It is time for them to reverse their disastrous kamikaze Budget, which has unleashed an economic crisis that they made in Downing Street, and which working people are paying for through higher mortgages and prices.
Alex Cunningham
My hon. Friend says, rightly, that we support this particular U-turn, but is he not as perplexed as I am about where all this money will actually come from—or does he know that, rather than having a magic money tree, the Tories have a full orchard?
James Murray
My hon. Friend is right to point out that the Conservatives’ sums simply do not add up. However, you do not have to take our word for it, Mr Deputy Speaker. Just look at the markets: they have issued their own judgment on the Conservatives’ so-called economic plan, and they are not convinced.
As we consider the repeal of the Health and Social Care Levy Act, it is important to remember how the Government’s decision to bring in this national insurance hike came to pass in the first place. Over the last 12 years under the Conservatives, we have been stuck in what the Chancellor himself rightly described last month as a “vicious cycle of stagnation”. With tax revenues stagnating under low growth, the Government made it clear that they felt the only way to raise more funds was to raise taxes on working people.
On Second Reading of the legislation that is being repealed today, the then Chief Secretary to the Treasury tried to defend the Government’s approach, saying that this new charge would
“enable the Government to provide additional funding to the NHS so that it can recover from the pandemic.”—[Official Report, 14 September 2021; Vol. 700, c. 843.]
We argued at the time that if the Government felt that they had to raise taxes, those with the broadest shoulders should contribute more, but the Government refused. They pushed ahead with this tax rise on working people and their jobs, and they refused throughout the debate on the original legislation to ask those with the broadest shoulders to take more of the burden. Now, as they repeal the legislation for the national insurance increase, they have abandoned any attempt at fiscal responsibility altogether, with an economic approach that has borrowing at its heart.
In a letter sent to the shadow Chancellor and the shadow Secretary of State for Health and Social Care on 22 September, the Economic Secretary to the Treasury wrote:
“The additional funding used to replace the expected revenue from the Levy will come from general taxation and may require further borrowing in the short-term.”
Labour takes a different approach. Our pledges are fully and fairly funded. As the shadow Chancellor has set out, we would boost NHS investment by ending the outrageous non-dom tax loophole exploited by the super-rich. We will use money from what is saved by scrapping that arcane practice to double the number of district nurses qualifying every year, to train more than 5,000 health visitors, to create an additional 10,000 nursing and midwife placements every year and to double the number of medical students so that our NHS has the doctors it needs.
Chris Philp
I think I heard the shadow Chancellor on television a week or so ago saying that her proposals on non-doms would raise about £2 billion. The cost of this measure is about £15 billion, so where is the other £13 billion going to come from?
James Murray
The Minister must not have been listening carefully enough to the shadow Chancellor setting out Labour’s plans, because we have set out how we would scrap the non-dom status, which it is completely irresponsible to keep in the current context, and to use some of that money to set out our plans for investment in the NHS. The difference between the Government and the Opposition is that the Government make promises and use throwaway comments about how they might fund this with general taxation or through extra borrowing, whereas when we set out our pledges, we set out exactly what we will pay for. They are fully costed, fully funded and paid for through fairer taxation.
James Murray
No, I am going to make some progress.
We have set out that we will not borrow for day-to-day spending and that we will not ask working people who are already struggling to foot the bill. That is what we mean when we say we are the party of economic responsibility and the party of social justice. The Conservatives have shown themselves to be the party of a failed approach to the economy. After six so-called growth plans from the Government that have all failed, the drunken gamblers of Downing Street have rolled the dice one last time, putting their faith in the ideological mantra that if they just slash taxes and regulation, they will unleash business investment and growth. They believe that wealth is created only by a few at the top, when the truth is that it comes from the bottom up and from the middle out.
The trickle-down economics of the Prime Minister and her Chancellor are wrong. Their approach will not work and it is not fair. It will hit working people’s spending power, undermining prospects for growth, and it ignores the need for the Government to be a partner for business to grow—something that is more important than ever with the turbulent, changing, challenging outlook that we face. That is why the next Labour Government would do things differently. We would bring together businesses and trade unions through a national economic council. We would support businesses to grow, through our modern industrial strategy, and we would use a national wealth fund to invest in the new green industries of the future. That is our approach to the British economy: pro-business, pro-worker, pro-growth.
The Government are making the wrong calls again and again. They were wrong last year to introduce the national insurance rise on working people, just as they were wrong last month when they tried to cut tax for some of the highest paid in society and to hide the OBR report on their plans. We welcome the Government finally admitting that they were wrong to raise national insurance on working people and businesses in the middle of a cost of living crisis, but their wider economic approach is one that is characterised by ballooning borrowing and a discredited trickle-down approach to economic growth.
The Prime Minister and her Chancellor are gambling with the livelihoods and wellbeing of people across the UK. Their gamble is dramatically worsening the cost of living crisis, with higher costs and mortgage payments for households across the country. It is shredding any reputation for economic competence the Conservatives might once have claimed to have, and it will fail to deliver the growth we need after 12 years of stagnation.
Throughout the cost of living crisis, Labour has forced the Conservatives to U-turn time and again. By repealing the national insurance rise and levy and by halting their plans to cut the top rate of tax for the very highest paid, the Prime Minister and the Chancellor have shown that they have it within themselves to make a U-turn. Our message to them is clear: do not stop there. The Government must U-turn on their whole economic approach and reverse their disastrous kamikaze Budget. Our message to the British people is also clear: this is a Tory crisis that has been made in Downing Street and is being paid for by working people. Only Labour will fix the damage that the Tories are doing. Only Labour will deliver economic responsibility and social justice. Only Labour will be a Government that are on your side.
Mr Deputy Speaker (Mr Nigel Evans)
Could people who intend to speak in the debate please stand, because I know that at least one is not on the list? Thank you.
James Cartlidge (South Suffolk) (Con)
It is fair to say that it is a bit of a novelty for me to be called so early, and without a time limit, in a debate. I am very grateful, not least because how we pay for healthcare is one of the single most important subjects in British politics. That is essentially what we are debating today, and I feel strongly on this subject. The core principle must be one that I have always held as a Conservative, which is that we are fiscally responsible. As with the environment, we must aim to leave things in a better condition for future generations and, with the public finances, have in mind at all times the impact on those yet to be born—on our grandchildren—so that we are fiscally responsible. That is the fundamental belief of my party, in my view.
With that in mind, there is a lot of excitement about what the OBR will say on Hallowe’en, but it has already pronounced on the matter of health expenditure. In July it published “Fiscal risks and sustainability”, a fascinating bedtime read. The crucial thing is what it says about the OBR’s estimate for the future cost of healthcare in this country. It predicts that the current spend on health and adult social care will go from around 10.3% of GDP to 17.5% of GDP in 50 years’ time. That is an extraordinary increase—almost double—and it would take up so much more of our wealth and public expenditure. The OBR’s track record is very accurate on estimating health spend. It is based on a lot of cautious variables that are obviously difficult to predict, but essentially this is, if you like, cutting the mustard in telling us the future cost we have to face up to.
To put this in context, the OBR estimates that the headline estimate for public debt that we will be passing to our grandchildren will be 100% of GDP in 30 years’ time and that in 50 years’ time it will be 267% of GDP. That is what it says in this document. If we carry on as we are, we will have a national debt of 267% of GDP because of the rising cost of what is called demographics. That is mainly healthcare but also the state pension and other aspects of the pensions system. Overwhelmingly, however, it is healthcare. Adult social care will double as a percentage of GDP as well.
I should declare an interest in the sense that I had an indirect role in the creation of the health and social care levy, and it is fair to say that I have many reservations about what we are doing today. As colleagues know, the former Prime Minister—who deserves great credit for this—was determined that we would not just have another Green Paper or White Paper on social care. He wanted to actually deliver something for the country and he introduced the cap that had been promised by successive Governments, so that although people who have saved hard and have assets have to contribute to their care, they know that there is a limit. It is incredibly important that we brought that forward, and I sincerely hope that in removing the funding mechanism for the cap, the Treasury will resist the temptation to water it down. Local authorities are not yet aware of exactly what the cap will cover, and with the funding stream gone, the Treasury must resist the temptation to water the cap down. That is absolutely paramount.
When the Prime Minister came forward with wanting to pursue the cap, it was the view of the then Chancellor —my right hon. Friend the Member for Richmond (Yorks) (Rishi Sunak), who I had the privilege of being Parliamentary Private Secretary to throughout the pandemic—that it must be funded, and that it could not just go on the national credit card. The social care cap on its own is massive rising liability. I have just set out what is going to happen to health costs more generally. So, how to fund social care? The most common suggestion was an increase in national insurance, for the simple reason that it applies to businesses and individuals and so raises the sorts of revenue we can get. It is not easily avoided, and it can give us the money in the bank to pay for these expensive costs that we face.
However, I submitted a paper to the Chancellor at the time and suggested that, rather than having just a narrow national insurance levy—a social care levy, as it were—we should have a full health and social care levy that should be hypothecated and appear as an explicit line on people’s payslips. It will be there on our payslips until November. I accept that we have not made the most of it, and there has been almost no enthusiasm from any quarter—possibly only from the social care sector—but with a transparent, hypothecated statement on payslips, if the NHS came back to us two years into a five-year funding settlement saying, “We need this additional big item,” we could say, “Fine, but it will come out of the levy.” That would be transparent, and it would have provided the discipline that we have terribly lacked in health spending for many years, under successive Governments. I thought it had great potential, but it is being vapourised today. The Prime Minister has a mandate for it and the whole House seems to support that view, as does the Labour party even though it does not have the foggiest idea how it would fill the gap.
Peter Grant
The former Prime Minister had a mandate to do what he did last year. The hon. Member for South Suffolk (James Cartlidge) says the new Prime Minister has a mandate to do this. Where did that mandate come from? I do not remember Parliament being dissolved for a general election in the last couple of months.
James Cartlidge
The new Prime Minister would rightly say that our manifesto said we would not increase national insurance, so she can draw on the mandate of the general election. We also seem to have vapourised our memory of the pandemic, but I would argue that it changed everything. The enormous borrowing accrued to this Government during the pandemic, which everyone supported—everyone wanted even more spending and even more support for businesses and individuals, as I remember because I was the then Chancellor’s PPS—made it exceptional, and we had to balance the books. I make it clear that this was not my preference, as I would not have wanted a levy to fund the NHS and social care. Given the politics of the time, it was the best way forward.
This is my personal view about how we should move forward. The key point is that the NHS is free at the point of delivery, which means we pay with time. When something is free, people wait and there are massive queues. Of course, those queues have been massively exacerbated by the pandemic, which is why the backlogs are so big, but it is blindingly obvious that the pressure on the NHS is overwhelming. There is almost infinite demand on finite capacity.
Labour Members will say in any election campaign, as we will. “We will do everything possible to increase capacity.” The Deputy Prime Minister and Health Secretary will, of course, do everything possible through her ABCD—ambulances, backlogs, care, doctors and dentists —strategy to improve outcomes in the NHS, but when we talk about funding the NHS, when we talk about the obligation to our grandchildren and the next generation, we have to be more radical, frankly.
In my view, we need a core NHS that is free at the point of delivery, but as a country we need to drive up the use of the independent sector and of private healthcare from all those brilliant companies that are seeing take-up shoot through the roof because of the backlogs. I know some of this territory is difficult to talk about, but I will give three key reasons why we should go down this route. First, every single person who pays to go private is freeing up space on the backlog. They are also boosting NHS capacity.
Secondly, this is standard in comparable countries. The Republic of Ireland, Australia and Germany have tax incentives for people to pay for their healthcare. There is an understanding that people who go to that trouble should have some kind of rebate, because they are doing everyone else a favour.
Thirdly, this is already happening. The post-Beveridge revolution is happening, and it is happening silently. There has been a massive surge in the number of people paying privately for healthcare. The Guardian recently published figures estimating that one in 10 adults in the UK has paid for private healthcare in the past 12 months, primarily because of the backlogs. Use has surged, according to the Independent Healthcare Providers Network. The number of people paying for hip replacements was up 193% in January to March 2022 compared with January to March 2019, and the number of people paying for knee replacements was up 173%. This is a huge surge in the number of people paying privately. It is true that many of them will not have wanted to do so, and I am not suggesting that they will have been delighted. Of course, we all want everyone to be able to use the NHS without long waits—that is clearly the ideal scenario—but it is not deliverable any more, not least with the demographic pressures we face.
We should look at the surging use of the independent sector and embrace it as a policy opportunity. Research from the Independent Healthcare Providers Network shows that 48% of people in this country will consider going private in the next 12 months because they know about the waits. This is about choice, and the most important thing is to have greater tax incentives for people to use the independent sector, so that people think about making a realistic choice. We should not settle for long waits for care any more. This is standard practice in comparable European and Australasian countries.
To be very specific, going back to the OBR document I mentioned, as a country we face a huge liability for health and social care. We should target increasing the percentage of our healthcare spend that goes to the independent sector so that we have a better balance, more like the balance in comparable European countries. If we did that, we would get much better outcomes, we would have more choice and we would finally have a 21st-century healthcare system with diversity of provision, which is the best way forward.
We should recognise that the revolution is happening, and it needs to happen with the Government’s backing and support.
Madam Deputy Speaker (Dame Rosie Winterton)
I call the SNP spokesperson, Richard Thomson.
Richard Thomson (Gordon) (SNP)
It was a little over a year ago that the then Chief Secretary to the Treasury told the House that this health and social care levy
“will enable the Government to tackle the backlog in the NHS. It will provide a new permanent way to pay for the Government’s reforms”.—[Official Report, 14 September 2021; Vol. 700, c. 845.]
That was quite a spectacular U-turn on the Conservative party’s 2019 manifesto. Page 2, signed by the then Prime Minister, made a solemn pledge:
“We will not raise the rate of income tax, VAT or National Insurance.”
To be back here, just over a year later, seeing a reversal is really quite something. Describing it as a U-turn does not do it justice. An antisocial driver doing donuts in the car park of the local supermarket is the best analogy for how out of control this approach seems to be.
The UK Government published a health and social care levy policy paper when the levy was introduced, and I distinctly remember this quote:
“This levy provides a UK-wide approach which enables us to pool and share risks and resources across the UK”.
It was therefore highly enjoyable to listen to the current Chief Secretary to the Treasury claiming that, now the levy is being repealed, the reverse also happens to be true, in terms of the UK-wide approach to pooling and sharing.
I spoke in the debate when the levy was introduced, and I recall that there was a sparsity of Back Benchers prepared to provide political cover for their Government’s change of heart. Quite clearly, an awful lot has changed since then. We have a new Prime Minister, who makes much of the fact that she is prepared to be unpopular, which is probably just as well in the light of recent events. She also tells us, and the Chief Secretary repeated it today, that there is apparently a sinister grouping at work outside this place—the anti-growth coalition. I will not go through all the groups that supposedly comprise this coalition, but it seems to be anyone who has the temerity or the audacity to disagree with the Prime Minister, so it probably includes about half the Cabinet and most Conservative Back Benchers.
Hywel Williams
I am grateful to the hon. Gentleman for raising the Government’s assault with such frivolity. Does he know how one joins this anti-growth coalition? When does it meet? Does it provide lunch? Does one have to apply through the currently absent Minister? Is there a form on the internet, as there is for everything else?
Richard Thomson
I am sorry to disappoint the hon. Gentleman, but I do not have any answers. From a Marxist perspective—a Groucho Marxist perspective—I would not want to be part of any club that would have me as a member. I am sure the T-shirts are being printed and will be available very soon.
The Government Benches were rather sparse in our previous debate on the levy. Judging by some of the contributions and the exceptionally well-targeted friendly fire, the Government clearly have some way to go to persuade their Members on not only the sincerity of their commitments on health and social care, but their broader approach to managing the economy.
Scottish National party Members had concerns about the levy at the time as a means of achieving the policy objectives outlined. In our view, it was unclear what the additional resource would be used for, other than in the broadest of terms. The near £13 billion levy seemed to us to be an arbitrary amount, unconnected to any clear plan for how the funds might be used to tackle the pressures in the NHS—far less for how that resource, and how much of it, would end up being passported through to meet the challenges in the care sector. We also remarked that there was no sign of the accompanying reforms that would be necessary to get better outcomes on integrating health and social care services in England, as has been done in Scotland and as will be built on through the establishment of a national care service by the end of the current Scottish parliamentary term. The levy was also introduced, and is now being withdrawn, without our having had any indication from the OBR—although we believe the work has been done—of the impact not just of this but all the other fiscal choices that now sit around it.
