Business leaders slam Boris Johnson's £12bn National Insurance raid warning it will cripple Covid-hit firms as the PM says he can't rule out MORE hikes on top of biggest-ever tax burden after pledge to cap social care costs at £86,000 

• Boris Johnson is unveiling a manifesto-busting £10billion tax raid to bail out the NHS and reform social care 
• The PM is defying critics in the Cabinet and beyond by pushing up national insurance to raise more revenue 
• Mr Johnson warned that the NHS 'cannot recover' from the pandemic without a massive cash injection
• The premier said it was time to end scandal of pensioners having to sell their homes to fund care in later life

Business leaders have slammed Boris Johnson's pledge-breaking £12billion national insurance raid as a 'kick in the teeth' for Covid-hit firms - as the Prime Minister admitted he cannot rule out even more hikes.

In a bold package that could make or break his premiership, Mr Johnson is pushing up NI rates by 1.25 percentage points from April. A typical higher earner will be paying more than £700 extra.

Finally revealing his vision for social care in England, he said reform can no longer be 'ducked' and the elderly should not lose their life savings and homes due to the 'bolt from the blue' of dementia.    

At a press conference alongside the Chancellor and Health Secretary, Mr Johnson argued that one in seven people now faced care costs of more than £100,000 and wider society needs to 'share the risk'.  

'Everyone knows in their bones... we can't now shirk the challenge of putting the NHS back on its feet,' he said.

Rishi Sunak insisted: 'This is a permanent new role for the government. And as such we need a permanent new way to fund it.' 

Business leaders today reacted with fury, saying the move will 'dampen the entrepreneurial spirit needed to drive the recovery'.    

According to the TaxPayers' Alliance, it means the overall tax burden will reach the equivalent of more than 35 per cent of Gross Domestic Product (GDP), its highest ever sustained level. It has only ever been higher during very short term fluctuations in financial policy.

The Institute for Fiscal Studies said yesterday's 1.25 per cent rise in national insurance for 25million people, together with other tax rises already announced, would take the tax burden to its highest ever sustained level.

It might have been higher in 1969 and it was higher in the late 1940s. But apart from these short-term fluctuations, it is the highest on record.

The IFS also said that the announcements meant government spending would come out of the Covid crisis at 42.4 per cent of national income – higher than before the pandemic and a record level in peacetime.

Isabel Stockton, a research economist at the IFS, said: 'Following just six months after the March budget, itself the biggest tax-raising budget since Norman Lamont's 1993 spring budget, today's announcements push taxes to their highest-ever sustained share of the economy.

'Equivalently, government spending is set to reach a record peacetime level.

'Long-term challenges around rising costs of health and social care means this increase in the size of the state is likely here to stay.'

Ministers insisted the 1.25 per cent rise in national insurance – which will be dubbed a 'health and social care levy' – was much fairer than other tax rises because it falls on business as well as individuals.

To raise the equivalent amount in income tax would require an increase in individuals' tax of 2 per cent.

A typical basic rate taxpayer earning £24,100 will contribute £180 in extra NI in 2022/23, while a typical higher rate taxpayer earning £67,100 will contribute £715. For the first time, the NI will be charged on people working over the state pension age of 66.

But Tom Waters, a senior research economist at IFS, said that the changes continued a long-term trend of moving taxation from pensioners towards those in work. 'The overwhelming majority of the tax rise will fall on working-age individuals, a consequence of using national insurance rather than income tax to raise the revenue,' he said.

'This is the latest in a long line of reforms which have tilted the burden of taxation towards the earnings of working-age people and away from the incomes of pensioners.'

John O'Connell, chief executive of the TaxPayers' Alliance, said low-paid workers and struggling employers will be hit hard – 'laying the groundwork for more demands for cash'.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said further tax hikes could be on the horizon.

'We knew the government was going to be hiking taxes to claw back as much money as possible after spending record peacetime sums propping up the economy during the pandemic, and this marks the first wave of bad news,' she said.

'This announcement clobbers workers and investors, and is unlikely to be the end of the bad news.

'We don't yet know what it has up its sleeve, but we do know the tax environment for savers and investors is unlikely to get more generous in the near future.'

Helen Morrissey, senior pension and retirement analyst at Hargreaves Lansdown, said: 'The number of people who continue to work past state pension age has grown hugely in recent years with approximately 1.28million currently in work.

'This reflects increasing longevity and the fact that many people continue to work because they want to. It makes sense that this group also contributes to this levy.'     

The respected IFS think-tank said the changes added to a 'huge year for tax rises' following the March Budget, with the tax burden on course to reach its highest-ever sustained level during peacetime.  

