Health and Social Care Levy Bill

Lord Agnew of Oulton Excerpts

2nd reading & Order of Commitment discharged & 3rd reading
Monday 11th October 2021 Lords Chamber

Moved by

[Lord Agnew of Oulton]

That the Bill be now read a second time.

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, it is a pleasure to open this Second Reading debate on the Health and Social Care Levy Bill. This is a short but very important Bill that aims to legislate the plan announced by the Prime Minister on 15 September. The plan will 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.

The Government’s plan will make a substantial difference to the lives of millions of people across this country. It will be funded with a record £36 billion investment in the NHS and social care systems. Noble Lords will be aware that such an ambitious plan requires funding. In order to pay for a significant increase in spending in a responsible and fair way, the Bill before the House today introduces a new 1.25% health and social care levy. The levy will apply UK-wide to taxpayers liable to class 1 employee and employer, class 1A, class 1B and class 4 self-employed NICs. However, it will not apply where taxpayers pay class 2 or class 3 NICs. It will be introduced from April 2022 and, from April 2023, the levy will also apply to those working over the state pension age.

Noble Lords may be aware that it takes time for HMRC to prepare its systems for such a major shift. That is why, as set out in Clause 5 of the Bill, in 2022-23, the levy will be delivered through a temporary increase in NIC rates of 1.25% for one year only. I would like to make it clear that all net revenues generated by the temporary increase in NIC rates will be ring-fenced and paid to NHS England, NHS Scotland, NHS Wales and the equivalent in Northern Ireland. From April 2023, the temporary rise in NIC rates will be replaced by a formal legal surcharge of 1.25%. Clause 2 of the Bill sets out that this revenue will be ring-fenced for health and social care only.

It is the intention that existing NIC reliefs and allowances will also apply to the levy. That will mean that 40% of all businesses will not be affected due to the employment allowance. When it comes to individuals, those earning more will pay more. The top 14% of taxpayers will pay around half the revenue raised. Conversely, at least 6.2 million people earning less than the NIC primary threshold will not pay the levy at all.

Let me once more remind Noble Lords today why this levy is so crucial. As the Prime Minister and the Chancellor have said, this levy will enable the Government to properly fund the NHS, so that it can recover from the pandemic. Senior NHS leaders have made clear that without additional financial support we will not properly be able to address the significant backlog in the health service. To get everyone the care they need will take time and will require additional revenue.

In addition, our social care plan aims to create a dramatically expanded safety net for people in their later life. This means that, instead of individuals having to bear the financial risk of catastrophic care costs themselves, we as a country are deciding to share more of that risk collectively. This is a permanent, new role for the Government and a structural increase in the size of the British state. We therefore need a permanent, new way to pay for it. Noble Lords will be aware that the only alternative would be to borrow indefinitely. That would clearly be the wrong course of action when our national debt is already the highest it has ever been in peacetime. Borrowing ever more today just means higher taxes in the future.

We need to fund our vision for the future of health and social care in this country over the longer term. As the Prime Minister said, with proper funding, we can tackle not just the NHS backlog and expand the social care safety net but afford the nurses’ pay rise, invest in the best equipment, prepare for the next pandemic, provide the largest investment ever to upskill social care workers and build the modern, more efficient health service that the public across the UK deserve.

To conclude, this 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 to social care, and it will allow the Government to fund our vision for the future of health and social care in this country over the longer term. I beg to move.

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[Lord Agnew of Oulton (Con)]

My Lords, this has been an interesting debate. The quality of speakers has been very high, and I am aware that most of them know far more about these issues than I do—so it is with a certain humility that I attempt to reply. Also, as someone who does not appear that often, even I have noticed that I do not necessarily have the mood of the House with me on this Bill. However, I will spend longer in summing up than I spent in opening, to try to address some of the concerns and at least put the Government’s point of view on the many challenges that have been raised.

I will start with my noble friend Lord Forsyth, the noble Lords, Lord Eatwell and Lord Shipley, and the noble Baronesses, Lady Tyler and Lady Kramer, on the fundamental issue of the use of national insurance as the linchpin for this tax raising. We need a broad-based tax, such as income tax, VAT or national insurance, to raise the sums needed for such a significant investment. There is a precedent here. In 2003, the Labour Government increased the same NIC rates by 1%, specifically to increase funding for the NHS. There is an existing NIC ring-fence for the NHS. The NIC system already directs a ring-fenced proportion of receipts to the NHS. This ring-fence was established in 1948 and expanded by the Labour Government in 2003. I cannot provide the noble Lord, Lord Eatwell, with a cast-iron guarantee that the hypothecation will remain in perpetuity, but we see the principles here and, as my noble friend Lord Hannan said earlier, rarely do these taxes, once created, go away—so I hope to give some reassurance on that.