To say that the UK Government are in complete disarray in their approach not just to health and social care but to managing the economy, would be a kindness and an understatement. They are abandoning the national insurance rise in favour of increased borrowing, just as the Chancellor’s limited fiscal event has resulted in borrowing growing considerably more expensive. They are introducing tax cuts, which are intended to be funded in part by cuts to public expenditure, and those will inevitably feed through to pressures on the health and social care sectors that the levy was supposed to be bolstering. With the rampant inflation we now see in our economy, any resource that makes it through to the health and social care sectors will not travel as far as it would have done—those pounds will buy less. The huge post-pandemic health and social care problems that we face in common across these islands have also been made that much worse by the botched nature of the mini-Budget.
John Appleby, the director of research and chief economist at the health think tank the Nuffield Trust, is surely correct when he warns that the funding ball is now back in the Government’s court, saying:
“They will have to fund the commitment through some combination of borrowing and deprioritising other public spending”.
Let us be realistic about this: that is a far more likely set of outcomes than seeing the commitment being met through ambitions for growth, no matter how loudly and repeatedly they are stated.
To be clear, SNP Members never believed that a levy on national insurance was the way to achieve the objectives of meeting those challenges. It is tempting to go back to what was said on 24 March, when Paul Johnson, the director of the Institute for Fiscal Studies, called the Government to account in The Times newspaper, saying:
“Why promise to spend billions cutting the basic rate of income tax whilst going ahead with an increase in NI rates? That will make the tax system both less equitable and less efficient. It will increase the wedge between higher taxes on earnings and lower taxes on pensions and unearned incomes. And wouldn’t that money have been better spent sooner helping those most in need?”
That was an excellent question then and it remains so today.
Let us be clear that the funding challenge goes beyond the challenges of the economy, to meeting the parallel challenge presented by the growing and complex demands of an ageing population. In meeting that challenge, it is important that we are able to meet the demands and needs of patients, service users and staff with dignity and compassion, while making sure that the responsibility for contributing towards that financially is a burden shared fairly and equitably.
In financial terms, that is going to be met through a combination of revenue spend and capital spend. The way in which that cost is shared will come down to political choices over how much is to be borrowed and how the tax system is to be balanced over the longer term. We certainly wait with a mixture of bated breath and nervousness as to what the Chancellor will finally bring forward later this month. I make no apology for repeating this point: it must be fairer, as a general principle, to spread the burden by increasing income taxes across the board on both earned and unearned income, as well as to look again at areas such as inheritance taxes and capital gains, so that the totality of the wealth right across the nations of these islands can be taken into consideration when sharing that burden.
Instead, we seem to have a piecemeal and incoherent approach to reform from this Government, allied to an equally piecemeal and incoherent approach to taxation and the wider economy. It is often said of a person’s character that, when someone shows you who they are, you should believe them. My goodness, haven’t we in the past three weeks seen exactly what the essential character of this Government is when it comes to their priorities? We have seen that instinct revealed in the decision to unapologetically lift the cap on bankers’ bonuses. We see it in the attempts to cut taxes for the richest, to give least to those who need it most and to hack back on the public services that enable people to live the best lives they possibly can, irrespective of their personal circumstances. We see it in the resulting economic chaos and the fiction that out of that chaos growth will emerge, which somehow makes all of this additional borrowing affordable.
In some kind of conclusion, it is clear that the problems that led to this levy being identified as a solution in health and social care have not disappeared, even if the levy itself is about to. The Chief Secretary repeated the Prime Minister’s lamentable jibe about the “anti-growth coalition”. As the chaos that has emerged from the mini-Budget shows, the solutions to the myriad problems we face are not going to be found among the dangerous, disruptive ideologues who cause mayhem by supergluing themselves to the policy prescriptions of the Institute of Economic Affairs. They can be found only by building long-term value in the economy and making sure that the burden for doing so is shared equitably among all people and all businesses that can make the contribution that they need to.
David Rutley (Macclesfield) (Con)
I am grateful for the chance to speak on Second Reading and to follow considered speeches by right hon. and hon. Members. I am particularly pleased to see the Economic Secretary to the Treasury, my hon. Friend the Member for North East Bedfordshire (Richard Fuller), in his place. I knew him for many years before coming to this place and he brings real expertise to the Front Bench, notwithstanding the fact that he has very big shoes to fill—that’s for sure.
The repeal of the health and social care levy is part of the Government’s growth plan. The key elements of the plan to address cost of living challenges, caused largely by President Putin’s savage attacks on Ukraine, are most welcome. The energy price guarantee helps to limit the price of fuel bills for households across the country for two years, while the energy bill relief scheme provides similar support for businesses right across the country. Those steps are particularly welcome to the small and medium-sized businesses, both in Macclesfield and across the country, which have felt particularly exposed to the sharp increases in energy costs.
I understand the desire for greater growth and for reducing the tax burden. I recognise that many businesses and working people will be pleased to see the health and social care levy being reversed. They will be able to keep more of what they earn and decide how best to use the saving for their own business or household. I acknowledge that many business owners will welcome another element of the growth plan: the planned rise in corporation tax will not go ahead either. That said, I believe it is important to see the removal of the health and social care levy, and other proposed tax reductions, in the context of the wider economy and our public finances.
Financial markets have shown concerns about the cumulative effects of the policies set out in the growth plan, as was eloquently set out by my hon. Friend the Member for Salisbury (John Glen) earlier, and the lack of an associated OBR forecast to help set out an independent view has been unsettling. The forecast will help provide an independent view of the plan’s impact on our public finances and on the levels of the Government’s borrowing and debt. That is why I was pleased to learn that the Chancellor will bring forward to 31 October his statement on the medium-term fiscal strategy, and that Treasury Ministers and officials will, as is necessary, work closely with the OBR over the weeks ahead. It is vital that the Chancellor sets out his fiscal strategy soon, to help explain how the measures in the growth plan, including the impact of reversing the levy, will be funded and what they will mean for the Government’s spending plans, such as the funding for NHS backlogs and social care that the levy sought to address, as highlighted very well by my hon. Friends the Members for Winchester (Steve Brine) and for South Suffolk (James Cartlidge).
The latest timing also means that documents will be available before the next meeting of the Bank of England’s Monetary Policy Committee on 3 November. They will help provide additional, much-needed information for the markets, to colleagues here in Parliament and, of course, to our constituents. As the Prime Minister has said, in hindsight more could have been done to roll the pitch and communicate the growth plan before the Chancellor’s statement on 23 September.
In addition to the steps to lower taxes, such as the reversal of the levy, and to tackle energy cost challenges, the growth plan includes several innovative plans, such as the investment zones to help drive growth. In Cheshire East, our vibrant life science sector and industrial hubs would represent an exciting opportunity for such a zone to drive sustainable economic growth. That is just an idea, of course, for the Chief Secretary.
I wish that we could spend more time talking about such opportunities, but we have to accept that we cannot wish away market concerns. We have to recognise where we are, and the Treasury needs to take the time to communicate and explain its plans in more detail and in the context of the wider economy. With that in mind, I am pleased that the Chancellor earlier agreed with the Chair of the Treasury Committee on the need to further engage with and counsel colleagues in this House over the weeks ahead.
To conclude, this Bill will see the health and social care levy reversed. That policy and the implementation and phasing of other measures in the growth plan aim to help lift growth and will have wider economic consequences, so let us take the time to understand them more fully. Like many colleagues, I am a strong supporter of free enterprise. I recognise that lower taxes have a role to play in driving growth. As is often said, there is a time to every purpose, and at heart I am a fiscal conservative.
Sarah Olney (Richmond Park) (LD)
The Liberal Democrats were opposed to this tax to start with. We opposed the national insurance levy when it was introduced last year. Our argument at the time was that it would disproportionately impact lower earners and hit working families at precisely the time when they were struggling to pay their bills and prices were starting to increase in shops. We are really pleased that it is being reversed, and we support this Bill.
We must not ignore the fact, however, that a great deal of damage has been done in the past six months, during which employees, the self-employed and employers have been charged with this levy. During that time, employees and the self-employed will have paid about £2.5 billion, and businesses about £3.8 billion. One of the main disruptions is that it has been incredibly disruptive to businesses. I speak with some feeling as an accountant who in a previous life spent many hours working on payrolls and forecasting employee costs. I can only imagine what it must have been like for businesses over the past three years. In 2019, a Conservative Government came in promising not to increase any business taxes, but in 2021 they increased national insurance, and now here they are in 2022 reversing that increase. That is an awful lot of change for businesses to have to deal with, and that is quite apart from the increased costs that they will have borne over the past six months.
Let us think about the impact that that cost will have had on businesses. They will have been thinking, “Which employees can we have? If we want to grow our business, how many employees can we afford to take on?” They will have revised those assumptions in the light of the increased cost of national insurance, so we can only assume that the six-month increase will have stunted the very growth that the Conservatives say that they want to see, and that it will have contributed in part to the economic slowdown, not least because the impact on employees will have decreased their take-home pay, and that, of course, will have decreased their consumption.
What businesses need above all is certainty and stability, but that has been continually undermined by this Government and their constant chopping and changing of national insurance. This, of course, is happening at a time of a huge increase not just in inflation but, as has been mentioned several times, in energy costs, primarily as a result of Putin’s illegal invasion of Ukraine. That is also having a massive impact on businesses in this country, and the chopping and changing of the costs of employing staff will not have helped.
It has always been our argument that tax could have been more productively raised by an expanded windfall tax, which we have been calling for since last autumn. We are very pleased that the Government took on board some of our suggestions, but both Shell and BP have said that the Government could have gone further. Potentially up to an extra £60 billion of taxes could have been levied on oil and gas firms, which would have negated the need not just for the national insurance increase but for many of the other unfunded borrowing commitments that the Government made on 23 September.
Now that we are repealing the health and social care levy, it is important to remember—the hon. Member for South Suffolk (James Cartlidge) made this point very well—that we still have to deal with a crisis in health and social care. The Government must immediately set out their plans. We all anticipate the much-awaited fiscal event on 31 October with a huge amount of excitement but, more than anything, we need to hear from the Government their plans for health and social care, because there is no doubt that the backlog in NHS hospitals is in itself having an impact on growth. I saw figures today that suggested that the number of people suffering from a long-term sickness that prevents them from working is at a record high. We can all see how that has come about from the events of the past few years, but these are people who cannot be available for work and who cannot contribute to the Government’s “growth, growth, growth” agenda; they are not able to take up posts in what we know now is a record number of vacancies simply because they are waiting for treatment. We welcome this reversal, but the Government must state, and soon, what they plan to do to address the backlog.
Of course, this is not just about health; it is also about social care. There are 130,000 vacancies across our social care sector, and we know that that is caused by chronic underfunding. It cannot offer the kinds of salaries that care workers can find in other sectors. The shortage of care workers and of places in care homes is having a knock-on impact on our hospitals. I was at Kingston Hospital recently and was told that the reason it has problems, and one of the big contributors to its backlog, is that it cannot discharge patients because there is no care package for them to be looked after in their homes. The issue of social care, health and the backlog needs to be addressed urgently. It was not being addressed when the legislation to increase national insurance was first brought in, and it is not being addressed now. We urgently need to hear more from the Government on that.
I say to the Government that we would support an increase in the windfall tax and that we oppose their plans to reverse the planned increase in corporation tax, which I believe is what is creating the biggest need for the additional borrowing announced on 23 September. The Government urgently need to look at that again and at all the plans announced by the Chancellor on 23 September, and I for one am very keen to see what they come up with on 31 October.
Kim Johnson (Liverpool, Riverside) (Lab)
I welcome this decision to repeal the regressive hikes to national insurance, which would have seen those least able to pay with the heaviest proportional tax burden to tackle the crisis in social care. This is the right thing to do, but it should never have happened in the first place. Tax rises on the poorest, especially during a cost of living crisis, are cruel and unnecessary.
We now need urgent reassurances from the Minister that new funding for adult social care will come from progressive taxation and the pockets of those who can most afford it. We must be clear that a U-turn is not a plan; it is the absence of one. We still have no answers from the Government about how they plan to tackle the crisis in adult social care or where the funding will come from, other than to wait until 31 October for the medium-term fiscal plan.
Twelve years of Tory austerity have already seen £8 billion taken out of the social care system. Now we are facing a winter of hardship driven by the rampant cost of living crisis. Instead of bringing forward measures that will help the poorest and those most in need, the Government are prioritising tax cuts for the rich and public service cuts for the rest of us. They have removed the triple-lock protections on pensions and are refusing to commit to raising benefits in line with inflation. They have made disastrous economic decisions that have crashed the economy and made the cost of living crisis one of the worst among comparable countries.
Local governments are being forced to make further crippling cuts, as well as find extra money for energy costs and inflation to maintain their public services. We know that adult social care provision will suffer. Liverpool has lost £465 million of our budget since the start of austerity, which is more than two thirds of our overall budget since 2010. Liverpool, like other cities, has a growing elderly population with increasing complex needs, including dementia.
We urgently need a big injection of funding to councils’ care budgets alongside a social care workforce strategy to meet rising demands. We are facing unprecedented staff shortages in the health and social care sectors, with more than 165,000 vacancies and a massive staff turnover of 30% a year. In Liverpool, 15% of our social care workers are employed on zero-hours contracts and we have a vacancy rate of over 10%. Without action, the consequences will be devastating. We must be absolutely clear: a shortage of staff costs lives. It is as simple as that.
We are about to face a second round of Tory austerity, with £43 billion to be slashed from public services that have already been decimated during 12 years of Tory Government. Instead of more cuts, we need a serious injection of cash into adult social care and a plan to bring those services back in-house to end the rampant profiteering of companies backed by private equity funds, which sucks public money out of the system and out of services and straight into tax havens in the Cayman Islands to be hoarded by the super-rich. Decent pay, terms and conditions for undervalued employees must take centre stage of any serious plans to tackle the deep-rooted structural issues in the social care sector along with a long-term workforce strategy and improved quality and standards of care.
The Secretary of State for Health and Social Care has committed to maintaining the same levels of funding on health and social care despite today’s cancellation of the levy. However, the Prime Minister and the Chancellor are crowing about this reversal to national insurance contributions as a key victory in their tax-cutting agenda, which will see £43 billion slashed from public services. Will the Minister confirm whether the Government will commit to spending the same planned £12.4 billion a year over the next three years that would have been raised by this levy? A simple yes or no answer would be great, thank you.
Peter Grant (Glenrothes) (SNP)
I do not often say this, but I welcome the decision that the Government have taken, which is to U-turn on their increase in national insurance contributions, although I utterly reject any suggestion that it should be coupled with any watering down of the previous commitments on funding for health and social care services.
I do not think that national insurance is the right name for this tax. It is an income tax—a jobs tax—and we should be honest about what it is doing. It is a jobs tax because if a person has a job, they pay tax on the money that they get paid for doing their job— unless they are earning way below the minimum full-time wage. If they are an employer, they pay tax on the wages that they pay someone for doing the job for them. It is only if a person is lucky enough to be able to make most of their money from owning shares or property that they can earn significant amounts of money without paying national insurance on that income. I have to say that not many of my constituents who are struggling on a minimum wage and part-time jobs are that impressed by the fact that they can get national insurance-free income from their share portfolios, because they cannot afford to buy them in the first place.
This is a form of income tax—a jobs tax—specifically targeted at working people. It is not even an insurance as such. I pay insurance on my car. If I am involved in an accident, I have a guarantee that the insurance company will pay its share of the costs. People do not get that guarantee just because they have been paying national insurance contributions all their life. Just ask the WASPI women—of the Women Against State Pension Inequality Campaign—how much of an insurance scheme guarantee they actually get from national insurance.
The legislation that we are being asked to repeal today—and it looks like it will be repealed today without a Division—introduced a form of hypothecated tax, which is not something that I would generally support. Nobody has really mentioned that in this debate, and it did not get much coverage in the debate last year. Other than for very time-limited and precisely defined purposes, hypothecated taxes do not really work. Filling in a small part of the decades-long underfunding in some of our most important public services is neither time limited nor specific.
Whatever we are going to do to change the tax system to get adequate funding for these services, a single, specific hypothecated tax is never going to be it. I have been consistent on this. I find it interesting that nobody who has spoken in this debate in favour of repealing the levy has explained why they voted for it in the first place last year. I note that sometimes people are allowed to change their minds regularly, whereas at other times people are not allowed to change their minds from eight years ago.
Our health and social care services are among our most precious public services. Universal healthcare—including free prescriptions—free at the point of delivery, based only on clinical need rather than the ability to pay, is surely an essential part of any civilised society. I would say the same about social care. I am proud that in Scotland we have free personal care for those who need it, regardless of whether they can afford to pay for it. I welcome the steps that the Scottish Government have taken to reduce the financial burden on those who need other forms of social care as well. All of these services are available to everybody and they should be paid for by everybody according to our means through general taxation. I am not ashamed to say that if I had to pay a wee bit extra tax that I could easily afford in order to provide a civilised society for my people to live in, I would do so willingly.