Extraordinarily, Mr Johnson said he was unable to give a firm commitment that taxes will not have to be increased further. 'I certainly don't want any more tax rises this parliament,' he said after being repeatedly challenged on the issue, stressing that fiscal changes were a matter for the Chancellor. 

From October 2023 no-one should have to pay more than £86,000 for care over their lifetimes. Alongside the cap, there will be a 'floor' of £20,000 in assets, with anyone who has less than that not being required to contribute to costs. 

Lord Bilimoria, President of the Confederation of British Industry (CBI), said that although there is 'genuine consensus' that social care reforms and greater investment are long overdue, businesses 'are already set to be hit by a substantial rise in corporation tax in 2023'. 

He added: '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. Government must be wary of heaping further pressure on businesses who will be central to the recovery, particularly by making it more expensive to recruit.

'This autumn will be a critical period if we are to drive a sustainable recovery. The Government must use all the levers it has in its power to encourage more businesses to invest in the months to come and do everything it can to encourage growth.' 

The boss of manufacturing trade group Make UK said the new social care tax's introduction was 'ill-timed as well as illogical'. Stephen Phipson said that 'firms need capital to reset', and told the BBC: 'After witnessing large scale redundancies at the height of the pandemic and the plug being pulled on the furlough scheme, government should be putting in place measures to protect jobs and incentivise recruitment.' 

Suren Thiru, head of economics at the British Chambers of Commerce, said: 'This rise will impact the wider economic recovery by landing significant costs on firms when they are already facing a raft of new cost pressures and dampen the entrepreneurial spirit needed to drive the recovery.'

Director of the Institute for Fiscal Studies (IFS) Paul Johnson told the BBC's World at One programme a National Insurance increase was 'not the right' way to pay for social care reforms. He added: 'We always knew we were going to need tax rises during this decade to pay for health and social care. 

'This is not the right tax rise - income tax would be better, some other ones would have been better.

'If you had to do something with income tax, National Insurance or VAT, it would have been better if it had been something which impacted all generations similarly, it would be better if it affected people with rental income and so on.'

'You've kicked us when we're down': Small business bosses blast Boris over £12bn tax raid that will 'hit them twice in pocket' by making them pay NI hike as BOTH employers and employees 

Sandra Wilson - owner and director at Cottrell Moore Limited, a recruitment, Human Resources and training company based in Ipswich, Suffolk 

'The Manifesto pledge was put together prior to the global pandemic and, unless I'm missing something, the Government didn't have a crystal ball to know it was coming. 

'Therefore, as much as we dislike any increase we all have to appreciate that tremendous costs have been incurred to keep the country going and they need paying back. 

'I do however think that the NHS requires proper management of costs, we can't just rely on increased taxes without the costs being managed effectively, too.'

 

Karen Watkins - an organisational coach, HR expert and founder of Rowan Consulting in Highbridge, Somerset

'Yet another massive kick in the teeth for those hit hardest over the past year and a half, including those just entering the workforce to those small business who continue to be the forgotten.

'It also contradicts any form of so called 'levelling up'. Shame on you, Boris.'

 

Natalie Bamford - managing director at Colleague Box, a Derby-based company offering personalised gift boxes

'This is a textbook example of how to kick a person when they're down.

'Inevitably we were going to have to pay for the pandemic but aren't we still in the pandemic? 

'For a nation that is still mourning the loss of 'normal life', it just feels like this is another blow and another reason for feeling thoroughly deflated.' 

 

Jez Lamb - founder of Beers@No.42, an online drinks retailer based in Birkenhead on the Wirral

'Things are tough enough as they are for us small business owners and the Government seems to want to make it tougher still. 

'As a business owner you're effectively hit in the pocket twice with contributions both as an employer and employee. 

'As we emerge from the pandemic it's like coming up for air only for another wave to knock you back under.'

 

Matthew Fleming-Duffy - director at Cherry Mortgage and Finance, an independent mortgage broker in Christchurch, Dorset 

'I completely understand the need to increase tax receipts post-pandemic, but why should National Insurance bear the brunt of these increases? 

'Corporate tax avoidance in the UK is shameful, so surely firms such as Amazon, Netflix and Google - who have seen profits surge during the lockdowns - should be brought to the taxman's dinner table sooner rather than later?'

 

Kate Allen - owner at Salcombe Finest, a luxury holiday lettings firm in Devon 

'As a small business owner in the hospitality industry, single mother and with my parents soon to become octogenarians, it feels like yet another grab for the income I am clawing to keep hold of. 

