Health and Social Care Levy Bill

Lord Hunt of Kings Heath Excerpts

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

[Lord Hunt of Kings Heath (Lab)]

My Lords, for decades, social care has proved to be an intractable problem. After numerous reviews and failed reforms, the level of unmet need rises, the pressure on unpaid carers grows, the supply of care providers diminishes and the strain on the undervalued care workforce ever increases. So, it is welcome that at last we have a proposal before us and, as the noble Lord, Lord Macpherson, has said, a recognition that taxes will have to rise to pay for it.

The problem is that these are the wrong proposals. What the Minister has brought to us today, is essentially a tax increase on younger and low-paid workers so the wealthy can retain more of the value of their properties to pass on to their children. As we have heard, it is a tax on employment that will hit businesses. It will not, as yet, solve the underlying pressures in social care.

What a flimsy Bill it is. It is treated—remarkably—as emergency legislation, despite the fact that the Government have had 11 years to bring forward proposals to Parliament. There have been no cross-party talks about this and no consultation, and no Select Committee was allowed to scrutinise the Bill before it was brought before Parliament. Clause 4, as my noble friend Lord Eatwell said, is remarkable in the power it gives to the Treasury to make any change it seems to want to in relation to the proposals before us. If this Bill were to receive proper parliamentary scrutiny, it would be torn to bits. No wonder the Minister spoke for less than five minutes.

My noble friend Lord Eatwell has already referred to the remarkable commentary from HMRC on this tax rise. I will repeat one comment that he made. HMRC 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.”


As my noble friend said, how can the Minister justify that? What does he say to the CBI, which commented that a national insurance increase

“will directly hurt a business’s ability to hire staff, at a time when businesses have faced a torrid 18 months and are now fighting crippling labour shortages”?

Indeed, having listened to the Prime Minister and Ministers last week, I might ask whether the Government have any interest at all in the future health of our business sector. It seems not.

Unfair as it is, will this levy be sufficient? In his opening remarks the Minister remarkably claimed, without any evidence whatever, that this will put social care on a long-term sustainable footing. But we have already heard that the levy is projected to raise £36 billion over the next three years, that all the money raised in 2022 will go to the NHS and that for the remaining two years £5.4 billion will be invested in social care. This money is not designed to alleviate existing funding pressures on the system, yet these are immense. The committee chaired by the noble Lord, Lord Forsyth, published an excellent report which estimated that an £8 billion yearly increase would be needed to restore care provision to 2010 levels—he has already referred to that. But the £5.4 billion, one assumes, is to be allocated primarily to implementing the cap.

The Health Foundation, following up on the Select Committee report, set out at the beginning of this month what it may cost the Government to fund the NHS and social care system in England, along with workforce requirements, over the next 10 years. It looked at two projections, stabilisation and recovery, and stated that both of them would need much higher growth than in recent years. It said that

“an additional £8.9bn and £14.4bn is needed in 2030/31 over 2019/20 for the stabilisation and recovery scenarios respectively.”

Does the Minister really think that the levy is the answer to that, when most commentators reckon that, in the end, the NHS is going to need almost all of the levy and is likely to get it?

The claim that no one will be forced to sell their own home is surely questionable. My estimate is that on average a person will have to spend at least £160,000 before they get to the £86,000 cap. This takes account of a modest calculation of living costs at about £12,000 per annum, and the fact that the £86,000 cap, as the noble Lord, Lord Forsyth, who is surely right, said, will be calculated on local authority rates—despite the fact that the self-funders subsidise those local authority rates. Even when a person reaches the cap, they will still have to find living costs on an annual basis, and it is quite likely that the local authority will still pay only at the local authority rate, so many people will have to pay top-ups as well. Melissa Lawford in the Sunday Telegraph put the estimate much higher. She thought a self-funder would receive government support only after five years, having spent £296,000. The puzzle to me is that no effort at all has been made to encourage and incentivise the insurance market to provide a more effective way of support for self-funders.

The ABI, in a commentary it set out over the weekend, said that the cap should be viewed as a solution to avoid catastrophic care costs and not as a way to enable a private market to develop. A cap, in itself, would not prompt a market to develop. Why on earth are the Government not seeking to incentivise a private market to develop to help self-funders, allowing the Government to concentrate on the proper provision of social care for those who cannot afford to pay above any insurance prospect?

Why have the Government spent so long dithering about implementing Dilnot when they should have been thinking about a much more concerted approach to dealing with these issues, to encourage as many people as possible to support themselves while shoring up the pitiful state of our social care system at the moment? There is no plan. We are promised a White Paper in December. Does any noble Lord think that this is going to be well thought through in a way that will deliver a good social care system for us going forward?

What about carers? The right reverend Prelate asked what this would mean for carers. I would just say to him, as Carers UK has said, that carers have been propping up a chronically underfunded healthcare system at huge cost to their own personal health, finances and ability to stay in work. It is very telling that nothing, in all the claims the Government have made, has been said about how carers will be helped.

Paul Johnson of the IFS recently described our social care system as the unfinished business of the National Assistance Act 1948. It enshrined, he said, a Poor Law philosophy of both needs-tested and then means-tested moving into the social care system, to be run in parallel with the free at point of use NHS.

This Bill is not the answer to that. It will not transform social care; it will not help care workers get the pay, terms and conditions they deserve; it will not help unpaid family carers. Instead, we have a huge, missed opportunity and a tax on the youngest and lowest-paid workers for the benefit of the better off. This Bill will not do.

--- Later in debate ---

[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?