Those principles are now under direct attack, even more so than they were under the previous Prime Minister, and even more so than they were in the dark days of Margaret Thatcher. We now have a Prime Minister who has chosen to surround herself with people whose links to the NHS privatisation lobby are not hard to find. It does not need to be direct privatisation; it is very easy to privatise the health service by stealth, simply by strangling it of funds so that the waiting list becomes so long that people choose to pay for a health service that they have already paid for through their taxes.
That is why it is essential that we get a commitment from this Government that not only will there not be a reduction in cash terms in health service funding or in social care funding, but that those budgets will increase by enough to cover the cost of inflation as it hits those services. Historically, inflation in the health service has usually been higher than the headline rate of inflation. The headline rate of inflation is savage enough just now. It is likely that the true cost of inflation to the health service is even higher. I asked the Chancellor about this directly a few weeks ago when he issued his mini-Budget. Scandalously, he refused to give a commitment that funding in the health service will even keep pace with inflation, never mind increasing to meet what we can all see is an unmet demand.
Part of the reason that the NHS is coming under unprecedented pressure is that the policies and deliberate choices of this Government and their predecessors have forced people into poverty and destitution, and that has an impact on people’s health, which creates additional demand on the NHS. As others have pointed out, having people on health service waiting lists unable to work damages the economy. If the economy is damaged in such a way that it affects the funding of the health service—if, for example, people are given lower wages, are put under financial stress and are unable to afford the cost of living—that in turn damages our health, and to an extent that we perhaps have not properly realised until recently.
A recent study by the University of Glasgow and the Glasgow Centre for Population Health found nearly 335,000 excess deaths in the UK in the past seven years that were caused by austerity. Deliberate policy choices by this and previous Tory Governments since 2012 have killed more people than the covid pandemic. That is a scandalous thing to happen in any country that claims to be civilised. That is why we cannot fully consider the provisions of this Bill, or the provisions of the Act of Parliament that it seeks to repeal, in isolation from the wider policies of a Government who seem hellbent on plunging even more people into poverty, while lining the pockets of their own billionaire supporters and donors.
To give just one example, the Chief Secretary to the Treasury was delighted to tell us earlier that the combination of not increasing the national insurance levy and the previously announced changes to income tax thresholds will amount to a whopping £500 per year back in the pockets of my lowest-earning constituents. They are paying between £1,200 and £1,500 a year more just for the heat in their homes compared with last year, so the generous £500 a year that the Government are putting back into their pockets is less than half of what my constituents need just to stand still for electricity and gas prices. That is before they start to pay their increased costs of food, rent and mortgages for those able to buy their own homes.
That should not be inevitable. My constituents live in a country in which 85% of energy does not come from gas, so why do they see their bills doubling when there is a gas shortage? My constituents live in a country that supplies more energy than it needs and has a commodity that is in short supply, so why are they so much worse off when the value of the commodity that we have in surplus increases on the global market? Those are not questions that Treasury Ministers or other Ministers in this place do not know the answers to; they are questions that they are scared to face up to the answers to.
Repealing this legislation when the ink is hardly dry on the paper serves to illustrate yet again the total chaos that this Government are in. That chaos has spread to the whole of these islands, and they seem quite happy to inflict it on the financial markets, despite the impact they know it will have on people’s standard of living now and the pensions they will be able to rely on in the future.
The Government’s persistent refusal to provide a costed plan to ensure sufficient and sustainable funding for those vital services, directly through funding in England and indirectly through Barnett consequentials on the devolved nations, and their persistent refusal to put health and social care services on a proper and sustainable funding basis demonstrate clearly that our national health service can never be safe in the hands of this or any other Westminster Government.
Alison McGovern (Wirral South) (Lab)
Before I get into the Bill, I want to note some of the remarks made by the Government on their energy package and the speed with which that was brought forward. Given that this is the first opportunity we have to discuss these financial matters, I want to record that it felt during recess as though almost every day in August people were begging the Government to act, and they did not. We waited and waited, while they had an internal debate when they could have acted. For 12 years, in fact, it has seemed that the British economy has had both deep-rooted problems and significant shocks. Given the situation before us and the chaos we face, would not any Government want to act?
That brings us to today’s Bill, which is essentially a U-turn. As colleagues have said, the Government are showing here that they can U-turn, but what we need now is much more significant action. We can say with certainty that the Chancellor has already made a considerable impression on the economy. He inherited a cost of living crisis and for good measure added a cost of borrowing crisis, an interest rate crisis, a mortgage crisis, a sterling crisis, a Government bond crisis and a pension funds crisis.
Inflation was already at its highest rate in 40 years, devouring household wages and savings; Shell, ExxonMobil and Chevron recorded their highest ever profits and household energy bills doubled within a year. Thanks to this Government, the pound has slumped to its lowest value against the dollar since Britain went decimal in 1971, and the Bank of England has been forced to launch an emergency £65 billion bond-buying scheme that, as we saw yesterday, has barely stopped the chaos.
Thanks to this Government, in the blink of an eye the average homeowner now faces a monthly mortgage payment that is £500 more expensive and food bank use has soared to such an extent—[Interruption.] Do not say it is global. The food bank increase is not global; it is a feature of the UK economy, and it has soared to such an extent that volunteers will need either to turn people away or to reduce the size of emergency rations. That is the situation we face, and that is why this Bill must not represent the last U-turn from this Government.
We have heard from various Conservative Members that they are the party of tradition, so let me commend the Government on respecting a long-standing Conservative tradition in their conduct relating to our economy. Just like on 16 September 1992, Conservative Governments always end up sacrificing family finances to pay for their chaos.
This Chancellor, in his airy disregard for experts, produced a Budget so complacent, so unfunded and so unconvincing to the markets that the cost of our long-term borrowing soared. His doubters are now not just the members of the Labour party; they include bond traders, the currency markets, the civil service, the OBR, the Bank of England, the IMF and the British public.
The Conservatives have pierced a hole in the British economy, and the effects are widespread and severe. Pension funds were brought to the edge of collapse and, before the Bank of England intervened, we risked falling into a self-perpetuating spiral,
“threatening severe disruption of core funding markets and consequent widespread financial instability.”
To be so ignorant, so high-handed and so willing to risk impoverishing people is unforgivable.
It is some small comfort that today the Tories are reversing their own rise in national insurance. U-turn follows U-turn and we return to square one. However, this zig-zagging incoherence is not just a waste of parliamentary time and energy, but damaging to our stability and our credibility. No matter whether they raise taxes or lower them, high-quality public services and economic growth will continue to elude the Conservatives. That is because, as has been said so often, economic strength does not come just from the top; it starts in the everyday lives of working people right across our great country. The hon. Member for South Suffolk (James Cartlidge) explained well what is happening right now for people trying to work. Thanks to the Conservatives, record waiting lists see acute conditions becoming chronic and more and more people having to leave the labour market. Do not crow about unemployment being at historically low levels when inactivity—people simply unable to work—is shooting up again, as we found today.
James Cartlidge
Just to clarify, what I said was that it was due to the pandemic—not entirely, but everything the Labour party says now is airbrushing out of history the greatest post-war trauma that the country faced, when there was an enormous surge in borrowing, which we all supported, to fund the support for businesses and people in our constituencies. At some point, will Labour recognise the impact that had and the action we had to take, which has led to decisions such as these tax increases?
Alison McGovern
The impact of the pandemic on our labour market and our health service has been profound. It should inspire us to see the capabilities of the people within our health service, and it should show us the undeniable truth that there will be no economic health in this country without securing the health of the people of this country. That is what the pandemic shows us. I simply ask that the party in government today, the Conservative party, learns that lesson.
If we look at what is going on with our labour market, we see that part of the growth plan must be to secure our health service, get waiting lists down and get people back to good health. We have heard that funding for health and social care services will be untouched, so let me assure the Government—already so elastic with their commitments—that their promise on the health service will be under heightened surveillance in months to come.
The Government say that they have a growth plan to end their cycle of stagnation and to radically overhaul what has been dragging us down, but that plan simply has no credibility. It is delayed and delayed. Until we see what they truly believe can help this country grow, all we see is the cost of borrowing growing, inflation growing, mortgage payments growing, food bank use growing and child poverty growing, while the true opportunities that this country has—its people and their talents—are left wasted.
Who asked for this? Who nodded happily at higher mortgage repayments? Who wanted public services to be slashed or spiralling inequality? There is no consent for this, as we have seen—not even consent on the Tory Back Benches. The resulting damage to our economy is immediate and sharp, but there is another danger that emerges slower but is just as great: the risk to our relationship with the British people.
I worry that we have short memories in this place. Only three months ago, more than 60 Ministers fled the Government of the right hon. Member for Uxbridge and South Ruislip (Boris Johnson). For some time, that Government were viewed with real anger by the public, who overcame the pandemic through shared sacrifice, only to feel cheated, insulted and taken for fools by their Government. Well, the British people are not fools, Madam Deputy Speaker. They understand that this winter, whether it is due to soaring energy bills, surging inflation or the war in Ukraine, shared sacrifice is needed again. In return, they are owed compassionate, responsible leadership and a Government who can look them in the eye.
This is not a time for economic hobbyism—for testing pet theories like schoolboys in the common room—and ignoring the country. Not even two people in every 1,000 voted for the Prime Minister or her Chancellor. Britain did not choose to be experimented on in this way. When the Chancellor delivered his crazy Budget on 23 September, everyone in this country was united in experiencing that act of economic vandalism. When children are hungry, pensioners colder and families fearful, the Chancellor avoided the profits of energy giants and signed off unfunded tax giveaways for millionaires. In waving through bigger bonuses for bankers, he took a torch to our social contract. Instead of shared sacrifice, this gang of fanatics on the Treasury Bench turned to casino economics and gambled away public trust.
It is an old, old saying that you can judge a person by what they choose to do with power. After 12 years of the Tories in power, the veneer has worn off, revealing the same old ideas that have been tested to destruction in this country: run the country on the cheap, leave public services crumbling and make working people pay the price. The big society—remember that?—has been and gone, one nation conservatism is a painted shell, and the façade of levelling up has been abandoned, as they cut taxes for millionaires and look set to cut benefits for the poor. It does not matter whether it is this Prime Minister or whoever soon replaces her—this is the Conservative project and it has been there all along.
It is the single greatest privilege in this country to sit on the Treasury Bench. Instead of living up to that honour, the Conservative party is hopeless, reckless, callous and weak. There is no consent for this Government’s ideas, and they should be driven out of office. If they really are such a confident group of free thinkers, surely they have nothing to fear from taking their pitch to the country.
The Economic Secretary to the Treasury (Richard Fuller)
It is a pleasure to close this debate on behalf of the Government. I thank all hon. Members for their contributions to this relatively short debate. I think it is fair to say that none of us came here expecting to find a perfect consensus, but it was rather pleasing to hear the measure welcomed by the Opposition spokesperson, the hon. Member for Ealing North (James Murray), the SNP spokesperson, the hon. Member for Gordon (Richard Thomson), the Liberal Democrat spokesperson, the hon. Member for Richmond Park (Sarah Olney), and the hon. Member for Glenrothes (Peter Grant). I thank all those Opposition Members for their support.
I thank my hon. Friend the Member for South Suffolk (James Cartlidge) and my long-standing hon. Friend the Member for Macclesfield (David Rutley) for their speeches and my hon. Friends the Members for Winchester (Steve Brine) and for Salisbury (John Glen) for their interventions. If there was one message from the four of them, it was on the importance of fiscal responsibility. That was heard loud and clear, and it has been resonated by the Chancellor again and again, including today. Truly, it is the essence of conservatism, as my hon. Friend the Member for South Suffolk said. I noted what my hon. Friend the Member for Macclesfield said about the Treasury working more closely with the OBR and about the engagement requested by the Chair of the Treasury Committee. I assure him that the Treasury team will engage as he has suggested.
This has been a serious debate for the most part. It looked like it was getting into levity at one point, when the hon. Member for Arfon (Hywel Williams), who unfortunately is no longer in his place, volunteered to be a member of the anti-growth coalition. He said it was important that there was a free lunch. The hon. Member for Gordon spoke about not joining a club and invoked Marx, although not the Marx who was the favourite of the former Opposition spokesperson on finance.
At times, there were clear points of ideology in respect of the plan. It is clear that the purpose of the Chancellor’s growth plan is to improve lives across the country over the long term. Growing the economy must be our guiding mission, and with this Government it is. We will do so through lower taxes, through improved infrastructure, by supporting skilled employment, by removing barriers to investment, by getting the housing market moving, by making Britain an even better place to do business and by ensuring that people who earn money keep more of it so that they can make their own decisions—that includes our businesses.
I heard from the Opposition spokesperson that their plan comprises two aspects. First, it is the Government—a Labour Government—who should decide the right way to achieve growth in this country, rather than the wealth creators and businesses. Labour wishes to make those decisions on behalf of all of us. Many of us on this side of the House know where that sort of central planning ends up.
Secondly, those with the broadest shoulders should bear the burden. I just warn hon. Members to measure how broad their shoulders are. My fear is that it is not those with broad shoulders but anyone with shoulders who bears the burden. My point is this: the starting position for Labour’s plan is that this year, 2022-23, those in the top 1% of the income distribution are estimated to receive 13% of all income, but already pay 30% of all income tax liabilities. Those in the bottom 50% of the income distribution are estimated to pay only 8.3% of all income tax. When Labour says that it wants to fund its plans through general taxation, it is not looking for the 1% to pay; it is looking for people on average and low incomes to pay. The Conservative party does not think that is the right way to achieve growth.
Richard Fuller
I will come to the hon. Gentleman if I have time.
The Liberal Democrat spokesperson gave a very good speech and raised important broader issues. She welcomed the measure and spoke about the costs that have been paid by people and businesses—she gave the figures £2.5 billion and £3.8 billion. That underlines the important contribution this measure will make by putting money back into the pockets of households as they face the winter crisis and into the hands of businesses as they make their investment decisions.
The hon. Lady kindly spoke about her past as an accountant—not everyone would necessarily volunteer their past as an accountant. She spoke about some of the disruption there has been. I assure her that I have spoken, as has HMRC, to payroll software companies to assess what the level of disruption has been and whether this additional change will cause further disruption. In my conversations with them, they have said that there have been minimal costs to date and that the reversal will have minimal costs for them. That is just a selection of payroll software companies—there are others—but I can give her some assurance that there has perhaps been less disruption than she feared.
Sarah Olney
I thank the Minister for that assurance, but the point I was making was not so much about the technical implementation; I totally take his point that it is a software change. The point I was making was more about headcount forecasts and how many staff businesses can afford to take on. Changing the national insurance contribution that businesses make has a material impact on those forecasts and will have had an impact on how many new jobs have been created.
Richard Fuller
That is an interesting point, and it probably is worthy of further investigation. On the day when we have announced that the country has more vacancies than unemployment, and unemployment is at a long-term low, one would think that that impact has not been significant, but it is an issue that is worthy of further investigation. The other point that the hon. Lady made about the impact that hospital discharges may be having on social care—she talked about the hospital in her constituency—is a relevant one, and I am sure that it will be taken up by my right hon. Friend the Secretary of State for Health and Social Care.
The hon. Member for Liverpool, Riverside (Kim Johnson) asked, as others did, whether the changes to the levy will change the funding previously announced. I can assure her that the levy change makes no difference to the funding outlined.
Other points were made, and we will have further discussions in Committee. My right hon. Friend the Chief Secretary to the Treasury made the point that the reversal of the levy is part of a much greater sum. Above all, it is about achieving the sustainable growth that this country needs and deserves. That is our mission as a Government, and it is the purpose of the Bill. I commend it to the House.
Question put and agreed to.
Bill accordingly read a Second time; to stand committed to a Committee of the whole House (Order, this day).
Further proceedings on the Bill stood postponed (Order, this day).
Health and Social Care Levy (Repeal) Bill (Money)
King’s Recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Health and Social Care Levy (Repeal) Bill, it is expedient to authorise:
(a) the payment of sums by the Secretary of State out of money provided by Parliament to His Majesty’s Revenue and Customs for payment into the National Insurance Fund, and
(b) the payment of sums out of the National Insurance Fund into the Consolidated Fund.—(Amanda Solloway.)
Question agreed to.
Health and Social Care Levy (Repeal) Bill
Tuesday 11th October 2022
(2 years, 1 month ago)
Commons ChamberRead Full debate Health and Social Care Levy (Repeal) Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 11 October 2022 - (11 Oct 2022)
19:41 - The House divided: - Ayes: 190 / Noes: 257 - Question accordingly negatived.
The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)
With this it will be convenient to consider new clause 2—Assessment of revenue effects on health and social care of increases in the rates of taxes on dividend and capital gains income—
‘The Treasury must lay before the House of Commons within 30 days of the date on which this Act is passed an assessment of the merits of raising at least the same amount of revenue for health and social care as would have been raised by the health and social care levy by instead bringing the rates of taxation on dividends and capital gains income in line with existing rates of taxation of earnings.’
This new clause would require the Treasury to report on an alternative to using the health and social care levy to fund health and social care, by raising more tax revenue from dividends and capital gains.