'Whilst I can't deny Boris' cause, I question the governments ability to actually deliver on this project without wasting our hard earned cash.

'The breaking of a manifesto pledge is sadly unsurprising for this government.'

 

Rhys Schofield - managing director of Peak Mortgages and Protection, a mortgage and life insurance firm based in Belper, Derbyshire 

'Frankly it's bloody annoying. What we have is a tax on jobs, which isn't a great idea with the furlough scheme about to end. 

'Yet the low hanging fruit of unearned wealth and capital gains remain untouched. You have to ask yourself why? Probably because the elderly and wealthy regularly vote for the current party in power and they don't want to alienate their voters and party donors.' 

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There was also grumbling from the Tory benches, with MPs demanding to know if Mr Johnson still believed in 'low taxes' and warning that the NHS will simply suck up the extra money without making genuine improvements. 

Business chiefs have responded with anger to the plans, with the British Chambers of Commerce warning increasing national insurance contributions 'will be a drag anchor on jobs growth at an absolutely crucial time' while the CBI said 'now is not the time for tax increases'.

Just £5.3billion of the £36billion of revenue raised in the next three years is expected to go to social care, with the rest earmarked for a huge 'catch up programme' to stabilise the NHS after the pandemic.       

Critics have slammed the policy, pointing out that younger workers will be disproportionately affected by the hike, effectively subsidising care for sometimes-wealthy older people. 

Mr Javid said he could not specify how the funding will break down between the NHS and social care after three years as there are too many 'assumptions'.  

Social care chiefs welcomed the moves, but warned they will not be enough to tackle the problems being driven by the aging population and staffing shortages. And a snap Savanta ComRes poll suggested the public is split almost down the middle over whether it was right for the PM to breach the manifesto, with 46  per cent saying it is acceptable and 42 per cent the opposite. 

From October 2023 no-one should have to pay more than £86,000 for care over their lifetimes. 

Alongside the cap, there will be a 'floor' of £20,000 in assets, with anyone who has less than that not being required to contribute to costs. 

Between that and £100,000 in assets people will be asked to pay part of the bill. 

Mr Johnson said it would be 'irresponsible' to pay for the overhaul from borrowing and he had to make 'difficult' decision. The PM openly admitted that he was breaking a manifesto commitment not to raise NI, but swiped: 'A global pandemic was in no-one's manifesto.' 

He said the money will not go to 'middle management'. 'It will go straight to the front line,' he insisted. 

The Cabinet agreed the controversial package at its first face-to-face meeting since the summer break. Despite disquiet among ministers and on the Tory benches, there seems little appetite for a major revolt in a vote slated to happen tomorrow.

National insurance will be hiked on 25million workers and millions of firms, in a move that will cost employees on £30,000 a year an extra £255 a year in tax. A typical higher rate earner on £67,100 faces paying £715 more annually. Dividend income will also be subject to an extra 1.25 percentage point levy to ensure the charge cannot be dodged.

From April 2023 the NI increase will be reversed and a health and social care levy will be legally introduced - at which point pensioners who are still earning will also need to pay it. People will still need to contribute to 'room and board' costs when living in a residential home. 

Mr Johnson dismissed complaints about the fairness of using the NI system, saying that the highest earning 14 per cent will pay half the extra. The majority of small businesses will not face an extra burden due to tax reliefs, he added.   

Conservative former leaders Lord Hague and Iain Duncan Smith have joined a welter a criticism of the upheaval, saying that the public will not forget the 'defining moment' of the 2019 manifesto being effectively torn up. 

Mr Duncan Smith said the policy, key elements of which are still unclear, looked like a 'sham' that will not fix the problems with social care.

Sir Keir Starmer said a tax on wealth aimed at 'those with the broadest shoulders' should be used to pay for an improved social care system. 

In a second move, ministers are also breaking their manifesto pledge to keep the state pension 'triple lock'. It will be suspended for a year, with pensioners given around 2.5 per cent, rather than the 8 per cent rise they would have received.  

The IFS' Paul Johnson said the dual nature of National Insurance contributions meant the tax hike amounted to double the 1.25 per cent announced.

Speaking to BBC Radio 4's World At One programme, Mr Johnson said: 'We keep saying 1.25 per cent – it is really 2.5 per cent.

'It is one-and-a-quarter from the employer on every £100 you earn, it is one-and-a-quarter from the employee – you add that up and it is two-and-a-half per cent.

'It is really a 2.5 per cent tax rise on earnings.'

