Health and Social Care Levy (Repeal) Bill

Lord Sikka Excerpts

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

[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.

--- Later in debate ---

[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.

[Lord Sikka (Lab)]

Will that be in real terms?

[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.

--- Later in debate ---

[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—

[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.