Schedule stand part.
James Murray
We know that the Bill is straightforward in what it seeks to achieve: as clause 1 sets out, it simply repeals the Health and Social Care Levy Act 2021. Ministers are asking us today to overturn a piece of legislation that they and their colleagues strained to defend and voted in favour of a little over a year ago.
As I set out on Second Reading, we welcome Ministers scrapping the tax rise on working people introduced by last year’s Act, but while the levy was not due to come in until April 2023, and the Bill means that the levy will never be charged, the Act also raised national insurance contributions for the current financial year 2022-23 as a transitional measure. As clause 2 confirms, the Bill keeps national insurance contributions at that higher level for the first seven months of this year, before letting them return to their previous levels from November. The decision by Ministers to scrap the national insurance rise is, of course, better to have come late than never, but this in-year change means that yet another cost will be paid for through working people’s taxes, as public money pays to undo the mess created by the Tories having made the wrong call last year. The explanatory notes to the Bill confirm that there will be a cost of an in-year change. Under “Financial implications of the Bill”, they state:
“HMRC anticipates increased call volumes and customer contact as a result of the in-year reduction of NICs rates. There will be delivery costs in implementing this policy. IT changes will be required to be delivered at additional cost to HMRC, to support safe delivery of this policy.”
All this could have been avoided if Ministers had simply listened to people across the country, to the Opposition, to Members on their own side, to the Federation of Small Businesses, the British Chambers of Commerce, the CBI, the TUC and so many others. If Ministers had listened, they would have realised that it was wrong to go ahead with this tax rise on working people in the first place. While we know that the U-turn before us will cost more than if Ministers had made the right call last year, we do not have a figure from the explanatory notes for exactly how much this will cost. On that point, the Bill’s notes simply say that
“Costings will be set out in due course.”
In other times, I might have read that statement and concluded that Ministers genuinely do not know the costings, but if their behaviour over the OBR report is anything to go by, it could be that they are simply refusing to publish those costings for political reasons.
It is because of this Government’s lack of willingness to subject themselves to transparent scrutiny that we have tabled new clause 1. New clause 1 would require the Chancellor to publish a report on the financial implications of the Act on the day that it comes into force. That report must make an assessment of the Treasury’s plans to raise an amount of revenue equivalent to the proceeds of the levy in the context of its approach to general taxation and borrowing.
As I mentioned on Second Reading, the Economic Secretary to the Treasury confirmed in a letter sent to the shadow Chancellor and the shadow Secretary of State for Health and Social Care on 22 September that:
“The additional funding used to replace the expected revenue from the Levy will come from general taxation and may require further borrowing in the short-term.”
We already know that borrowing is set to soar thanks to the Government’s disastrous and discredited approach to the economy. We know that their approach has inflicted huge harm on our economy, damaged our international standing and pushed up mortgage payments for households across the country. We know in particular that the Government’s failure to publish the OBR report showing the detail behind their approach has aggravated the spooking effect on markets. Through our new clause, we would require the Government to explain how they will maintain the funding equivalent to the levy, given their wider reckless decisions on borrowing and the economy.
New clause 1 refers to general taxation. As Members may recall, when they announced the health and social care levy last year, the former Prime Minister and Chancellor explained that, alongside the national insurance increase, the Government would also increase taxes on income from dividends at the same time. On 7 September last year, the previous Prime Minister, the right hon. Member for Uxbridge and South Ruislip (Boris Johnson), said:
“because we are also increasing dividends tax rates, we will be asking better-off business owners and investors to make a fair contribution too.”—[Official Report, 7 September 2021; Vol. 700, c. 154.]
The question arises of why the current Prime Minister and Chancellor have decided to cut this tax rate from April 2023. They do not need to scrap the dividends tax rise as part of the repeal of the Health and Social Care Levy Act—the dividend rate does not appear in that Act—but they have none the less committed to doing so. I would be grateful if the Minister could set out whether he agrees with the former Prime Minister’s argument that having a higher tax rate on dividends means asking better-off people to make a fair contribution. If so, can he confirm why the Government have decided that it is the right time to cut taxes for those who are better off, even if that means greater borrowing funded by all taxpayers?
As I have made clear throughout, we are glad that the Government are using the Bill to finally scrap this tax rise on working people, but it is clear that taxpayers will pay yet again to fix the mess the Tories have created, that Ministers are planning to again cut taxes for those they have described as the better-off and that this Government are desperate to avoid scrutiny of their plans. It is with that final point in mind that we ask Conservative Members who are uncomfortable with their Government’s approach to join us in supporting new clause 1.
Our new clause would simply require the Treasury to be transparent about how it will replace the money for health and social care that will no longer accrue from the health and social care levy, in the context of its wider approach to taxation, borrowing and the economy. As we have heard throughout the day in Parliament, there is widespread concern that the Government’s plans do not add up and that their lack of transparency is making matters worse. Our new clause makes clear to Ministers that this must change.
Steve Brine
I was not planning on speaking, but there are a couple of points that I would like to put on record, as a former Health Minister. I will not revisit the debate on the leadership campaign in the summer, or support new clause 1. I listened carefully to the hon. Member for Ealing North (James Murray) setting out his argument, and I have some sympathy with some of it, as he probably gathered from some of my interventions earlier.
I was happy to support the Second Reading of this repeal Bill—not that we had a Division on it. The Bill was well trailed throughout the ridiculously long leadership campaign in the summer; I do not think that that was the issue that spooked the markets at the time of the fiscal event a couple of weeks ago.
As my hon. Friend the Member for South Suffolk (James Cartlidge) said so eloquently on Second Reading, this is probably the most important debate that we could be having; I am miffed that the House of Commons is so quiet. It is about funding the British public’s No. 1 priority: the national health service. It was about that when we passed legislation on the levy, and it is about it now that we are repealing it. The issues have not gone away. I will listen carefully when the case for new clause 2 is outlined, but new clause 1 looks down the wrong end of the telescope. My hon. Friend cited the Office for Budget Responsibility’s projection that NHS funding will, in coming years, go from about 10.3% to 17.5% of GDP. Those are eye-watering figures. I have to say, as a former Minister for public health, primary care and prevention, that we cannot simply carry on that curve.
I want to put on record my points on three or four of the big challenges that the health service faces. If the Government let ideology get in the way of facing down those challenges, future generations—and Governments, whether Conservative or Labour—will pay the price. Take obesity. UK-wide, the NHS costs attributed to being overweight and obesity are projected to reach £9.7 billion by 2050. When I was in the Department of Health, we wrote the child obesity strategy. It is fair to say that the former Prime Minister, my right hon. Friend the Member for Uxbridge and South Ruislip (Boris Johnson), did not like a lot of it when he was running for the leadership of our party. In fact, I think he referred to the sugar tax as a sin tax, but—let the sinner repent—he came round to it. Now I hear rumours that it is for the bin.
I hear rumours that many other measures, including those around price promotion—"buy one, get one free”, as it is colloquially known—are also potentially for the bin, because we do not want to be seen as a nanny state. This from the state that recently passed a law making it illegal to leave the house without good reason. Sometimes, the state does things in the interests of the population that it serves, and there is no shame in that. If we do not tackle the obesity challenge, it will have not only a big financial impact on the NHS, which we are talking about how to fund, but a big social impact.
That takes me to my second point, which is on cancer. Around four in 10 cancers today are preventable. Smoking causes at least 15 different types of cancer. It is the biggest cause of cancer in the world today. Earlier, the hon. Member for Stockton North (Alex Cunningham) mentioned the smoking cessation plan, which I published when I was in office, and subsequently updated. We are still waiting for its revision. Press reports say that it is to be dropped as well. I gently suggest that that would be a massive own goal for our Government, and for the NHS, which we argue about how to fund.
Alex Cunningham
I thank the hon. Gentleman for his kind comments. I think that he will agree that the savings that could be made in the longer term by implementing an effective tobacco control plan are absolutely massive; both the Department of Health and Social Care and the Treasury could derive tremendous benefits from it very quickly, if they act properly.
Steve Brine
Without question. We had some success with our tobacco control plan, but progress has stalled. We cannot ignore the pandemic, as the Opposition Front Benchers sometimes try to, and I understand that it disrupted the smoke-free England plans, but we need to get back to it, for social reasons, and for economic reasons relating to the health service that we seek to fund.
I am sure that right hon. and hon. Members from across the House have heard of the “Be Clear on Cancer” campaign, and of the “Touch, Look, Check” message encouraging women to check their breasts. I lost my mother to breast cancer; it destroyed much of my family. I brought a ten-minute rule Bill on the subject to the House earlier this year. Breast Cancer Now tells me that it thinks that there are 12,000 undiagnosed breast cancers in this country today. One does not need to be a genius, a former Health Minister or a breast surgeon to understand what that could mean: undiagnosed breast cancers move beyond stage 1, into 2 and 3, when they are untreatable. That is what happened to my mother, and I do not want it to happen to others. If the nanny state means implementing “Be Clear on Cancer” campaigns to help people avoid cancer, I am a nanny state-ist.
David Rutley
My hon. Friend makes an important point about raising awareness, particularly on public health, and I support the points that he makes, but does he agree that, at this time of real challenge, it is also important to drive public awareness of how to use energy more efficiently, in order to help people with their fuel bills?
Steve Brine
I know why Dame Rosie is smiling: she thinks that I have possibly attempted to fit my Second Reading speech into this response to new clause 1. If I go down the road of energy policy, I may test her patience. All I would say to my hon. Friend is that, if the energy price guarantee was a price cap, and people could not pay more than the amount at which the cap was set, there would be some argument for not having a public campaign advising people on their energy use. It is not a cap; it is an energy price guarantee. If people use more energy, they will pay for more energy. It therefore seems logical to me, on lots of levels, to help people save energy—but what do I know?
I was just coming to diabetes. The NHS spends about £10 billion a year—that was about 10% of its budget, when I was in the Department—on diabetes care. That is a phenomenal amount of money, yet type 2 diabetes is preventable and, as we have heard from Members, people can turn it around. Why would we not want to encourage people to manage their weight better, when weight is one of the big drivers of diabetes?
Finally, stoke is a big killer in this country. It costs the NHS billions. During conference recess, I visited a group in my constituency called Say Aphasia—I figured it was a better use of my time. I met a group of 15 men who had had strokes. One was two years younger than me. They had severe communication difficulties. I see my hon. Friend the Member for Bury St Edmunds (Jo Churchill), a former public health Minister, by the Front Bench. She knows what I am going to say. Why would we not want to help the NHS prevent stroke through a proper salt reduction strategy? Given my surname, when I tried to suggest one to the Department, it caused some amusement among officials, but I think it is the right thing to do. If we cannot prevent stroke, I will meet a lot more people like those I met in the Say Aphasia group last week. Their ongoing cost to the NHS is significant.
In conclusion, the point I am trying to make, and maybe I am not making it very well, is that, if we do not believe in prevention—and in my heart I believe that those on the Front Bench do believe in prevention—the costs of the NHS predicted in the OBR book are going to look quite conservative. I think I am right in saying that those projections include this levy being in place, not repealed—
Steve Brine
And corporation tax, as my hon. Friend says from a sedentary position. If we believe in prevention—and, as I say, I believe that those on the Front Bench do—we need to have the courage to act on that. That will mean doing unpopular things, but sometimes we have to do unpopular things to do the right things, and that means preventing some of the major killers and some of the major causes of ill health that I have mentioned. If we do not do that, the NHS will continue to cost unsustainable amounts of money and it will become unsustainable. There endeth the lesson of Dr Brine.
Richard Burgon (Leeds East) (Lab)
I want to focus my remarks on my new clause 2. I thank the 25 right hon. and hon. Members who added their signature to mine on the amendment paper, and I am pleased that it has support from Plaid Cymru, Alba, Labour, Green, and Social Democratic and Labour party MPs.
The Conservative party was wrong to introduce the health and social care levy, so it is right that it is being scrapped, but it is wrong that the Government are imposing a package of unfunded tax cuts, which have created financial panic and led to interest rates shooting up and millions of people fearing how they will keep their home. The package has created a Tory crisis made in Downing Street, but being paid for by working people.
As I say, I welcome the scrapping of the levy, but of course health and social care still need the extra funding that it would have raised. We only have to look at today’s news about how the number of social care workers has fallen for the first time in a decade to see just how broken our care system is, and rising waiting lists and soaring ambulance waiting times show that the NHS is in dire need of a funding boost. So my new clause 2 would require the Chancellor, in addition to scrapping the levy, to look at different taxes to raise the income that would have been raised by the levy. Specifically, it calls on the Chancellor to look into the iniquity of tax rates on wealth being lower than the taxes paid on income from work.
We are, I am afraid, one of the most unequal countries in Europe when it comes to income distribution, but it is even worse when we look at wealth. The richest 1% hold almost a quarter of UK wealth, so we need a full and wide debate in our country about wealth taxes. I have been calling for a wealth tax—for example, a one-off wealth tax of 10% on wealth over £5 million, which could raise £100 billion and provide an emergency wealth fund to help get us through this crisis—but today, with new clause 2, I want to concentrate not on the taxing of wealth itself, but on taxes on income deriving from wealth.
We have a scandalous situation in our society in which income derived from wealth is taxed below income derived from work. If someone is lucky enough to be able to live off share dividend payouts, they will pay less in tax than someone who earns exactly the same amount by getting up each and every day and going out to work. Likewise, capital gains tax, which is paid on profits when selling assets such as a second home, is paid at rates below income tax rates. How on earth can that ever be justified, and how can it be justified when the Government are plotting—without any democratic mandate, I would add—to cut benefits and public services across society?
In fact, there is huge potential for increasing tax revenues by simply ending the significant tax discounts that go to income from wealth over income from work. How much would be raised by doing this? Ending the lower rates paid on capital gains and share dividends, and removing the related exemptions on those taxes, would raise around £24 billion per year. That is a lot more—nearly double—than the amount from the national insurance tax hike on working people, which would have raised around £12 billion to £13 billion. The funds that my proposal would raise could be a big down payment on the investment that we need to ensure our social care system delivers for everyone, and it could make a big difference in addressing the crisis in our health service.
For those on the Conservative Benches who may be appalled by this idea or this moderate proposal, I want to point out that the former Chancellor—not the last one, but the one before, the right hon. Member for Richmond (Yorks) (Rishi Sunak)—commissioned a review of capital gains tax, and that review recommended slashing the annual allowance and aligning capital gains tax rates more closely with income tax, in a move that could raise billions of pounds for the Exchequer. On this, Margaret Thatcher, even, had an interesting view. Under Thatcher’s premiership, the same basic unfairness of lower taxes on capital gains was ended. It was back in 1988 that the then Chancellor, Nigel Lawson, said that
“there is little…difference between income and capital gains, and many people effectively have the option of choosing…which to receive. And…it is by no means clear why one should be taxed more heavily than the other.”—[Official Report, 15 March 1988; Vol. 129, c. 1005.]
Since then, wealthy people living a low-tax lifestyle have been benefiting from even lower capital gains rates than over 30 years ago, so something has gone wrong and it is now time to put that right. We need solutions to deal with this economic crisis in a socially just way, not through austerity, not through benefits cuts and not through public service cuts. Social justice means putting tax justice at the heart of our economy. We should start by ensuring that those who live off their wealth pay at least the same level of tax as those who live off their own work.
John Redwood (Wokingham) (Con)
I disagree with new clause 2 and new clause 1. I welcome very much the legislation. One of the objectionable features of the original proposal was hypothecation, because I do not think it is possible to identify a single tax that just happens to meet the costs of a particular service, let alone a tax that would then have revenue growth at the right pace to take care of the needs of that service. This one was particularly misleading. There was no way that the amount of tax to be levied got anywhere near paying the full costs of social care. It was misleading to make people feel that social care might be as cheap as this particular tax, although the tax itself was burdensome on all those who go to work.
There are still strong elements of hypothecation in new clause 2, which I would equally object to. Again, we should not mislead people into believing there is a simple, relatively low tax that takes care of a huge problem—social care. Indeed, when the Government compounded the difficulty by saying that in the first instance the tax would be mainly used for the health service, and by some magic that would drop away and it would go to social care, it all became incredible to me. That is why I did not like the idea in the first place. It is very good news that we are sorting it out.
The challenge of new clauses 1 and 2 is a perfectly fair one, and I think the answer is straightforward. Social care does need more money to go into it, and it will need progressively more. If we fund our social care better and expand it, it will release some of the pressures on the NHS. There are some people who could vacate a bed quite safely and get better social care if that were available, so this is worthwhile expenditure from that point of view as well. Above all, it is worthwhile expenditure because people deserve better care and better treatment and that should be funded out of general taxation.
The Government are right now to abolish the hypothecated specialist tax, to give up the idea that there is a single, relatively low tax that solves all the problems, and to accept that social care and NHS provision together is a major claim on the general taxation of the country. If the general taxation of the country does not reach total spending—it does not seem to at the moment—it is also a claim on borrowing.