He added: 'This is £12billion on top of £25billion of tax rises in the Budget – this must be the biggest tax rising year in many decades.'

Admitting that tax pledge had been scrapped, Mr Johnson said: 'No Conservative government ever wants to raise taxes and I will be honest with the House, yes, I accept that this breaks a manifesto commitment, which is not something I do lightly.

'But a global pandemic was in no-one's manifesto and I think the people of this country understands that in their bones and they can see the enormous steps this Government and the Treasury have taken.

'After all the extraordinary actions that have been taken to protect lives and livelihoods over the last 18 months, this is the right, the reasonable and the fair approach.'

He told the press conference this evening that the government had to 'take a judgment, make a choice, about what I think is the higher priority', indicating fixing the social care system had also been a manifesto pledge.

'I think that what the people of this country will want after what we've all been through is honesty and fairness and rationality about the situation.'

He said that meant not leaving 'the burden to mount up for future generations'.

Mr Sunak said he felt 'people recognise we're grappling with difficult times'.

Scotland, Wales and Northern Ireland will receive an additional £2.2 billion in additional health and social care spending from the levy. 

Downing Street will be pleased that the Tory response to the plan in the Commons was muted. 

Backbencher Huw Merriman asked the PM why he decided to 'reject other forms of insurance as a model' to fund social care.

He told MPs: 'The Germans brought in an insurance model back in the '80s, facing the same problems that we had. It relies on the private insurance sector and (Conservative peer) Lord Lilley has brought forward a Bill which would see the Government set up a state insurer.

'Those retired householders would then pay a premium, which would be a fixed charge and then that charge would only be paid upon the debt of that individual. Don't those models do a little more to intergenerational fairness?'

The Prime Minister insisted his Government 'looked at all those models', adding: 'I think the problem is that we need to go for an insurance system that it works and has a genuine chance of being set up.

'The only way of encouraging the financial services industry to come in and offer products is to take away that risk of catastrophic cost. And that is too much of a substantial risk for too many people and it means the insurance market hasn't been able to develop.

'We believe this is the best way forward for the country.'

Former cabinet minister Damian Green asked: 'Can (he) guarantee that the social care sector will itself see a significant uplift in its support in the immediate future?'

He said: 'There's been much debate about how the money's being raised, but I think of more concern is how the money is going to be spent. My fear is that once you start spending on perfectly proper things like the NHS backlog, there will never come a point where there's enough money in this new fund to be transferred to social care that needs it now. You can't spend the same pound twice.'

Mr Johnson replied: 'The investments in social care will be protected by the Government and by the Treasury.'

Scotland, Wales and Northern Ireland will receive 15% more in extra social care funding - £300m - than they pay in 

Scotland, Wales and Northern Ireland will receive 15 per cent more in extra social care funding than they will pay in under Boris Johnson's proposals to hike National Insurance.

The Prime Minister said his plans to overhaul the social care system will provide the three countries with an additional £2.2billion a year.

That will be approximately £300million more than their citizens will contribute under the new Health and Social Care levy in what Mr Johnson described as a 'massive Union dividend'.

The extra money for the devolved nations is likely to spark a backlash from Tory MPs over why English taxpayers are effectively subsiding the care systems of other countries.

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He added later: 'I don't think anyone wants to see money just bundled into the NHS without reform.' 

Another backbencher, Richard Drax, said: 'As Conservatives, broken pledges and tax rises should concern us. Our finances are in a perilous state. Surely a radical review of the NHS is needed if this money is not to go and disappear into another blackhole?

'Does my right honourable friend agree with me that the Conservative way to raise revenue is to lower taxes not raise them?'

The Prime Minister responded: 'I do agree with that general proposition.

'But in the current circumstances after 18 months in which it has been necessary for the Government to perform the most enormous fiscal exertions to put its arms around the country at a very, very difficult and dangerous time, I think it is right that we take the steps that we are to put the NHS back on a sustainable footing and to deal with the problems of social care which make long-term solutions for the NHS - the very reform that he and I want to see - so difficult to achieve.'

Former health secretary Jeremy Hunt said a rebellion large enough to defeat the Government was unlikely.

'I can't really imagine any backbenchers wanting to turn round to their own constituents and say they tried to vote down extra money for the NHS and care system,' he told the BBC.

Sir Keir said Mr Johnson had announced 'a tax rise on young people, supermarket workers and nurses, a tax rise that means a landlord renting out dozens of properties won't pay a penny more but the tenants working in full-time jobs would, a tax rise that places another burden on business just as they are trying to get back on their feet'.

