Health and Social Care Levy (Repeal) Bill

Lord Davies of Brixton Excerpts

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

[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—

[Lord Davies of Brixton (Lab)]

My Lords—

[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.

--- Later in debate ---

[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.