On that last point, we should remember that for the previous two years the Office for Budget Responsibility grossly underestimated the revenues that came into our economy, and we borrowed considerably less than it was forecasting. It may not be so wildly wrong this year, when it looks perhaps as if its borrowing forecast is a bit on the low side, but we must remember that the way to pay for these services is to grow the revenue. That was what we were doing last year and the year before, and that is what we must do next year, to take care of the need to spend more on the NHS and social care.
Lloyd Russell-Moyle (Brighton, Kemptown) (Lab/Co-op)
I rise to support new clauses 1 and 2, and I suspect we will soon vote on new clause 1. Let us be clear: the economic issues we are now facing—rising interest rates for homeowners, and a crashing of confidence in the British economy—are partly because the Government will not produce proper, transparent plans about how they are managing tax and spend.
New clause 1 would force the Government to publish proper documentation on how they will manage that expenditure. We cannot scrimp and save any more on social care, and while it is right to reverse this tax, which was pernicious and hurt the poorest the most, the Government’s failure to outline how they will raise the revenue and properly spend it will cause more chaos and more lack of confidence in the Government. It will contribute to the ongoing crisis in interest rates, and it will end up hurting hard-working people in this country again. Although the reversal of this tax is welcome, without proper analysis the danger is that people in this country will still pay, but they will be paying not through tax to the Government, but through pernicious interest rate rises to lenders and banks. That would be worse than the current situation.
Social care needs to be funded. Brighton and Hove City Council spends £154 million a year on adult social care. That is care for older and disabled people—social care in all its forms. It only raises £160 million through council tax and the precept, so it has only £10 million discretionary funding, although of course it gets grants for schools and other non-discretionary funds. That is the same up and down the country. It is no good just finding Treasury money to support an expanding need for social care; it is a scandal that any penny of council tax is going on adult social care at all. No voter I ever speak to thinks it is appropriate for council tax to be spent on adult social care. Council tax should be for council services, universal services, and ensuring that our local areas are better, more prosperous and thriving. Every person I speak to thinks that social care should be centrally financed. Yes, councils should deliver it, just as they do with education and other services, but the grant must be fully funded by the Government. That the Government have not outlined how they will do that, or have even a long-term plan to do that, continues the pressure and burden on councils and is wrong.
Not only is it wrong, but there is another way of doing it. That is why new clause 2 is so important. It starts to set out the alternatives, and my hon. Friend the Member for Leeds East (Richard Burgon) stated that we should be looking at taxing income from wealth. It is a scandal that generations after generations have squirreled away wealth, hiding it away like Monopoly money on a Monopoly board, and they are then able to generate money from doing almost diddly squat. That is wrong when hard-working people are toiling and paying a higher rate.
There are other ways that the tax could be raised, such as abolishing the upper earnings limit and the scandal of people who earn more than £50,000 paying only 3.25%—less once the levy is abolished—on national insurance. That rich people pay less national insurance as a percentage of income than poorer people is a national scandal. Rather than a progressive tax, it is an innately regressive tax. The poorer someone is, the more they pay; the richer they are, the less they pay as a percentage. If that was abolished and we had a flat tax for everyone, that would have raised £10 billion more than this failed tax U-turn. The Government would have been able to fund all they wanted. It would have been fair, and it would not have hit poorer people. There were many alternatives and the Government did not pursue any of them.
Last week I visited my local A&E at Royal Sussex County Hospital. Fantastic nurses and doctors were working their socks off, and the management were trying to cope with reducing resources. What did I see? Tens of people in beds in corridors, and more than 30 people in waiting chairs, waiting not to be treated in A&E but to be moved on to adult social care or other wards in the hospital. One person had waited for 23 hours, and another who had been discharged the day before had been waiting in A&E for four days. Why is that? It is because our social care system is failing. People are leaving in droves because there are no national terms and conditions and no decent pay. It is a disgrace that care workers earn less than £10 an hour in Brighton and across the UK. They are on poverty wages yet they do such important work.
We need a proper plan for how social care will be paid for. It is no good for the Government to remove this pernicious tax and then come forward with no plans, no ideas, no nothing. This Government have run out of ideas, and Conservative Members have run out of a future for this country. All they are in now is a quick “grab as much as they can” in the next two years, before they lose the election. It is not right for this country. We need them to move aside because Labour has the ideas. Labour has the plan for adult social care, and for everything.
Richard Fuller
New clause 1 was tabled by the hon. Member for Ealing North (James Murray), and he raised two specific points. One was on the direct cost that HMRC will incur as a result of this Bill, and he is right; there will be some additional costs. It costs to make these changes, and there will also be costs in future months from additional calls that may come into HMRC. Those numbers have not yet been fully quantified, but I will write to the hon. Gentleman with those costs when we have them. I do not think this was the intent of his question, but on the changes to dividend tax rates, the 1.25% cut will be implemented from April 2023 and is not taking place this year.
Overall funding for health and social care services will be maintained at the same level as if the levy was in place, and we will do that without the tax increase. The Chancellor and the Government are committed to fiscal sustainability, ensuring that debt to GDP falls over the medium term, and the Chancellor will set out further details in his medium-term fiscal plan on 31 October. Strong growth and sustainable public finances go hand in hand, and maintaining fiscal discipline over the medium term will provide the confidence and stability to underpin long-run growth. In turn, faster growth can promote confidence in the UK economy and lead to higher tax revenues without the need to raise levels of taxation. That broader context of the medium-term fiscal plan in the round is the right way to assess these changes, not via the specific measures in new clause 1. I therefore urge the House to reject the new clause.
I will make a point to my hon. Friend the Member for Winchester (Steve Brine), who rightly spoke about the importance of prevention. To reassure him, the Department’s spending review settlement provided £2.3 billion over the spending period to transform diagnostic services and funding to enable local authorities to invest further in prevention through the public health grant.
I turn to new clause 2, tabled by the hon. Member for Leeds East (Richard Burgon) and supported by the hon. Member for Brighton, Kemptown (Lloyd Russell-Moyle), who I was interested to hear advocating flat taxes—I look forward to further discussions with him about the merits of flat tax rates. There are key differences between the tax bases of earned income, capital gains and unearned income such as dividends. For example, employers also pay national insurance contributions on employment earnings, which broadens the base of revenue from national insurance contributions across employers, employees and the self-employed. In practice, if the taxation of dividends and capital gains were aligned with the taxation of earnings, we could expect to raise less than the levy was forecast to do due to the size of the tax bases and the significant behavioural responses by both tax bases. One of the key points that the hon. Member for Leeds East misses is such behavioural changes when we seek to change certain taxes in a significant way.
Unlike the Opposition, the Government are committed to lowering taxes, not raising them. We have already committed to reversing the 1.25 percentage point increase in dividend tax from April 2023, as I said, to drive growth and investment, and the Chancellor of the Exchequer will publish the medium-term fiscal plan on 31 October. I therefore urge the House to reject new clause 2. With thanks to those hon. Members for tabling their new clauses, I hope that they are satisfied with my explanations and that the hon. Member for Ealing North will not press his new clause to a Division.
Question put, That the clause be read a Second time.
Jim Shannon (Strangford) (DUP)
I will not detain the House any longer than I need to; I just want to put on record my concerns for those who are on £9 an hour and those who are also what I refer to as the working poor. While I welcome where we are, I will steal the phrase of a well-known supermarket: “Every Little Helps”. Tonight’s bit will help and it will go a long way. However, we need to do much more than this little measure. When it comes to moving forward, for the working poor—those across this United Kingdom of Great Britain and Northern Ireland—this repeal Bill is necessary at this time, and I am glad it is here. Investment in families is also necessary, especially the working poor, who were doing fine two years ago and are not doing as fine now. I just wanted to make those pithy comments, Madam Deputy Speaker.
Question put and agreed to.
Bill accordingly read the Third time and passed.
Health and Social Care Levy (Repeal) Bill
Wednesday 12th October 2022
(2 years, 1 month ago)
Lords ChamberRead Full debate Health and Social Care Levy (Repeal) Act 2022 Read Hansard Text Amendment Paper: Committee of the whole House Amendments as at 11 October 2022 - (11 Oct 2022)
Health and Social Care Levy (Repeal) Bill
Monday 17th October 2022
(2 years, 1 month ago)
Lords ChamberRead Full debate Health and Social Care Levy (Repeal) Act 2022 Read Hansard Text Watch Debate Amendment Paper: Committee of the whole House Amendments as at 11 October 2022 - (11 Oct 2022)
Viscount Younger of Leckie
That the Bill be now read a second time.
Viscount Younger of Leckie (Con)
My Lords, I am pleased to open the debate on this Bill. The health and social care levy was announced only last September and then made its way through Parliament to become the Health and Social Care Levy Act 2021. This Bill, if passed, repeals this legislation. I intend to set out the background to this, the consequences of this Bill and to provide some reassurance on its impact.
First, I shall make a few comments about the events which have taken place over this weekend and this morning, which provide a backdrop to this legislation. The Government, as we are aware, have a new Chancellor who, with the backing of the PM, has continued to emphasise the importance of achieving economic growth, not for its own sake but because of the benefits it will bring to communities across the country: higher wages, better public services and greater opportunities for all.
As the Chancellor has set out this morning, there can be no economic growth without fiscal credibility. That is why the Government are acting decisively today to get the public finances under control. As well as confirming that we will not proceed with the planned reduction of corporation tax from 25% to 19%, the Chancellor has set out further steps this morning to support confidence and, vitally, stability. The Chancellor is setting out further details in the other place shortly and a Statement will follow here, in discussions with the usual channels.
It is in the whole country’s best interests for the Government to act decisively, at scale, to regain the confidence and trust of financial markets. On 31 October, the Government will publish a credible plan to get debt falling as a share of the economy over the medium term, backed by the judgment of the independent Office for Budget Responsibility. For that plan to be credible, there will be more difficult decisions to come across tax and spending. The Chancellor has made a promise that, in doing so, we will always act in line with our values, seeking to protect vulnerable families and back businesses at the same time. The repeal of the health and social care levy should be viewed, therefore, in the context of this continued commitment to support families and businesses.
The levy was originally introduced to help put the NHS and adult social care on a sustainable footing. However, given the financial pressure on households, it is right now to reverse the levy. There is a reasonable question to be asked about the long-term impact on health and social care. Overall funding for health and social care services will be maintained at the same level as if the levy were in place.
The Deputy Prime Minister and Secretary of State for Health and Social Care recently set out details of her priorities for the health and social care sectors in the booklet Our Plan for Patients. The Government will seek to expand on this in due course. The Deputy Prime Minister’s plan includes a £500 million adult social care discharge fund that will help people out of hospitals and into social care support, while providing support to the social care workforce.
Noble Lords will forgive me if I briefly touch on how we got here. The health and social care levy was originally announced last September, as I mentioned earlier. The Health and Social Care Levy Act 2021 made its way through Parliament soon afterwards and received Royal Assent on 20 October. The levy had two key elements: first, a temporary increase in national insurance contribution rates of 1.25 percentage points for the 2022-23 tax year; then, from April 2023, a formal legal surcharge of 1.25%, which would also affect those working over the state pension age. As a result of this Bill, neither of those will now happen. To be clear, this Bill repeals that legislation, reversing the temporary NICs increase from 6 November 2022 and ensuring that no new levy comes into force in April 2023.
What does that mean for people around the country? All employees earning more than the annual equivalent of £12,570 and self-employed people earning more than £11,908 in 2022-23 or £12,570 in 2023-24 will benefit. The average saving is around £330 in 2023-24, with an additional average saving of around £135 over the remainder of this year. Some 60% of businesses, 920,000 of them, will see an average tax cut of £9,600 in 2023-24.
I note that businesses which benefit from the employment allowance already pay no national insurance contributions at all. The employment allowance was increased from £4,000 to £5,000 in April 2022, meaning that businesses and charities which had employer NICs bills of £100,000 or less in the previous tax year can claim up to £5,000 off their employer NICs bill. Thanks to the employment allowance, a further 20,000 businesses will be taken out of paying NICs altogether in 2023-24.
Taking into account the threshold changes made earlier this year, almost 30 million people will be better off by an average of over £500 in 2023-24. I realise that that is quite a lot of detail to digest, but the bottom line is this: reversing the levy delivers a tax cut for 28 million people worth, on average, £330 every year. It also delivers a tax cut for nearly a million businesses, in turn boosting economic growth, as I said at the beginning. Crucially—
Viscount Younger of Leckie (Con)
If I may finish my remarks, as they are nearly finished, that would be very helpful. I encourage the noble Lord to ask some questions during the debate.
Crucially, as I said earlier, reversing the levy has no bearing on the funding of health and social care services, because the Government will maintain funding at the same level as if the levy were remaining in place.
To conclude my opening remarks, the Government’s reversal of both the levy and the temporary NICs rise will make a significant difference to the lives of millions across the country. It will also have no impact on the provision of health and social care services. The Chancellor has promised that we will continue to support families and back businesses; we will keep those promises. I beg to move.
Baroness Brinton (LD)
My Lords, I declare an interest as a vice-president of the Local Government Association. I am opening from the Lib Dem Benches today to focus on the health and care sectors, their need for core funding and the current crises they are facing—not least, as we need to remember, that people are dying waiting for ambulances or in ambulances outside A&E, and that those fit to leave hospital cannot do so because the care they need is not available, whether in a care home or through domiciliary care, where staff deliver care to people in their own homes. My noble friend Lady Kramer will focus on the Treasury mechanisms when she speaks later.
The journey of the Conservative Government since 2015 is from being a party that used to pride itself on being economically responsible to one now deemed by the public to be unfair and irresponsible, with crises happening so fast it is hard to keep up. Indeed, Wikipedia has recently had to put up a notice on the page called “2022 United Kingdom government crisis”. Underneath, it says:
“This article is about the mass resignation of ministers from the Johnson government in July 2022. For the Truss government crisis resulting from the September 2022 mini-budget, see ‘September 2022 United Kingdom mini-budget’.”
Before today’s debate, we had to wait until 11 am this morning to hear whether the Health and Social Care Levy (Repeal) Bill would indeed be debated today in your Lordships’ House. I do not think it is surprising that we are debating it, but we were all told that we had to wait to hear what the new Chancellor had to say. The former Chancellor, the IEA, the TaxPayers’ Alliance and even the Prime Minister now seem to be pushed sideways by the appointment of Jeremy Hunt. As we start this debate, the PM should be in the Commons responding to an Urgent Question—but she is not.
The Minister referred to the context for the original Bill. All stakeholders in the NHS and social care recognised that our social care system was fundamentally broken and had been for some decades, not least because of the very poor levels of funding for state-funded social care. The result of this was the escalating care fees for self-payers but continued very low pay for front-line staff—whether nurses, care assistants, supervisors or allied healthcare professionals—because of the public funding provided for them.
Things are so bad now that a care worker with five years’ experience is paid 7p an hour more than care workers with less than one year’s experience. The average care worker is paid £1 per hour less than healthcare assistants doing a very similar role in the NHS. As a result, the NHS is now directly recruiting staff from our already depleted care sector, and staff turnover in the sector is 29%. Your Lordships’ House has often discussed the problems of the NHS workforce, but social care is even worse off.
All this is primarily because the Government’s historical allocation to local government to fund the fees for those who cannot pay for themselves has slipped very badly. It has got so bad that most domiciliary workers are not paid for driving between clients, which results in these dedicated staff receiving less than the living wage simply because of the time it takes to travel. Three years ago, the Government agreed that it was inappropriate to allocate care packages of 15 minutes because it is almost impossible for a carer to get a client up, wash them and prepare their breakfast in that time, but they persist because there is not even enough funding for these basics. Care assistants leaving the care sector are receiving even higher wages in hospitality and retail. As a statement on our priorities as a country, that is shocking.
When the levy was announced earlier this year to great fanfare, it was recognised that at last there would be a mechanism to start to remedy this. Whether that mechanism, through national insurance, is the right one is not for debate today, because the Government chose that route earlier this year. There was one caveat, which the then Secretary of State outlined. For the first three years, the NHS would receive the proceeds of the national insurance levy to help it catch up post-pandemic, and an interim grant would be paid to the care sector to help develop its workforce and start to address the funding gap, but most of that would not kick in until after this year.
Therefore, in the mini-Budget in September, the then Chancellor—they move so quickly these days; we are now on the fourth since July—said:
“I can confirm that the additional funding for the NHS and social care services will be maintained at the same level.”—[Official Report, 23/9/22; col. 938.]
However, a briefing from the NHS Confederation says:
“Details remain unclear, but the approximate £2 billion the Treasury had allocated for the NHS to pay for their own employer National Insurance contributions to the new levy, will be reallocated. Part of this money will go towards the new”
half a billion pound
“Adult Social Care Fund announced yesterday by the new health secretary Thérèse Coffey.”