'Read my lips: the Tories can never again claim to be the party of low tax,' he added.

Vaccines minister Nadhim Zahawi squirmed as he was challenged on the proposals in a round of interviews this morning, admitting he is not 'comfortable' with the idea of flouting manifesto commitments. 

Downing Street said the PM told Cabinet that a 'new plan is needed' to address the issues with the NHS and social care. Mr Johnson's spokesman said the mood during the hour-long session was 'positive' and there was 'agreement that this is an issue that needs to be tackled'.

The tax rise of 1.25 percentage points shatters the solemn Tory 2019 election vow not to raise national insurance.  

Downing Street has dubbed as 'unfair and often catastrophic' the situation where someone who has dementia may have to pay for their care in full, while someone cared for by the NHS would receive care for free.

Matt Hancock sparks LAUGHTER from MPs and ridicule online as he speaks from the backbenches to insist Britons deserve 'dignity' 

His first words back in the Commons since resigning were always going to prompt an interesting response.

And disgraced former health secretary Matt Hancock was booed and heckled by fellow MPs this afternoon as he stood up to speak from the backbenches in support of Boris Johnson during a debate on social care reform.

The 42-year-old Conservative was forced to quit the Cabinet on June 26 when CCTV from his Whitehall office was leaked of him kissing his married aide Gina Coladangelo in breach of his own Covid-19 social distancing guidance.

And today, he congratulated the Prime Minister following his statement on social care - which will see a £12 billion-a-year tax raid to address the funding crisis - and called for the sector to be integrated with health 'properly'.

While being heckled, Mr Hancock said: 'Thank you very much Mr Speaker. The reform of social care has been ducked for decades because successive governments, successive governments have put it in the 'too difficult' box.

'So can I congratulate the Prime Minister for delivering on our commitments and his commitment, and can I ask him to ensure that as well as the money, we integrate properly the NHS with social care, so that people can get the dignity that they deserve?'

The Prime Minster thanked Mr Hancock, replying: 'Yeah, thank you very much – I want to thank my Right Honourable friend, because he played a major part in the gestation of these policies and he knows them intimately, he knows them well, and he is completely right, and he has been massively encouraging to the Government over the course of the last few weeks.' 

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It said one in seven people now pays more than £100,000 for their care, and said the system can lead to 'spiralling costs and the complete liquidation of someone's assets'.

Under current arrangements, anyone with assets over £23,350 pays for their care in full, but No 10 said the costs were 'catastrophic and often unpredictable'.

Cash will be poured into the NHS to allow it to operate at 110 per cent of capacity to help it start clearing a waiting list that has soared to more than five million during the pandemic and is on course to hit 13million by the end of this year.

The NHS will also be ordered to undergo a major efficiency drive. Ministers hope the money will clear the waiting list backlog by the time of the next election.

Mr Johnson said: 'We must now help the NHS to recover to be able to provide this much-needed care to our constituents and the people we love. We must provide the funding to do so now.

'We not only have to pay for the operations and treatments that people decided not to have during the pandemic, we need to pay good wages for the 50,000 nurses who have enabled that treatment and who can help us tackle waiting lists that could otherwise expand to 13 million over the next few years.'

Mr Johnson said: 'Having spent £407 billion or more to support lives and livelihoods throughout the pandemic from furlough to vaccines, it would be wrong for me to say that we can pay for this recovery without taking the difficult but responsible decisions about how we finance it.

'As a permanent additional investment in health and social care it would be irresponsible to meet the costs from higher borrowing and higher debt. 

'From next April, we will create a new UK-wide 1.25 per cent health and social care levy on earned income hypothecated in law to health and social care with dividend rates increasing by the same amount.

'This will raise almost £36billion over the next three years, with money from the levy going directly to health and social care across the whole of our UK.'

The proceeds of the tax rise of 1.25 percentage points will then be used to fund a new cap of £86,000 on the cost of social care, reducing the risk that people will have to sell their homes to pay for help.

Assets below £100,000 will be at least partially protected from the state – a huge increase on the current system in which people have to fund all their care costs if they have assets of more than just £23,350.

Tory MPs and health experts have warned there is a danger that the entire sum will be swallowed by the NHS, leaving nothing for social care. 

The concern is said to be shared by Mr Sunak, who has sought guarantees he will not be asked for more money for the sector in future.

However, Sally Warren, ex-director for social care at the Department of Health and now with the King's Fund think tank, said there was still a 'big worry' the NHS will keep the funding. 

She told The Telegraph: 'We think this is going to take many, many years. There are lots of uncertainties, but it could take around five to seven years.