This also ensures that businesses contribute to the NHS. That is fair and reasonable, because they need a workforce that benefits from the NHS. Lastly, NICs apply on a UK-wide basis.

The noble Lords, Lord Macpherson and Lord Sikka, asked why we have not included rental income in the widening of the net. We have included dividends while excluding modest amounts of dividend, up to £2,000 a year. With regard to income from property, tax is currently levied at the same rates as income tax on earned income. Divergence in these rates would add complexity and create opportunities for avoidance. Those who earn their income from property have made a contribution to public finances. The property allowance has been frozen, as have the personal allowance higher rate and additional rate thresholds.

The Government are making sure that landlords continue to make a contribution. For example, we have restricted tax reliefs available to landlords. Over the past four years we have restricted relief for finance costs: it can now be claimed only at the basic rate, not at 40% or 45%. That has raised more than £1 billion. The higher rate of stamp duty for additional residential dwellings means that landlords now pay between 3% and 15% extra tax on those properties.

The noble Baroness, Lady Tyler, raised the issue of people over the state pension age, and noble Lords asked about the whole issue of intergenerational fairness. If we were to raise the sums required just for those over 40, the levy would need to be 60% higher, at around 2%. This would be a much larger burden on working people. Furthermore, around half of all the funding raised by the levy will go towards health and social care services that benefit working-age people, such as general NHS funding and vaccines. Working-age people will also benefit from limits on what they would need to pay if they themselves needed care in later life, and they will gain the peace of mind that comes from protecting their family members from substantial costs.

The noble Lords, Lord Eatwell and Lord Sikka, my noble friend Lord Forsyth and the noble Baroness, Lady Tyler, asked about the impact on the lowest paid. In relation to individuals, NICs are a progressive way to raise money: the highest-earning 14% will pay about half the revenues raised, while 6.2 million people who earn less than the NIC threshold of £9,500 will be kept out of the levy. I accept the points raised by two noble Lords about the cliff-edge nature of NIC contributions for higher earners, but the brutal reality is that, in the round, that top 14% will be paying around half of the total. That goes to the crux of this whole debate: we have tried very hard to ensure that this is a broad-based tax—as broad as possible.

Lower-income households will be large net beneficiaries from the package, with the poorest households gaining the most as a proportion of income. As was noted by one noble Lord, the highest 20% of households by income will contribute 40 times as much as the poorest 20%. One can make arguments about how much the bottom and top earn; nevertheless this is a highly redistributive approach to a difficult tax and an issue that all parties have dodged for 20 years. It is a genuinely progressive policy, and the distributional analysis published by the Treasury makes that clear.

Going beyond that, since 2010, Conservative Governments have consistently kept lower-paid people out of tax and kept the cost of living down. The income tax personal allowance threshold has increased by over 90%, meaning that a typical basic rate taxpayer now pays £1,200 a year less than they would have done otherwise. We also increased the NIC primary threshold by over £800, in April of last year, with a typical employee saving just over £100. In April of this year, we increased the national living wage to £8.91—an annual pay rise of £350 for someone working full time on the national living wage. Taken together, our changes to national insurance mean that someone working full-time on the minimum wage is currently £5,400 better off than in 2010.

The noble Lords, Lord Eatwell and Lord Macpherson, asked about the impact on employers. Some 70% of the money raised from businesses will come from the largest 1% of employers, and some 640,000 employers are excluded through the assistance at the bottom end. Again, as a Conservative Minister myself, I do not like raising taxes for anybody, but we have tried to broaden this tax as much as possible. Around 40% of businesses will not be affected by the levy. The noble Lord, Lord Macpherson, and my noble friend Lord Hannan, are not happy about a tax on jobs. The OBR will consider the economic effects of the levy in the light of its updated economic and fiscal forecasts, which will be published in the next couple of weeks alongside the Budget.

The noble Lord, Lord Eatwell, asked about the tax bill on the UK. We have had to take these difficult decisions because, as I said in my opening comments, this is a permanent increase in taxation for a permanent challenge that we face in a country with aging demographics. Our tax system remains competitive, with our tax take as a share of GDP lower than major international competitors, and broadly in the middle of the G7.