But this is smoke and mirrors. The £500 million is also covering winter costs, which were inexplicably left out of the NHS budget in March for this financial year, whereas there has been winter pressures money for the preceding five years. That left an enormous hole at a time when the NHS has been facing pressures at the level of the usual winter season right throughout this summer. This is not new money. Had the announcement not been made by the Secretary of State for Health and Social Care, it would have been an unforgivable dereliction by the Government. Worse, Health Service Journal reported on 6 October—so, after the mini-Budget—that increases in inflation will force the NHS to drastically scale back services. It faces £20 billion in efficiency savings because of the cost of goods and services.
Even worse, the day before, 5 October, Health Service Journal reported that the Government’s own new ground-breaking integrated care systems, which took over from clinical commissioning groups on 1 July, are already in deficit. Two out of three ICS funding plans are already in deficit because of the impact of inflation, Covid costs—which were not funded in the Budget for this year, despite numbers rocketing up to 200,000 new cases a day last week—and the increased spend on agency staff because of the continued struggle to retain and recruit staff across the NHS.
The funding from this levy was intended to help reduce the backlog of cases initially. When identified in the spring, the formal backlog was just over 5 million patients, including those with suspected cancers and other time-critical illnesses. Because of the pressures this summer in the NHS, not least due to the wave of Covid we had, last week it was announced that the waiting lists are now at 7 million. We should forget any idea that funding is available to reduce this significantly; it is not going to happen.
Today, the new Chancellor said that savings would be required from every department on top of the positions that they find themselves in now. For the NHS and Social Care sector, this is in direct contradiction to what his predecessor said a bare three weeks ago—and, frankly, a bit of digging showed that it was not quite the promise that Mr Kwarteng had made. Indeed, the Minister made that promise at the Dispatch Box just now.
The Minister and the Treasury try to reassure us that the consequences of this Bill are neutral. That is not the case. In the words of the letters that banks used to send out to clients about cheques, “The words and the figures do not agree”. Those fighting on the front line of our NHS and social care sector know this, and so do the public. The question is, does the Treasury understand the pressures that the NHS and the social care sector will face, not just because of, but partly because of, the repeal of this levy?
Lord Sikka (Lab)
My Lords, I speak with some trepidation, as I am not sure whether the Bill is still government policy; it may well have changed since this morning. I gather that Jeremy Hunt has already won the Chancellor of the week competition so he may well be moving on.
When the Health and Social Care Levy Bill had its Second Reading in this House on 11 October 2021, the then Minister said that the levy was part of the plan to tackle “the NHS backlog”. Since then, as the noble Baroness, Lady Brinton, mentioned, the NHS England waiting list has grown to 7 million people. Of course, that Minister, the noble Lord, Lord Agnew, became so disenchanted with the Government’s policies and practices that he resigned, so we do not know whether the Government stick to any of these promises; certainly, the NHS queue has increased. I hope that the Minister can answer a number of questions.
It was claimed that the £12 billion originally associated with this levy would be used to fund social care and the National Health Service. Can the Minister confirm that that £12 billion will still be provided in real, not just cash, terms? On 7 September, the Health Secretary said:
“Instead of having, in effect, a ring-fenced levy, we will be funding”
health and social care changes
“out of general taxation, so the investment going to health and social care will stay exactly the same.”
That is a highly ambiguous statement. It does not say whether that investment or funding will be the same in real terms or just nominal terms.
Of course, the NHS needs proper funding. Can the Minister explain when the queue of 7 million people will be reduced? In each of the 12 years that the Government have been in office, that queue has increased. It is part of the austerity measures that the Government have introduced. Between 2012 and 2019, 334,000 people died because of austerity. There is no record of any previous Government killing so many of their own people at the altar of economic ideology. Will the Minister tell us now that there will be no more austerity measures for the National Health Service and that this Government will not kill their own citizens any more? That is unacceptable.
At the end of 2021, the EU divorce bill stood at £36.7 billion. That was after paying £10 billion in 2020. Of course, we all remember Ministers telling us at the time of the Brexit referendum that vast amounts would be saved by coming out of the EU and that this would boost the NHS. Does the Minister agree that that was a complete lie and misinformation, because the Government have not properly funded the NHS? Hopefully the Minister can tell us how much has been saved by coming out of the EU and how much of that has gone to the National Health Service and social care.
The Government’s spin machine is promoting the view that the repeal of this levy will somehow promote growth, although no evidence has been provided to support that. Contrary to the numbers cited by the Minister earlier, let me cite for him an alternative analysis of the benefits of this levy repeal. The poorest tenth of the population will gain just £7.66 a year. The second-poorest tenth will gain £37.36. Then, it is £73.33, £143.52, £247.59, £375.89 and so on. The richest tenth will gain £1,802 a year from the repeal of this levy. That is wrong. Some 21 million adults will gain absolutely zero from this repeal because they are surviving, not living, on an income of less than £12,570 a year.
The gains to the poorest have already been wiped out by government-engineered inflation, wage freezes, higher energy, food and water bills, and higher mortgage charges and rental costs—and let us not forget the stealth taxes that the Government have imposed by freezing personal allowances and income tax thresholds. As usual, they are looking after the rich and nobody else. They could have reduced the rate of VAT to help the poorest, but they have chosen not to. They could have calibrated the repeal of the health and social care levy in such a way that the poorest received the most benefit, but the poorest are just ignored; they simply do not really count.
The Government should have taken the opportunity to reform national insurance contributions, a highly regressive tax, but again they have chosen not to. After this Bill is enacted, most employees on incomes of between £12,571 and £50,270 will pay 12% of it in national insurance. Incomes above that will incur a charge of only 2%. This is highly regressive and ensures that low and middle-income workers pay a disproportionately high percentage of their income in national insurance, compared to people with vastly higher incomes.
I am sure the Minister will defend the Government continuing to shower gifts upon the richest, but I remind him that in open letters and seminars in this building, patriotic millionaires have urged the Government to tax them more. Therefore, why will the Government not tax the rich more? Why will they not increase their national insurance contributions and help the people at the bottom? The recipients of dividends and capital gains, generally the richest in the country, use the National Health Service and social care but will pay zero national insurance.
Why are the recipients of capital gains and dividends let off making even one pennyworth of a contribution to national insurance? What is the case for that? It would be nice to hear from the Minister on that. Why are the Government giving them a free ride on contributions? By charging national insurance on dividends and capital gains, the Government could raise £15 billion. Why is that opportunity being shunned? I hope that the Minister will answer these questions.
Lord Macpherson of Earl’s Court (CB)
My Lords, I welcome the Minister’s opening remarks on the Government’s economic policy. The Chancellor should be congratulated for restoring a more sensible fiscal policy and a modicum of calm to the gilts market, and for listening to his Treasury officials.
Returning to the Bill before us, the health and social care levy has few friends, so I will probably make myself unpopular by speaking in its defence—a defence less of its detail, which I will come to, and more of the principle behind such a levy. On a day when the Chancellor has rightly unpicked much of his predecessor’s mini-Budget Statement, he may have missed a trick in not keeping this levy in place. It is worth revisiting why it was introduced.
There are massive spending pressures on the National Health Service and the social care system. Those have not suddenly gone away over the last few weeks. Indeed, judging by the length of waiting times, they have got worse. We are still dealing with the aftershock of coronavirus, which exposed the weakness of the social care sector. The fact is that this country delivers social care on the cheap. We rely on underpaid workers and a thinly capitalised private sector. It is no wonder that its shortcomings have been exposed. It is also unrealistic to expect doctors, nurses and care workers to accept cuts in their real wages year after year. Above all, the much-awaited demographic timebomb is already upon us. The old-age dependency ratio is set to rise inexorably in the decades ahead.
I sometimes wonder whether the Government read the Office for Budgetary Responsibility’s Fiscal Risks and Sustainability report. It was published as recently as July. If Mr Kwarteng had read it, perhaps he would still be in post. It shows health and social care projections rising from 9.7% of national income in 2026 to 10.2% in 2031, to 11.9% in 2041 and to 13.7% in 2051. That is an increase of 4% of GDP, which is the equivalent to £100 billion a year in current prices.
Meanwhile, much of the tax base is eroding. We no longer have substantive oil revenues and tobacco duty revenues are rightly in decline. As the country moves from petrol-fuelled cars to electric vehicles, fuel duties are likely to decline. In the end, the best way of raising revenues is to rely on the big taxes: income tax, national insurance and VAT. We can all fantasise about getting more tax from the rich, and I certainly support having a go at that, but actually it needs to come from the taxes that everybody pays.
The health and social care levy is based on national insurance. It is therefore likely to be a buoyant tax. It also has the positive feature of linking the raising of revenue to increasing expenditure. Now is not the time to go into a long discourse on hypothecation. I am not in favour of hard hypothecation; that was tried with the road fund before the war and it did not work: it created rigidities in the public finances. But it is important that taxpayers understand why their taxes are rising. Linking increased tax to increased spending, as Gordon Brown did in his 2002 Budget and Mr Sunak did in 2021, ensures that higher spending is funded and sustainable, and a tax increase is more acceptable.
In my view, it is inevitable that the health and social care levy will be resuscitated at some point. When it is, I would recommend a different tax base. The problem with national insurance is that it is paid only on employment income. It is not payable on rents, dividends or pensions, however well off the pensioner is—and old people are exempt altogether. The big change in income distribution in my lifetime is that old people are less likely to be poor than younger people.
It is right that the tax burden should be shared across the generations. Mr Sunak tried to put right some of the anomalies in national insurance, but he did not put right all of them. I strongly recommend that any future levy is based on the income tax base and not the national insurance base. Indeed, the whole issue would be made much simpler if national insurance and income tax were fully integrated, although, having explored that for many Chancellors, I will not hold my breath.
Meanwhile, we are burying the levy. I recognise that I am one of the few mourners, but I am confident that, whatever the Government and Opposition are saying now, one day it shall rise from the dead.
The Lord Bishop of London
My Lords, I have some technical questions about the implications of repealing this levy, but they prompt more significant questions about the sustainability of health and social care funding, as other noble Lords have already suggested. The sustainability of health and social care is hugely important to me, not just as a former Government’s Chief Nursing Officer, but as a bishop. This is about funding a service well with a long-term view, so that those who work hard to care for us have the resources to do the job. This is about the fact that every person is of great value in God’s sight and should be treated with dignity and equity. This is about a thriving economy because, without a healthy population, we will not have an economy that grows.
When the levy was introduced, the then Financial Secretary wrote to the Treasury Select Committee to justify it, saying that
“it would not be possible to fund this from existing tax revenues, nor would it be responsible to fund it through borrowing.”
This uncertainty about the direction does not inspire confidence that the Government have a sustainable plan to fund health and social care. If repealing this levy will not affect health and social care funding, can the Minister guarantee that a detailed breakdown of how this tax cut will be funded will be set out clearly?
As we have already heard, departments have been asked to double their efforts to make savings on spending. Presumably, this will include the Department of Health and Social Care. In that context, how will spending on health and social care be maintained? The Secretary of State announced £500 million for the health plan for patients. Is this additional funding, or will it be absorbed into the cost of maintaining the level of spending in the department after cutting this levy?
If we are concerned about the sustainability of health and social care funding, we must be even more concerned about the sustainability of the workforce. They are the bedrock of this sector. The noble Baroness has already mentioned the social care workforce. There is a very serious issue, particularly around retention. The Nuffield Foundation’s recent research stated that 40,000 nurses have left the workforce this year. The Government responded to the BBC by saying that they were already half way to meeting the target of 50,000 additional nurses in the NHS. I am not sure that this is being felt in the NHS, nor that the loss is being kept up with. Almost as many nurses are leaving the sector as are joining, resulting in the loss of valuable expertise. This is an inefficient and expensive approach to staffing, and one that sees people as expendable.
We are in the midst of a cost of living crisis, of which the health and social care workforce are at the centre. They are not exempt because they look after us. In fact, they are feeling some of the worst effects. One in four hospitals has food banks set up for nurses. The NHS Providers report on the rising cost of living said:
“Increasing numbers of nurses and other staff, particularly in the lower pay bands, are finding they are unable to afford to work in the NHS.”
It cannot be overstated how difficult things have become. Can the Minister say what is being done to make sure that we have a sustainable workforce? Only with this will we find that health and social care funding is sustainable.
One of the most effective ways, perhaps, to ensure the sustainability of health and social care funding is to reduce the need for it. The Government have not confirmed whether they will publish the long-awaited and desperately required health disparities White Paper. There are rumours that they are stepping back from the tobacco control plan and obesity strategy. What are the Government doing to reduce health inequalities? Health and social care funding is only sustainable if the need for these services is reduced.
I started by speaking about values. I am grateful that the Minister mentioned some of the values behind the Government’s objective for this Bill, including the flourishing of the economy not for its own sake but for the most vulnerable. Forgive me: I am concerned that, without a long-term plan for sustainable funding for health and social care and plans that ensure effective public health to reduce health inequalities, it will in fact be the most vulnerable who will suffer.
We need a sustainably funded health and social care system that has the resources to invest in good and equitable health and social care, but also in public health. Surely this is the bedrock of a flourishing community and economic growth.
[Interruption.]
Lord Lipsey (Lab)
My Lords, I do not know what set that phone off. There is no need to drown me out just because I am going to speak.
This has been an enjoyable debate for those of us who think that the scrapping of the levy is a disaster. I particularly enjoyed the speech of the noble Lord, Lord Macpherson, and all the wisdom he brings to these matters from his experience in the Treasury. I had a rather wicked thought that the Government could consider one more U-turn when they read his remarks: on the sacking of Sir Michael Scholar, the splendid Permanent Secretary at the Treasury, no doubt because he suggested that there were some things wrong with the Government’s proposals. If they had listened to Sir Michael they might not be in this complete and utter mess today.
Lord Lipsey (Lab)
Sorry; I know Michael better than Tom. I thank the noble Lord for that correction.
Let us be in no doubt: this Bill is another U-turn, not by the Truss Government—they have got in so many—but on this Conservative Administration’s policy. The levy was brought in by the Johnson Government as a way of funding the changes they wanted to make in health and social care, which I will speak more about later. The contributions will now be frozen under this legislation, if it goes through Parliament. That means that there will be more spend, less tax and another mighty addition to the fiscal deficit. I hope, for the Minister’s sake, that the markets are looking elsewhere today—they have plenty to look at.
The revenue to pay for the extra spending has been ditched, but I wonder what will happen to the Government’s policies that these contributions were supposed to fund. In particular, what will happen to the Government’s scheme to introduce a cap on what individuals have to pay for social care? Will this be another U-turn? Has the cap passed on? Is it no more? Has it ceased to be, expired and gone to meet its maker, as with Monty Python’s parrot?
In fact, I would be very pleased if the cap was a victim of the Government’s unwillingness to put up national insurance contributions. The cap has three enormous flaws in today’s circumstances. First, it adds hugely to the fiscal deficit—according to Library figures, £13 billion a year. That is not a small number. I know that we get used to billions these days, but £13 billion is a substantial sum of money to be added to the deficit as a result of giving up this increase. The more the fiscal deficit goes up and the more the markets are scared of it, the more we have a problem. We know what will happen, broadly: fuel prices will go down and interest rates will go up. Most mortgage holders will be struck with a further blow to their pockets when they are reeling from the cost of living crisis. You honestly could not make it up as a policy. That is one reason against the cap: it is jolly expensive.
The second reason is more obscure: the scheme that the Government have come up with is unworkable. They are going to trial it in one or two areas. Local authorities, quite rightly and quite reasonably, are screaming at the cost and unviability of it. The Government might have to drop it simply because it does not work. Funnily enough, that might suit them rather well: they do not want to ditch it and admit to yet another U-turn; if it has to go for administrative reasons, that is a better excuse than the fact that they have an unworkable scheme to get out of—it is also now unaffordable.
Thirdly—my noble friend Lord Sikka and others have referred to this—what gets me about the cap is this: it is exactly the same as the income tax changes made in the mini-Budget. It is a simple way of taking money from the poor and giving it to the rich. Only half of those needing care have to pay for it themselves; the rest are funded one way or another by the Government or local government. It follows that only the better-off half of the population will benefit from this cap, but it gets worse. Take just the richer half—nobody who is not in the richer half gets anything. The poorer half of that group will do much less well than the richer half of the group. That is especially so because—noble Lords will remember the row we had about it in this House and in the other place—the Government are insisting that any money local authorities have paid towards people’s care should be knocked off the cap. So here we have small amounts of money going to the poorer, but what a bonanza for the rich. Be you a millionaire, a multi-millionaire or billionaire, the maximum you have to pay for your care is capped at £86,000—and you can keep the rest. If you get better, you can go out on your yacht again, and even if you do not get better, when you die you will have all the more money to leave to your kids.