'This is not something that will disappear in a year or two if the NHS just works faster - staff are already at risk of burnout.

'Our big worry is if the NHS gets all or most of the money for the first three years, social care just can't wait for that long. And is it realistic to think the NHS will simply hand back money which will be paying for more staff ? That is not realistic.'

The tax hike will be known as the 'Health and Social Care Levy' from April 2023, after HMRC systems are redesigned, and will appear as a separate line on tax statements. 

The Adam Smith Institute's Head of Government Affairs John Macdonald said the announcement was an 'historic betrayal from a supposedly Conservative Government that promised to not raise taxes'.

'It's morally bankrupt to ask poorer workers to bailout millionaire property owners. This is a kick in the teeth for all the young working people of this country who have already been hard done by the pandemic.

'And it risks bankrupting Brits financially too. It is disastrous to put a tax on employment just as we begin to recover from a historically large recession.

'Throwing more money into a broken social care system will not fix the fundamental problems. We need a serious discussion about how to stimulate private-sector investment and personal responsibility, not simply more cash and state involvement.' 

Ministers have agreed the levy will be 'legally ringfenced' to prevent it being siphoned off for other purposes by future governments.

The 'median worker' earning £24,000 a year will pay an extra £3.50 a week in tax, according to sources.

On the employer side, the government says 70 per cent of the revenue will come from the biggest 1 per cent of employers - those with more than 250 employees.  

Defending the proposals earlier, Mr Zahawi told Sky News: 'Successive governments have attempted to come forward with plans and have never quite delivered.

'I think this Prime Minister is determined to actually fix the broken social care system.'

He added: 'One in seven people pay over £100,000 for their social care.

'If you have assets of over £23,350, then your social care costs can be absolutely backbreaking.

'So, it has to be dealt with and this Prime Minister will not shirk that responsibility, and he will set out his plans today.'

Mr Zahawi said: 'I want to meet every single manifesto promise that we make, that's the right thing to do.

'We have gone through an unprecedented shock to the economy because of the global pandemic and we've had to deal with it and make some really tough decisions.

'But I don't want to pre-empt what the Prime Minister will announce or what the Chancellor will say in the press conference later today.'

Pressed on whether the triple lock pension pledge could also be broken, Mr Zahawi added: 'No-one is in the business of wanting to break any promises.

'I'm not comfortable with breaking any manifesto promises.' 

The decision to raise national insurance has alarmed Cabinet ministers, with one branding it 'idiotic'. There are claims that at least one frontbencher is considering their position.

Writing in The Times, former party leader Lord Hague said breaching a manifesto commitment by increasing National Insurance would be a 'defining moment'.

He said such a move would result in a 'loss of credibility when making future election commitments, a blurring of the distinction between Tory and Labour philosophies, a recruiting cry for fringe parties on the right, and an impression given to the world that the UK is heading for higher taxes.

'That adds up to an extremely high price, and if I was still in cabinet I would be on the very reluctant end of the argument about funding social care through a tax rise that is seen as breaking an election promise.' 

How much more will you have to pay in National Insurance? When will it kick in? And how much will the elderly have to pay for their care costs? 

Boris Johnson today announced manifesto-busting tax rises to pay for a major overhaul of the nation's social care system and to boost the NHS. 

The Prime Minister will hike National Insurance contributions by 1.25 per cent, leaving basic rate taxpayers approximately £180 a year worse off. 

A tax on dividends will also go up by 1.25 per cent in moves which will generate an extra £12billion a year for the Treasury. 

A social care shake-up will see a cap on costs set at £86,000 - the maximum anyone will ever have to pay. 

Below is a breakdown of the key changes.  

How much more tax will I pay? 

The Government is introducing a new Health and Social Care levy from April 2022. 

This will see National Insurance contributions increased by 1.25 per cent. It will be paid by all working adults, including those who are over the state pension age. 

The levy will be included in National Insurance contributions for the first year but from April 2023 the levy will be split off and will be visible on pay slips. 

People who earn more will have to pay more. 

So a typical basic rate taxpayer earning £24,100 will contribute an extra £180 a year, approximately £3.46 per week.

A typical higher rate taxpayer earning £67,100 will contribute an additional £715 a year.  

Is the National Insurance hike the only tax rise?  

No. Mr Johnson is also increasing an existing tax on dividend payments to ensure that people who receive their income through dividends also contribute more to the cost of social care and running the NHS. 

The dividend tax will also increase by 1.25 per cent.

Taken together, the increase in National Insurance contributions and dividend tax will generate an extra £12billion per year for the Treasury.

