Health and Social Care Levy (Repeal) Bill

Baroness Kramer Excerpts

2nd reading & Committee negatived & 3rd reading
Monday 17th October 2022 Lords Chamber

[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.

--- Later in debate ---

[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.

[Lord Sikka (Lab)]

My Lords—