My noble friend Lord Forsyth asked about anti-avoidance rules, which is a very important question. I suspect, pragmatically, that there will be some fiddling around at the edges in the March/April threshold, but this whole piece of legislation will be subject to the full anti-avoidance rules that apply to NICs. Indeed, the recent work on IR35 would probably have been the biggest area of weakness had we not engaged in those reforms. The noble Lord might be interested to hear that even government departments are being threatened with fines by HMRC for non-compliance with IR35, so HMRC is out there already.

The noble Lord, Lord Eatwell, and the noble Baronesses, Lady Brinton and Lady Kramer, asked about hypothecation. I touched on this earlier. In 2022-23, all revenue from the health and social care levy will be directed to NHS England and equivalent bodies in Scotland, Wales and Northern Ireland through the existing NHS allocation. From 2023-24 onwards, levy revenue will be ring-fenced in law for health and social care. HMRC will pay the proceeds to those responsible for health and social care in all four parts of the UK, including NHS Scotland, NHS Wales and the equivalent in Northern Ireland.

The noble Baroness, Lady Fraser, asked about devolution and our way of handling that. This is absolutely a UK-wide problem. We have taken the decision to act on a UK-wide basis for the benefit of citizens across the UK. Scotland, Wales and Northern Ireland will receive Barnett consequentials on the additional health and social care funding in the usual way, with exact totals to be confirmed in the SR. Early indications are that, pro rata, the populations of the devolved authorities will receive more money from this approach.

The noble Baroness, Lady Brinton, asked about the funding specifically for social care. The Government are committed to spending £5.4 billion across three years on adult social care from this levy. This funding will end unpredictable care costs and include over £0.5 billion to support the adult social care workforce, in recognition of their efforts over this terrible pandemic. It includes funding to enable all local authorities to move towards paying providers a fair rate for care, which should drive up the quality of adult social care services, improve workforce conditions and increase investments.

Several noble Lords asked about funding for local authorities. We are committed to ensuring that local authorities have access to sustainable funding for core budgets at the spending review. We will ensure that every council has the resources they need to deliver these reforms.

The noble Lord, Lord Griffiths, spoke movingly and clearly understands this sector very well. I would like to reassure him that substantial support has been provided to the social care sector through the pandemic—for example, billions of items of free PPE prioritised to care workers, residents and unpaid carers for vaccination. We have made available £2.4 billion in specific funding for adult social care. This is made up of £1.75 billion for infection prevention and control, £522 million for testing, and £120 million to support workforce capacity. This funding is additional to the £6.1 billion for local authorities to deal with the impact of the pandemic on their services, including adult social care.

I turn to some specific questions on social care spending. First, on the size of the cap, the new £86,000 cap will end unpredictable care costs so that more people can preserve their savings and assets. Andrew Dilnot’s report was published 10 years ago and reflected the circumstances in 2011. Clearly, levels of wealth and asset prices have increased since then. We think that we have set the cap broadly at the right balance of achieving personal responsibility for planning for old age but putting in place a safety net where exceptional costs or periods of care are needed.

On domiciliary care, I think my noble friend—

[Lord Hunt of Kings Heath (Lab)]

Would the noble Lord give the House an estimate of how much a person would really have to spend before they reach the £86,000 cap? Does he agree that it will be at least double?

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[Lord Agnew of Oulton (Con)]

My Lords, more detail will be set out in the Budget and spending review in the next two or three weeks to address the noble Lord’s question.

The noble Lord, Lord Hunt, my noble friend Lord Bethell and the right reverend Prelate asked about help for carers specifically.

[Lord Forsyth of Drumlean (Con)]

I apologise. My noble friend was about to answer the question on domiciliary care.

[Lord Agnew of Oulton (Con)]

Yes, sorry. I lost my thread. There will be no changes to existing procedures.

Noble Lords asked about support for unpaid carers. Of course, they play a vital role in the care system. I suspect that there is hardly anyone here in the Chamber who has not been involved in the care of their parents at the end of their lives on an unpaid basis. I certainly had to—but luckily I am one of seven siblings and we all live in the same county. None the less, it is a considerable burden.

The Care Act encourages local authorities to support unpaid carers and to provide preventive care to stop people’s early care needs escalating. A new cap on care costs will offer greater certainty to unpaid carers and support informed decision-making and planning for the overall costs of care.

The Government will take steps to ensure that the 5.4 million unpaid carers have the support, advice and respite they need, fulfilling the goals of the Care Act. We will work with the sector, including unpaid carers, to co-develop more detail in our plans and will publish further detail in the White Paper for reform later this year—and on the matter of the White Paper, I say to noble Lords that it is not long now. It is only a couple of months; it has been promised before the end of the year, and I am perhaps a little more optimistic than some Members of the House.