This extra money will be used solely by the NHS in the first three years - some £36billion - as the health service deals with the treatment backlog caused by the coronavirus crisis. 

The money from the levy will then start to be diverted to the social care sector. 

What are the new rules on paying for social care? 

Currently, anyone with assets over £23,250 must pay their care costs in full, with an estimated one in seven people forking out more than £100,000. 

But from October 2023 the system will change. 

Anyone with assets under £20,000 will have their care costs fully covered by the state. 

People with assets between £20,000 and £100,000 will be expected to contribute to the cost of their care but they will also receive state support. Their contribution will be means-tested. 

Lifting the support floor to £100,000 will mean far more people are eligible to receive financial help from the state.

Meanwhile, a new hard cap on care costs will mean that no one ever has to pay more than £86,000 in total for care during their lifetime - equivalent to approximately three years of care.     

Why are the PM's proposals so controversial? 

All MPs in Westminster are in agreement that the current social care system is unsustainable and the way in which it is funded must be overhauled. 

But it is the method by which Mr Johnson will pay for the shake-up that has sparked a massive backlash.  

Mr Johnson's decision to increase National Insurance contributions will break a cast iron guarantee in the 2019 Tory manifesto not to raise taxes. 

The manifesto said: 'We promise not to raise the rates of income tax, National Insurance or VAT. 

'This is a tax guarantee that will protect the incomes of hard-working families across the next Parliament.'

Critics have also pointed out that younger workers will be disproportionately affected by the hike, effectively subsidising care for sometimes-wealthy older people. 

Many Tory MPs fear they will be hammered at the ballot box at a future election by voters furious at the broken manifesto pledge. 

Meanwhile, Labour has signalled it will not support the move, with the leadership under pressure from union bosses to back a tax on the wealthy instead. 

What happens next with the PM's plans? 

Mr Johnson will need to win the support of Parliament for his overhaul of the social care system and accompanying tax rises to go ahead.  

The Government will table a vote in the House of Commons when MPs will be asked to support the package. 

Reports have suggested that Mr Johnson could seek a snap vote on the issue, potentially as early as this week, in order to stop Tory rebels coordinating a campaign against the move.  

If Labour does vote against the plans then Mr Johnson's fate will rest in the hands of his backbenchers. 

A massive Tory rebellion could torpedo the shake-up but it is currently unclear whether a sufficient number of Conservative MPs will be willing to rebel on such a crunch matter. 

 

Homes they would have kept under scheme 

Widow who lost her family haven

Nancy Griffiths, 55, has lived in Kingston, south-west London, for 33 years.

She and her daughter Tai, 13, became very close to their elderly neighbours David and Violet Edwards, pictured on their wedding day, regularly spending Christmas together.

David, who had worked for British Aerospace for many years, sadly developed dementia in 2016 and died two years later aged 92.

Violet had hoped to spend her final years in her marital home. However, because the couple had saved and lived frugally, David's care had to be paid for privately at a cost of almost £2,000 a week.

After David's death, Violet, 93, became very frail and was moved into a care home at an eyewatering cost of £65,000 per year.

Within four years, £300,000 of their hard-earned savings of about £400,000 had disappeared. Nancy, who had power of attorney, unfortunately had no option but to sell the Edwards' house last year to pay for Violet's care.

It had initially been on the market for £620,000 but – under pressure to sell – she was forced to accept a lower offer of £520,000.

'David made everything in that house, from the conservatory to the fireplace – he even papered all the walls,' said Nancy, pictured above. 'It broke my heart to sell it.'

She added: 'I fully support any changes to the law so that people don't have to sell their home for social care. I think it's completely wrong.

'I'm not Violet's daughter so I won't be getting anything in the will, but I feel so sorry for people who expected to rely on money from their parents after they've died.'

For sale: Mum's pride and joy  

Barbara Brand-Cotti, 81, worked as an antiques and jewellery dealer. After meeting her husband Roland in London, they moved to Lincolnshire to pursue their dream of raising children in the countryside.

When their daughter Holly, now 44, was only seven, Roland died, and Barbara had to raise Holly and her two siblings alone.

Barbara was careful with money, and Holly remembers the whole family celebrating when she paid off the mortgage.

'That beautiful Lincolnshire cottage was her pride and joy, especially the garden,' Holly said.

But in 2017, Barbara – pictured above with her family – had a stroke and the next year she was put into social care.

After disagreements with the nursing home over payments, including an attempt to evict Barbara during lockdown last year, the family turned to the Care Campaign for the Vulnerable organisation for legal advice, but eventually gave in and said they would sell the house on Barbara's death. 