This is not a sensible priority because there is an enormous problem with social care at the moment. It is not so much a problem of who pays for it as who gets it. Noble Lords will have seen the utterly terrifying report last week from Skills for Care. It is an official government policy. It shows the deepening shortage of care workers and the grotesque underpaying of social care workers—they are hopping off from their care shifts, doing some of the most intimate and desirable things a human being can do, to go to the tills in the supermarket. Those are real problems and they are leading to real suffering for real individuals who need care. To prioritise over that necessity giving more money to the poor old rich so they do not have to fork out for their own care makes no sense. It is genuinely immoral.
I will summarise my argument so far:
“returning contributions to their previous level is regressive … It benefits higher earners more, both in cash terms and proportionally, than lower earners. It benefits the poorest not at all.”
That is the admirable Paul Johnson from the Institute for Fiscal Studies, who knows of what he speaks.
For all those reasons I hope that, when the Minister rises tonight, he will announce that the cap is dead and gone. I noticed he did not refer to the cap once in his speech. He said that funding would be maintained, which is a very different thing. If he meant that funding on care would be maintained rather than funding on this blessed cap, I would be very pleased, although I expect that when he replies—the Minister is a most able master of this House—he will say that the Government have no plans to get rid of the cap. It is a useful Civil Service phrase that has no content whatever because if the Government do not have plans now they can develop them tomorrow if they need them. I expect the Minister to say that the Government have no plans to abolish the cap. That does not stop them later on taking measures to abolish the cap. This is at a time when we are going through huge public expenditure cuts. This is a huge addition to public expenditure that has to be met and which makes cuts in other things more strict.
However, it is perfectly possible that the markets will deal with this when they see how the Government are squandering money on this handout to the rich. The markets, although populated by rich people, know the political disadvantages of assisting them, and may well smell a rat here. Alternatively, the Government could go ahead with this ill-designed cap, which would show what the mini-Budget has already demonstrated: that this Government are concerned only with how much money they can stuff into the pockets of the rich.
Baroness Bennett of Manor Castle (GP)
My Lords, at 11 am today, sitting on the number 29 bus, I flicked over to my favourite live blog to follow the speech of our newly minted Chancellor, the fourth in four months. As was noted widely over the weekend, if you are looking for some good news, it is only two more Chancellors until Christmas.
It was an historic event, but not in a good way—an emergency mini-Budget delivered not to the House of Commons but by broadcast from the Treasury. I was particularly attentive because I wanted to know whether this debate would happen today. After three years in your Lordships’ House, this was another new procedural question arising—there is always one: how late can the Government pull a Bill from the Order Paper? The Energy Bill, on which so many in your Lordships’ House and the NGO community had been labouring mightily, just disappeared from our lists over the Summer Recess. The Schools Bill, to which many stood in opposition—including, honourably, many on the Government Benches opposite, including several former Secretaries of State for Education—until the Government pulled the entire first, main section of the Bill, also appears to have gone west. Would the health and social care levy Bill go the same way? Well, we are here now and have just heard the Minister speak in favour of it, so obviously it has not—not today, anyway—which is, in its own way, very telling.
Tax cuts, to which the current Prime Minister was so attached and on which she ran her entire campaign among the 100,000 or so Conservative Party members who got to decide the direction of the Government, nearly all disappeared. In the Chancellor’s own words:
“We will reverse almost all the tax measures announced in the Growth Plan”.
That means, again in his own words,
“no longer … proceeding with the cuts to dividend tax rates, the reversal of off-payroll working reforms introduced in 2017 and 2021, the new VAT-free shopping scheme for non-UK visitors or the freeze on alcohol duty rates.”
That means that cuts announced last month—on the basis of which some people may have made important economic decisions such as applying for a mortgage; or, in the case of small businesses focused on tourism, for example, decisions about their future business plans—have gone “puff”.
As the First Minister of Scotland, Nicola Sturgeon, said today in setting out an independence plan for Scotland, the UK
“does not offer economic stability”.
The Minister might like to comment on that quote.
It is clear that these are all, broadly speaking, impacts that affect not householders but businesses. Of course, we are also seeing the scaling back of the energy bill support. It is the changes to health and social care and support for households struggling with the cost of living that have been abandoned. It is a measure of who those in charge do and do not value. I say “those in charge” because I do not really know whether I should call them a new Government. It is hard to say, although—for anyone who missed it—Downing Street has just issued a press release saying that Liz Truss is still in charge. But will she be doing Prime Minister’s Questions in the other place on Wednesday? That is not a question to the Minister, just a question out to the ether.
The Health and Social Care Levy Act received Royal Assent on 20 October 2021. This Bill, almost exactly a year later, repeals it. They say a year is a long time in politics, but these days 48 hours is an age.
The Bill maintains a legislative basis for keeping tax receipts collected under the provisions of the former Act until early November 2022. As always, the very useful House of Lords Library briefing notes that the Bill has been fast-tracked to give employers enough time to implement the changes to national insurance rates planned to be effective from 6 November this year. The Health and Social Care Levy Act 2021 was fast-tracked for similar reasons, so we have had a seesaw in respect of which businesses, particularly small and medium-sized enterprises, must be struggling to keep up.
I come to my main area of concern with this Bill. I note that the Treasury factsheet says that
“funding for health and social services will be maintained at the same level as if the Levy was in place.”
That is, I think, a promise from the previous Chancellor—it is hard to keep up—not the current Chancellor. Can the Minister confirm that the briefing also fits with this?
I shall skip over some points so as not to cross over with what others have said, but I want to highlight what the noble Lord, Lord Sikka, said in a direct question to the Minister: “That was £12 billion a year ago. Is the spending for the NHS going be maintained in real terms?” I also highlight and strongly agree with points made by the noble Baroness, Lady Brinton, and the right reverend Prelate the Bishop of London about the extreme strain under which our NHS and social care systems are suffering with the current levels of spending.
Sticking for a moment with the specific Treasury elements, I note that the Institute for Fiscal Studies, responding to today’s Statement, said that
“it remains hard to see where significant spending cuts could come from.”
As the noble Lord, Lord Sikka, said earlier, austerity has killed. Two separate studies in the British Medical Journal and from the Institute for Public Policy Research, using different methodologies, came to very similar figures when covering the period from 2012 to 2018: respectively, 120,000 and 130,000 excess deaths, in which both studies said austerity had to be considered a significant or causal factor.
I should perhaps declare my position, as did the noble Baroness, Lady Brinton, as a vice-president of the Local Government Association. We have seen local services, particularly local government services, cut to the bone. Infection has already set in, with closed libraries and community centres struggling to survive—those very same libraries and community centres that we are hoping will be warm banks to keep people alive this winter. I am aware that the Minister may not be able to comment on what cuts are coming, but it would be nice to get some reassurance on which essential services we will see maintained.
I want to pick up on a point made by the noble Lord, Lord Macpherson, who was following what might be described as Treasury orthodoxies. There are some Treasury orthodoxies that, I agree with Liz Truss, need to be busted. The noble Lord suggested that it would be nice to tax the rich and multinational companies, “But it is all too hard; they’ll just escape it.” The first thing we need to do is to get a Government who want to tax rich individuals and multinational companies and to put that money into the NHS; alternative money to that which we are taking away from government funding today. There are other alternatives: a wealth tax, a land value tax—land, of course, cannot run away—higher corporation tax. These things are indeed possible.
I want to make two brief final points. First, there has been very little discussion during our current scramble of the fact that the new Chancellor is indeed a former Secretary of State for Health. Little attention has been paid to this point. Phrases such as “a safe pair of hands” have been bandied around. We might need to look back and make a comparison with what happened from 2012 to 2018 with our National Health Service, and the discussion and the debates as we undid many of the things done in those years in the Health and Social Care Act.
Finally, I raise the point covered extensively in Oral Questions today: the fact that we have an extraordinarily parlous state of public health as huge numbers of people, particularly those over 50, are unable to take paid employment, even though they wish to, because of their health conditions. If we do not provide funding for the NHS and social care, that situation will surely only worsen. It seems unkind to ask Ministers for assurances at this moment—how can they give them?—but I will ask the noble Viscount this: does the Treasury acknowledge that the state of public health, the NHS and social care are acutely important to the state of our economy?
Lord Davies of Brixton (Lab)
My Lords, honestly, what a mess. This is really ludicrous. Some 371 days ago, we had the Second Reading of the Bill that became the Health and Social Care Levy Act 2021, and today we have the Second Reading of the Health and Social Care Levy (Repeal) Bill. This is no way to run a taxation system. The changes which have taken place do not justify the time that this House has had to spend on dealing with what was always going to be a fool’s errand. I have taken the opportunity to reread the debate that took place 371 days ago, when it was explained in enormous detail why that Bill was a bad piece of legislation. The Government would have been helpful to all of us if they had simply said. “You’re right, this legislation should not proceed.” We could have saved time then and now.
I have much respect for the noble Viscount, but in his opening remarks he referred to tax cuts and in the accompanying paper, the Government refer to making employers better off. This is nonsense when it is not a reduction in taxation but not proceeding with an increase. Indeed, the Government have told us many times over the past few days—before they reversed direction—that the change in corporation tax was not a tax cut; it was not proceeding with an increase. Perhaps the Minister would do us the respect of not attempting to tell us that this is a tax cut.
There is only one qualification to that, because this tax has been in force for some months already and around £10 billion has been raised through the levy. Can the Minister give us a clear assurance that that £10 billion has augmented the resources available to the National Health Service? I suspect that it has not made an iota of difference but it would be interesting if the Minister could give us some guidance on that.
I reread the debates on the previous Bill. The Minister speaking from the Dispatch Box was, of course, the noble Lord, Lord Agnew of Oulton. He told us that the Bill was required to
“tackle the NHS backlog, put the adult social care system on a sustainable long-term footing and end the situation in which those who need help in their old age risk losing everything to pay for it”—[Official Report, 11/10/21; col. 1657.]
Can the Minister assure us that those three objectives will still be met and, if he can, why was the Act required in the first place?
There are two points I always want to make on Bills affecting national insurance. I am still a believer in a national insurance scheme funded by contributions which pays for adequate benefits on retirement, in sickness and on unemployment. This was the vision based on the Beveridge report enacted in 1948 by the Labour Government. I am still a believer and the problem over many years has been that national insurance contributions have been seen as a too-ready source of money—“We need a bit of money, let’s get it from national insurance.”
There was always a National Health Service element in contributions, which is part and parcel of the scheme. However, the way in which it is employed—I hesitate to say “prostituted”—to create additional resources destroys the basis of the scheme, which I think the public in general still support. It is interesting that we still talk about national insurance. The Treasury still sees national insurance in a different light from other forms of taxation. I am in favour of a social care levy. We can get into an interesting discussion on hypothecated taxation, and it is all a bit of a nonsense because you can always change the rules as long as you have hypothecation. Either you make social care an integral part of national insurance or it is paid for by a separate social care tax, which could be spread more widely on the tax base. It is worth making the point that the original national insurance scheme had a Treasury supplement for this very reason—so it could be supported by taxation more generally. That principle has been lost.
Finally—again, I always make this point—we have significant changes to the funding of the national insurance scheme. There is a National Insurance Fund, and we should not make changes without a report from the Government Actuary on the impact of these changes on the fund, now and in future.
Baroness Kramer (LD)
My Lords, this levy came into force under the then Chancellor Rishi Sunak in spring this year. I agree with other speakers that this feels like a lifetime ago; it was three Chancellors ago. We opposed it then because it was the wrong tax levied on the wrong people; I say this to the noble Lords, Lord Macpherson and Lord Lipsey. For me, that is the fundamental reason for opposing this. I was rather interested that when the noble Lord, Lord Macpherson, praised the idea of the national insurance levy and suggested it might come back in the future, what he described was basically income tax and nothing to do with the character of the national insurance levy. It almost makes my point for me so, although he did not intend to, I thank him for that.
For years now, Conservative Governments have been shifting the tax burden away from unearned income—a source of income primarily for wealthier individuals and the elderly—to earned income. When this levy was introduced, it fell on those earning over £9,500 per year, which is well below the income tax threshold of £12,500 per year. It excluded earnings over £50,000 per year; it excluded earnings by pensioners and all unearned income. It also fell on businesses, despite the hardships post Covid, whether they were profitable or not. When this was introduced, it had a whole series of damning characteristics.
There have been so many twists, turns and U-turns since then, and we have heard about them in this debate. However, I remain very glad to see the back of this levy, which is now so complicated, confusing and different from standard national insurance, and yet still remains less progressive than normal income tax.
I also agree with those who say that it is very important to establish that the cancellation of this levy must not mean a £12 billion cut in funding for health and social care services. The Minister sought to give us that assurance, but you could tell from the general response that there was concern about quite what the phrasing meant. As so many have said in this debate, the IFS has identified that public services are in a fragile state, particularly in the health and care system.
Both my noble friend Lady Brinton and the right reverend Prelate the Bishop of London raised the issue of uncertainty: how on earth unfunded costs in the sector were going to be dealt with, the spectre of constantly increasing waiting lists and what the consequences would be. The noble Lord, Lord Sikka, hit the nail on the head by asking whether this equivalent funding—which, in a sense, could be in nominal terms rather than real terms—would enable us to keep up with the original intent of increased funding in real terms, or whether there would be in effect a row back from the original intent, by funding constraints, to nominal terms.
Hypothecation in this country is really no more than smoke and mirrors. I pick up the point of the noble Lord, Lord Davies of Brixton: there is a real role that could be played by a national insurance scheme if its true integrity were protected. In the UK, hypothecated revenues—and certainly those from this levy—were simply intended to reduce the amount of general taxation used to fund health and social care. The levy was a rather cynical strategy to find a more palatable way of taxing, tugging at the heartstrings of our affection for the NHS and social care. Initially, it was very notable that the tax take was coming, to a significant degree, from very low earners. So the levy’s primary purpose was to give the then Chancellor leeway to cut income taxes just before the next general election. It would have made him a hero of the Tory right, because cuts in income taxes always help the highest earners the most. To anyone who doubts that, I give them an illustration: the 1p cut in the basic rate of income tax—which we now hear is scrapped—would have provided, on average, a gain of £125 a year for basic-rate taxpayers but a gain of £377 a year for all higher-rate taxpayers. So the shift from income tax to this rather strange national insurance levy certainly played into that agenda of delivering for those in the higher income brackets.
Like everyone else in this Room, I have very little idea of what comes next. I agree with those who think that it should be a general election, but realistically it probably will not be. I say to the Government that they absolutely need to bring forward a plan that is not driven by ideology—we see that so much in the social care and health sector. We need real answers, real funding and some degree of certainty. I pick up the issue raised by the noble Lord, Lord Lipsey, on the funding for the cap on social care: is that still in the frame or is it disappearing from the frame? These are the kinds of questions that must be answered with real clarity.
I fully accept that Covid and Russia have created global problems, but our crisis is significantly homemade. The IFS estimate is that at least a quarter of the rise that we have seen in interest rises has been attributed to our own ability to shoot ourselves in the foot, including that appalling mini-Budget. Although many of the relevant people are not in the Room today, I must say that I have never heard so much hokum on what creates growth than we heard from the Conservative Benches in the debate on the economy last week—although I acknowledge a few brave Conservative speakers who chose fact over fantasy. We really are now past the time of playing ideological games; people are genuinely hurting, and we must have, in the plan that now comes forward, a real basis both to protect people and to grow the economy. It must be one that stacks up in the real world and not just in the ideological world.
Lord Tunnicliffe (Lab)
My Lords, I am grateful to the Minister for introducing this Bill, and to the other noble Lords who have contributed to this debate. It is somewhat natural that the debate has strayed beyond the narrow measures in the Bill before us; that is an inevitable consequence of the chaos that we have seen in recent days, with the departure of one Chancellor and the unprecedented Statement from his successor. If it had not been for the explicit commitment to continue with this U-turn, I would have been tempted to ask the Minister whether he was completely sure that the Bill remains government policy. It does—and, for reasons I shall come on to, I am pleased this measure is one of the few to survive the shambles that has been the mini-Budget.
The Chancellor may not have said it in his Statement this morning but let us be under no illusion: this was, at long last, an admission from the top of government that the recent economic crisis was made in Downing Street. Liz Truss may have thrown her first Chancellor under the bus on Friday, but we must remember that it was she who proposed much of the mini-Budget during the recent leadership election. She created it, she endorsed it and she defended it, and no amount of spin can change that—and the public, who are paying higher mortgage bills as a result, will not forget it.
On the subject of spin, the Prime Minister has been keen to present Labour’s support for this legislation as an endorsement of her discredited economic policies. It is anything but. We back this Bill because it will put money back into the pockets of working people, at a time when they need it most. It is money that should never have been deducted from pay packets in the first place. Labour has always opposed the Conservatives’ national insurance hike. We support the repealing of the 2021 Act because it should never have reached the statute book in the first place.