[Baroness Kramer (LD)]

Before the Minister leaves this area of exploration, does he have an answer to my question on whether the Government will pick up the costs of the additional national insurance to be paid by those to whom local government outsources services? I believe it is a yes or no answer.

[Lord Agnew of Oulton (Con)]

I cannot give the noble Baroness a clear answer on that now. More detail will be available in the Budget and the spending review. If it does not transpire in those documents in the next couple of weeks, the noble Baroness can write to me and I will investigate further.

On the adult social care workforce, our investment is at least £500 million across the three years to deliver new qualifications, progression pathways and mental health support. This workforce package is unprecedented investment: it is something like a fivefold increase in public spending on skills and training for this sector.

The noble Lord, Lord Griffiths, asked about vaccines for NHS staff. He is correct that at the moment there is no requirement for NHS staff to be vaccinated. However, we have a consultation under way to try to find the best way through on that sensitive issue.

I have probably answered the noble Baroness, Lady Kramer, as much as I can on the compensating of NICs. Just to confirm, I say that the Government will compensate public sector bodies such as the NHS for the increased cost of employer NICs. If they did not, they would simply reduce the amount available. The Chancellor will set out more details in his spending review.

My noble friend Lord Bethell asked about NHSX funding. We remain absolutely committed to all aspects of technological improvement. Again, I am more optimistic over the long term because I believe we will find new ways of treating this sector more efficiently, and NHSX will play a part in that.

My noble friend Lord Naseby made a point about the structure of GPs’ surgeries. We will have to see some dramatic changes in that area. In my view, we cannot sustain surgeries in which five-sixths of the doctors are working only part-time, but again I think this will throw up opportunities. The two sectors will have to work much more closely together—

[Baroness Thornton (Lab)]

The Minister is straying into territory that I think is probably unwise. The noble Lord, Lord Naseby, made various assertions, but there is no proof that part-time doctors and GPs are less efficient or that this is a less efficient way of working. We know that this absolutely is not the case in lots of other places, and there is no proof that it is in this case. The Minister might be wise not to go there.

[Lord Agnew of Oulton (Con)]

I respectfully disagree with the noble Baroness on that. Your Lordships are having a much more detailed debate on health reform very shortly, so I am sure that will be teased out in those discussions.

The noble Lord, Lord Lipsey, asked about the White Paper. As I said, we certainly hope to see that out in the next few weeks.

The noble Lord, Lord Desai, asked about the taxation of carried interest and private equity firms, but I suspect he was being slightly disingenuous as he knows we are not extending this to capital gains tax, only to dividends. No doubt there is a separate debate to be had on that, but at the moment it is a capital gain.

The essence of this debate is the fairness of the way the tax is being structured—

[Lord Eatwell (Lab)]

It is fortunate that the Minister just brought up once again the issue of fairness and the discussion of it in the House. At the beginning of his speech, he referred to the proportion of the total raised from—I think he said—the top 14% of payers. This is a completely bogus statistic and has nothing to do with fairness. Let me give him an example. Let us suppose that someone earns £1 million and there is a 10% levy. They pay £100,000 on the levy and have £900,000 left. Then let us suppose that someone earns £10,000 a year—they would still be caught by this levy, by the way—and, to keep the numbers easy, that they still pay 10%. Their income has gone down from £10,000 to £9,000 and, as Marcus Rashford has said, they are choosing whether to eat or to stay warm. To understand fairness is to understand the impact on individuals of the measures taken. Using these absolutely bogus numbers, which are not at all representative of fairness, simply distorts and degrades the debate.

[Lord Agnew of Oulton (Con)]

I take on board the noble Lord’s points, but the reality is that the highest-paid in this country are paying the largest contribution to this tax and indeed PAYE itself. I accept entirely what he says about the impact being disproportionately greater on poorer people, but that is why we have designed the structure to protect as many people as possible. As I mentioned in my opening comments, some 6 million people will not be subject to this at all, and we have kept 40% of smaller businesses out of it. Those on higher earnings will pay a lot more, and that is an important principle, but I absolutely accept the point he made.

I am grateful for the opportunity to explain the Bill and address the issues that have arisen today, and I now commend the Bill to the House.

Bill read a second time. Committee negatived. Standing Order 44 having been dispensed with, the Bill was read a third time and passed.