Health and Social Care Levy Bill

Lord Sikka Excerpts

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

[Lord Sikka (Lab)]

My Lords, I declare my interests as set out in the register. I am an unpaid senior adviser to Tax Justice Network and will be referring to some taxation issues.

I cannot support this bad and cruel Bill. It does not address the Government’s failures on social care or the NHS. Local councils, which are responsible for social care, have seen their budgets plummet by up to 38% in real terms, and the Bill still does not provide the funding needed to reduce the NHS queues or improve social care. It does not create an integrated healthcare system in which social care is free at the point of delivery. It does not challenge profiteering by private equity, hedge funds and corporations from their involvement in social care and the NHS.

The 1.25 percentage point hike in national insurance, which I would like to popularise as “the Johnson tax”, as that is what we should be calling it, hits the poorest the hardest. Following the Bill, people’s wage packets will show deductions for three direct taxes: income tax, national insurance contributions and, from 2022-23, the newly invented health and social care levy, better known as the Johnson tax in many circles. This is from a Government who promised that there would be no increase in income tax or national insurance contributions.

Before the pandemic, the poorest 10% of UK households paid 47.6% of their income in direct and indirect taxes, compared to 33.5% by the richest 10% of the households. This regressive Bill does not provide any relief for the people at the bottom of the pile. People on the minimum wage will pay the additional national insurance. An employee on a £20,000 wage would pay £130.40 more each year, an effective increase of 10% in the amount of national insurance. This is in addition to the higher income tax which they will need to pay because the Government have frozen the personal allowances, while, at the same time, universal credit is cut by £1,040 for 5.5 million people. Did the Government ever wonder how people will survive? What will happen to social stability?

Many retirees are already struggling on the average state pension of around £8,100 a year and have sought to supplement this meagre pension through part-time jobs. This Bill will force retirees to pay more national insurance on their earned income. The national insurance hike will reduce people’s spending power and have a negative impact on the local economy and household budgets. Levelling up it is not; kicking down it certainly is.

The Government’s PR machine has made much of the 1.25% increase in dividend tax from April 2022. After the increase, dividends will be taxed at marginal rates of 8.75%, 33.75% and 39.35%, compared to marginal rates on earned income of 20%, 40% and 45%. So the tax privileges of the rich continue. At the same time, those receiving unearned income in the form of capital gains and dividends will pay zero national insurance, because it is not charged on unearned income.

Earlier in the debate, the noble Lord, Lord Eatwell, referred to the HMRC policy paper Health and Social Care Levy, which states:

“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.”


Why are the Government hell-bent on hitting the poorest when they will also be facing higher inflation, including higher food and energy prices?

The Government claim that the national insurance hike will raise an additional £11.4 billion a year over the next three years. This could easily have been done without hitting the less well off, and in ways that reduced inequalities and unfairness. Earlier, the Minister said that there is no alternative other than borrowing. He is 100% wrong. For example, by taxing capital gains at the same rates as earned income, the Government could have raised an additional £17 billion a year, plus national insurance contributions of £8 billion. This reform alone would have generated more than double the amount generated by the Johnson tax. The capital gains tax regime benefits only 265,000 taxpayers, mostly resident in London and the south-east of England, so that reform would also have reduced regional inequalities. Again, the Government do not really wish to address that.

By taxing dividends in the same way as earned income, another £5 billion a year in revenue could have been raised, plus the increase in national insurance contributions possibly hitting between £600 million and £1 billion.

I ask the Minister to explain why billions of pounds in unearned income from the sale of second homes, speculation on stock markets and dealings in foreign exchange, commodities, artworks, land and other markets are not subject to national insurance. Does he agree that those tax perks for the rich are unfair and should be eliminated altogether?

Currently, employees generally pay 12% in national insurance on incomes up to £50,270. As other noble Lords have pointed out, the rate on incomes above that is only 2%. This means that high earners pay a lower proportion of their income in national insurance compared to the less well off. By extending the 12% rate to all earned income—just earned income, not including what could be collected from unearned income—an additional £14 billion a year could be raised. Again, the Government do not wish to do that.

I ask the Minister once again to explain why he is content with such a regressive system of national insurance, and why the Government have chosen to hit the less well off rather than inconvenience the rich.

Let us look at the tax relief on pension contributions. Around £41 billion a year is given; most of it goes to people on 40% or 45% marginal rates. Some 1.5 million people get zero tax relief on their pension contributions because their income is less than the personal allowance. Simply ensuring that everybody gets just 20% credit—equivalent to the basic rate of income tax—would leave the Government £10 billion spare.

I have referred to only four ways of raising tax revenues to fund social welfare without adding anything to the basic rate of income tax, the 40% rate of income tax or national insurance contributions for the masses. There are dozens of other ways and if I had more time I would be delighted to go through them. Hurting the less well off is a deliberate choice by the Government, because they have numerous other options available. I cannot really support the Bill as it is very cruel and bad.