Noble Lords will remember the Labour Party spending much of 2021 warning that, with a cost of living crisis brewing, this legislation was the wrong policy at the worst possible time. Many Back-Bench Conservatives privately agreed; their postbags had convinced them of the very serious financial struggles being faced by their constituents. Crucially, this was all brewing long before Putin’s invasion of Ukraine and its impact on energy prices. Those MPs agitated behind the scenes, but the former Prime Minister pressed on regardless, and the current Prime Minister supported him every step of the way. As a member of Johnson’s Cabinet, she was an enthusiastic supporter and staunch defender of the very levy that she is now scrapping.
The NICs rise was never the right way to address issues with our health and care systems. However, the NHS and social care are, under the Conservatives, at breaking point. The need to support them is clear. Several NHS trusts have declared major incidents or introduced special measures in recent weeks, and we are only just into the autumn. Although Covid infections and admissions are increasing, we have not yet encountered a significant wave of coronavirus or flu. There is, unfortunately, a chance that both—a so-called twindemic—will hit at once.
Why are hospitals and other NHS settings struggling so badly right now? Despite the incredible efforts of doctors and nurses, the NHS has the longest waiting lists since records began. Thanks to successive Health Secretaries undermining the strong record of the last Labour Government, waiting times are up across the board: in A&E; in urgent referrals; for routine treatments; for GP appointments; and for ambulances. This is, in part, because of the Conservatives’ recruitment and retention crisis. They cut bursaries for nursing courses and wondered why so few people wanted to train. They work doctors and nurses to the point of physical and mental exhaustion and wonder why staff leave their posts. They refuse to reform GPs’ prohibitive pension arrangements and wonder why they opt not to return to the profession or commit to extra hours. Labour has a plan to expand the NHS workforce, so that our beloved health service has the doctors and nurses it needs. Rather than taxing working people, we will scrap the controversial non-dom status and use the proceeds to fund thousands of additional nursing and midwifery placements, and to double the number of medical students.
Despite Boris Johnson’s very first address as Prime Minister promising a plan for social care, we have seen things worsen. The sector is desperately in need of extra staff, yet is haemorrhaging personnel to supermarkets and other businesses which pay higher wages. Hospitals are increasingly unable to discharge patients with care needs, blocking beds that are so badly needed to clear backlogs or improve A&E waiting times. This is not a new phenomenon; it has been happening for years. The fact that it is still happening points to another example of Conservative failure to grip the problems facing our country.
Among other things, a Labour Government will ensure that care workers get the pay they deserve. That will not only help to alleviate the staffing crisis but lead to better outcomes for patients. Until then, and following the passage of the Bill, who or what will pay for the Government’s health and social care policies? The Treasury expects the funding which replaces the levy to come from general taxation, although Ministers have acknowledged that additional borrowing may be required in the short term. Will the Minister outline how much higher the cost of borrowing is at present, compared to the weeks or months before the disastrous mini-Budget? We may have seen the markets responding relatively positively to today’s announcement, but we know that recent events have increased the effective cost of borrowing.
The Chancellor acknowledged earlier that growth requires “confidence and stability.” It is increasingly clear that the Conservative Party, with a fourth Chancellor in four months and a third Prime Minister in just over three years, is unable to provide either. We welcome this specific U-turn, but the truth is that the Government have lost all credibility. It is not for today, but there are serious questions for the Government to answer about their climbdown on energy, which will cause alarm in households across the nation. Shelving the mini-Budget was not supposed to involve shelving the two-year energy commitment too. We will support the Bill, but this whole episode demonstrates that only Labour offers the leadership and ideas that Britain needs to fix the economy and get us out of this mess.
Viscount Younger of Leckie (Con)
My Lords, despite the challenging environment I said I was pleased to open the debate and I am very pleased to close it. I thank all noble Lords who have contributed this afternoon, and I will do my best to respond. As noble Lords might imagine, I may not be able to answer all questions, some of which will be due to what is happening or has happened over the past few days, but I shall have a go.
First, I noted the strong remarks of the noble Lords, Lord Macpherson and Lord Lipsey, on keeping the levy. I make no bones about it; the decision has been made to reverse the levy and make it up through general Treasury funds. A number of noble Lords, including the noble Lord, Lord Lipsey, the noble Baronesses, Lady Bennett, Lady Brinton and Lady Kramer, and the right reverend Prelate the Bishop of London asked about the amount that the Treasury has set aside in place of the levy and—the real question—whether it is based on real terms. It will be in cash or nominal terms. This is because the budgets were announced last year at the spending review and are now fixed on that basis until 2024-25. I hope that helps to answer that question. The bottom line is that reversing the levy delivers a tax cut for 28 million people worth, on average, as I said at the beginning, £330 every year.
I will respond to a number of questions raised by noble Lords, including the noble Baroness, Lady Kramer, who is absolutely right that we have to continue to bear in mind—as I do—that very many people are suffering at the moment, not just with their bills but mentally, which puts a huge strain on the National Health Service. I will make a few remarks about the NHS, which remains a vital sector in our country.
The noble Lord, Lord Macpherson, said that we should keep the levy; the general thrust of his remarks was that there should perhaps be, alternatively, a rise in income tax. The tax cut is designed to support people and businesses, with an average saving of £330 for people next year. As I said at the beginning, 920,000 businesses will save an average of about £9,600 in 2023-24. To reiterate, I say that the Chancellor has acted to demonstrate fiscal credibility. Further detail may come out on 31 October.
As I said, it remains incredibly important to support the NHS. However, as the new Chancellor said very frankly this morning, an ongoing efficiency and reprioritisation review has started, covering all departments. Although I have not heard what he said in the Chamber, I suspect it was with the same frankness. He also said that there could be cuts. However—I do not know whether he said this, but I will—the NHS is incredibly important, so we have to bear in mind that juxtaposition. There may or may not be further announcements on 31 October; I really have no idea about that.
The noble Baroness, Lady Brinton, and the noble Lord, Lord Sikka, asked further questions about the NHS. To paraphrase, they stated that it is at crisis point and it is not even winter. The levy has been reversed, but the overall level of funding for health and social care services will be maintained, as I said earlier, at the same level as if it was in place. The Deputy Prime Minister and Secretary of State for Health and Social Care has set out more detail on her priorities for health and social care in Our Plan for Patients. The money will go to the NHS, as I think noble Lords asked.
Viscount Younger of Leckie (Con)
As I made clear at the beginning, it will be in nominal or cash terms.
Further to the theme of health, picking up a very fair question from the noble Baroness, Lady Brinton, on why we are not increasing spending on health and social care, I say that the Government are committed to taking a responsible and disciplined approach to spending. The Government will continue to ensure that we deliver social care reforms and that the NHS gets the resources to tackle the elective backlog, reduce A&E waiting times and support its workforce. I very much listened with care to the important points she raised, particularly about ambulance waiting times. I know there is more.
The noble Baroness and the right reverend Prelate the Bishop of London also raised workforce issues. We absolutely recognise the challenges faced by the sector and are responding to them. As part of Our Plan for Patients, the Government announced a £500 million adult social care discharge fund to help people out of hospitals and into social care support. The fund will bolster the social care workforce and target the areas facing the greatest challenges, freeing up beds for patients who need them.
There is more. We are all aware of the shortage of nurses and other NHS staff, and there needs to be a sustainable workforce, as the right reverend Prelate picked up on. Although I do not have all the answers today, I reassure the House and those Peers who have raised it that this is a very important matter. As we are on the subject, I think the right reverend Prelate has raised the health disparities White Paper twice today, as I think it was also in a Question earlier. I do not have an answer to that, but her question was very clear: where are we on this? I need to write to her to give her chapter and verse on that.
I want to say a little more about ambulance waiting times, because I do not think I answered the noble Baroness, Lady Brinton, fully. Again, as set out by the Secretary of State for Health and Social Care in the plan for patients, the Government are improving ambulance response times by taking steps to reduce the time lost to ambulance handover delays, facilitating ambulance trusts to support each other during the busiest periods, and exploring a new ambulance auxiliary service. This is supported by other measures in the plan, such as recruiting more 111 and 999 call handlers to answer patient calls more quickly and opening up 7,000 extra beds this winter. I hope that goes a little way to answering that; the noble Baroness has probably heard these answers before, but they are what they are.
The noble Lord, Lord Sikka, asked why the additional rate of NICs is so low and why it is not a progressive tax, and I will do my best to answer that. The personal allowance, as he will know, is set at £12,570 this year, with income tax rates increasing from 20% to 40% for earnings above £50,270 per year—which is the higher rate threshold, as he will know—and to 45% for earnings above £150,000 per year. After the levy is reversed, employee NICs rates will decrease to 12%, and to 2% for earnings above £50,270 per year. Taking NICs and income tax together, this means an overall progressive rate structure of 32%, and then 42%. I will have a bit more to say about this in a moment, but on the question about the rich paying more, or too much, the top 10% of earners are estimated to pay over 60% of all income tax in 2022-23, so I really do not believe that his remarks are quite as they seem.
Lord Sikka (Lab)
I am grateful to the Minister for giving way. Of course, the rich will pay more in tax, because of the maldistribution of income. They are sitting on a bigger share of income, which is why they pay more. According to the figures produced by the TaxPayers’ Alliance—the head of which is now an adviser to the Prime Minister—the bottom 10% of earners are paying over 47% of their income in direct and indirect taxes, and the top 10% are paying only 33.5%. You cannot just say that the rich are paying more. Of course, they will pay more, because of the maldistribution of income—will the Minister address that?
Viscount Younger of Leckie (Con)
I do not believe the noble Lord and I will agree on this. It could be that we write a letter to spell out exactly what we mean by this, because I have spelled out the facts. To say a little more on this, cutting NICs from November will provide an average tax cut of around £135 for workers this year, and £330 next year. Taking into account the increase to NICs thresholds in July and the levy reversal, almost 30 million people will be better off by an average of over £500 in 2023-24. So, this directly affects lower economic groups rather than the higher ones. I think there is a lot more I could say in a letter because, as I say, I do not think that the noble Lord and I will end up agreeing on this particular matter.
Lord Tunnicliffe (Lab)
As this debate is getting increasingly interesting, will the Minister copy that letter to all who have participated?
Viscount Younger of Leckie (Con)
Absolutely; I am more than happy to do that for the noble Lord and for the whole House.
Baroness Kramer (LD)
This is an interesting question. I do not want to take up the time of the House but I think the two noble Lords are talking right past each other. One is basically saying that the rich pay 60% of all income tax, but they receive far more than 60% of all income, so I think that is the issue that links the comments between them. Perhaps the letter might deal with that.
Viscount Younger of Leckie (Con)
If I may answer that first, that would be sensible. The noble Baroness makes a helpful point and it would be helpful to give detail in a letter; it is more appropriate to give that sort of detail in a letter where we have the technical detail involved. I hope that will be helpful all round.
I will pick up another point from the noble Lord, Lord Sikka, about the so-called regressive theme: why do NICs not apply to unearned income—why can people with unearned income pay less tax than those with earned income? I will try to answer that, although it may have to be included in the letter. National insurance contributions are part of the UK’s social security system, as the noble Lord will know. The system, based around the long-standing contributory principle, is centred around paid employment and self-employment, with employers, employees and the self-employed paying towards the protection of those who have been in the labour market. Payment of NICs builds an individual’s entitlement to claim contributory benefits, which then replace earnings in certain circumstances—for example, if someone is unable to work or is retired; that is the theme behind it. Unearned income is generally excluded from liability for NICs as it is not derived from paid employment.
Lord Sikka (Lab)
At least 20% of the national insurance contributions go to fund the NHS. People who are enjoying unearned income in the form of capital gains and dividends use the National Health Service too but they are paying zero. Why is that?
Viscount Younger of Leckie (Con)
That is another question which I shall add to the letter that I intend to write.
Viscount Younger of Leckie (Con)
I thank the noble Lord, Lord Tunnicliffe.
I will go into a deeper and important issue, which was raised by a few Peers but in particular the noble Lord, Lord Sikka, with regard to what we are doing to help the poorest. It is important to broaden the scope of this debate. As I said earlier, we understand that many people across the UK are very worried about the cost of living and are seeing their disposable income decrease as they spend more on the essentials, which of course include energy. That is why we have taken decisive action to get households and businesses through this winter and the next while ensuring that we act in a fiscally responsible way.
I will not go through everything because the House will know about the energy price guarantee, which means that a typical UK household will pay no more than £2,500 a year on its energy bill. That is in addition to the £400 discount already announced through the energy bills support scheme, and we also have the energy bill relief scheme, which will provide a discount on wholesale gas and electricity prices. In short, therefore, these measures will save the average household around £1,000 per year from October, so that protection is there in that respect.
The noble Lord, Lord Davies of Brixton, basically stated that the levy was not a tax cut and went on to say that the funding has not supported the HSC—health and social care—levy. However, it is a tax cut for people and businesses this year, who are already paying an extra 1.25%. The average saving for people is £135 this year, and I believe it has helped the NHS, particularly in helping it through the recovery from Covid.
I was grateful for the remarks the noble Lord, Lord Tunnicliffe, made. My remarks now also take into account the points raised by the noble Baroness, Lady Brinton, and, once again, the noble Lord, Lord Sikka. The comments were broader, on the capacity of the NHS, current Covid infections rising and waiting lists generally, as well as NHS recruitment and retention, which I touched on slightly earlier, and, crucially, the adult social care sector. The 2021 spending review allocated £188 billion in total to the Department of Health and Social Care, which includes helping to tackle elective backlogs in the NHS and plans to spend £8 billion by 2024-25; these were raised during the debate. That includes an 50,000 extra nurses in the NHS. The Government accept in full that this year’s recommendations from the independent NHS pay review bodies are in stone—a pay rise, that is, for over 1 million staff.
On the social care side, the Prime Minister and the Secretary of State for Health and Social Care announced a £500 million adult social care discharge fund; I have mentioned it at least twice in this debate, I think, but it is worth mentioning it again. This will bolster the social care workforce, which the noble Lord, Lord Tunnicliffe, raised as a concern. It will also help people out of hospitals and into crucial social care support.
In what was a rather downbeat speech, if I may say so, the noble Baroness, Lady Bennett of Manor Castle, raised issues including stability, businesses and individuals who are not able to make decisions, and spending cuts and austerity. As always, I listened to what she said. My response is that the Chancellor has taken swift action today precisely to ensure that the country’s economic stability is sound and to show commitment to sound public finances. That is very important. This matter will be discussed further when the Statement is made to the House. I say again that spending restraint is needed. Departments have been asked to find efficiencies. Priority will be given to those at the vulnerable end of society.
The noble Lord, Lord Tunnicliffe, spoke about fiscal sustainability. He asked whether I could outline how much higher the cost of borrowing is at present compared with in the weeks and month before—as he put it—the disastrous mini-Budget. The Government are taking action to assure the markets of their credibility and reduce the amount of borrowing needed. In his Statement today, the Chancellor made it clear that the UK’s public finances must be on a sustainable path in the medium term.
I will finish on this note: to state the obvious, as we all now know, the Chancellor will publish his medium-term fiscal plan, including a fully costed plan, on 31 October. I will leave it there. Once again, I thank noble Lords for taking part in this short debate.
Baroness Brinton (LD)
I listened carefully to the Minister’s response. He did not respond to the points made by the noble Baroness, Lady Kramer, and the noble Lord, Lord Lipsey, about the social care cap, which is terribly important but has been absolutely invisible. I have heard no announcements from either the most recent Chancellor or the new one. The problem is that the Government planned to introduce legislation via regulation to allow people to have money given to them for social care because of the cap that was being set in place. Because this Bill focuses only on national insurance contributions, it is not at all clear what is happening with that cap. If the cap continues, local government in particular will be in even more of a crisis because a large part of the levy was to fund the new social care cap. If you take away the income but do not change the system for local government, it will have a large black hole. I would be grateful if the Minister could add that point to his increasingly long letter.
Viscount Younger of Leckie (Con)
I thank the noble Baroness for that. I know that I cannot give a full answer, partly because we have a new Chancellor, but I can perhaps be a little helpful in saying that we have provided councils with £1.6 billion each year in new grant funding to meet core pressures in social care and other services; that is the largest annual increase in more than a decade. I can tell that this may not satisfy the noble Baroness entirely so I will add whatever I can to my increasingly long letter.
Baroness Bennett of Manor Castle (GP)
I have a question that is easier, and which may not need to be added to the letter. Does the Minister acknowledge that the Treasury sees that the overall state of public health, the health of the nation—which addresses issues such as obesity, the rate of diabetes and heart disease, and issues such as poor housing contributing to asthma—is an economic issue for the UK?
Viscount Younger of Leckie (Con)
I most certainly acknowledge that and of course agree with the noble Baroness. The challenge for any Government is that there are a whole range of priorities, including defence and all other departments, but I cannot disagree with her; these are all very important. There are so many other priorities but, essentially, I agree with the noble Baroness.
Royal Assent
Tuesday 25th October 2022
(2 years ago)
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