'It's one of the biggest injustices in this country that at the end of your life, when you've paid into the system, you have to give up everything you've saved,' she said.

'That cottage meant the world to my mum and she wanted to be able to leave something to us. It just felt wrong to sell it. I felt like I had failed her. Boris Johnson was elected on a manifesto pledge to fix social care. Was that an empty promise?

'These proposed changes can't come soon enough.' 

 

Pensioners are dealt a blow as the triple lock goes double for a year but was it a close shave for future payouts? 

Pensioners were dealt a blow today as the Government scrapped the pension triple lock in favour of a temporary double lock.

But while this was worse than some forecasts, former pensions minister and This is Money's retirement agony uncle Steve Webb said it was a close shave on future payouts compared to one option - the triple lock being axed altogether.

The double lock this year will be the higher of September's CPI inflation or 2.5 per cent. This means April's 2022 pension increase is likely to be whatever the September inflation rate is, as this is expected to be 3 to 3.5 per cent.

How much have pensioners lost out, what were the other options, and have they dodged a worse outcome for future state pension rises? We explain.

The triple lock goes double 

The triple lock guarantee should mean that state pension payments would rise by whichever was the largest of three figures - annual inflation, average earnings rises or by 2.5 per cent. 

But earnings figures have been skewed by the covid crisis and recovery, with the average rising as more lower earners dropping out of the figures and data including those returning to full pay from furlough.

With a potential bumper 8 per cent rise on the cards due to this effect, the earnings element was scrapped for this year's reading.

This means that the state pension will likely rise in line with September's inflation figure from next April, as that is expected be more than 2.5 per cent. 

This is a worse outcome for pensioners than expected, since many experts had predicted that the Government would opt for a smoothed average for wage growth over two or three years instead of removing wages entirely.

But there was also the potential for the triple lock to be axed completely - a move that could have dented state pension increases for years to come.

Steve Webb said: 'Although I don't suppose any pensioner would welcome a 3 per cent increase rather than an 8 per cent increase, the real prize is the recommitment to the triple lock for future years - without that, the hit on pensions would have been far worse.'

But wasn't the triple lock an election promise? 

The triple lock was part of the Conservative party manifesto when Boris Johnson was elected Prime Minister, however, the potential for the earnings figure to be skewed so dramatically wasn't considered.

Work and Pensions Secretary Therese Coffey confirmed the one-year change, saying it was to make sure 'pensioners are not unfairly benefitting from a statistical anomaly'.

The announcement comes along a manifesto-busting tax rises to pay for a major overhaul of the nation's social care system and to boost the NHS. 

The pandemic has created huge distortions to average earnings with a fall in wages at the start of the pandemic followed by a very sharp increase as furlough ended. 

Experts say that sticking to the triple lock would have granted state pensioners an 'unrealistic' increase of around 8.8 per cent at a time when earnings are still recovering from the pandemic.  

Steven Cameron, pensions director at Aegon, says pensioners will get a worse deal under the double lock.

'While many had called for some form of averaging of the earnings component, the Government has decided to remove the earnings figure for this year entirely, moving to a double lock based on the higher of price inflation or 2.5 per cent. 

'This is likely to produce an increase lower than a smoothed earnings figure.'

How much will the state pension rise by? 

All eyes will now be on September's consumer price inflation (CPI) figure, to be announced in October, to see what the increase in the state pension will be next April. 

CPI was 2.1 per cent in August, but the Bank of England has estimated that inflation will increase temporarily to 4 per cent in the near-term. 

September's figure is forecast to be between 3 and 3.5 per cent, with the peak coming after that. 

The triple lock's potential near 9 per cent rise would have been worth about £16 on the new flat rate state pension.

Those on the full flat rate state pension currently get £179.60 a week or around £9,300 a year, and an 8.8 per cent rise would boost this to £195.40 and around £10,100.

The old basic state pension, not including second state pension or SERPS that people built up on top, is £137.60 or around £7,200 a year. So, this would have increased to £149.70 or around £7,800.

If inflation comes in at 3.5 per cent, the flat rate state pension would rise by about £6.30 per week and the old basic state pension by about £4.80.  

Ian Browne, pensions expert at Quilter, said: 'The writing's been on the wall for the 2022 state pension triple lock for some time now.'

He added: 'Assuming that CPI inflation is 4 per cent this month, removing the earnings link will save the government £3.6billion next year. Music to the ears of the Chancellor.'

The triple lock was tweaked once already - the government introduced new legislation last year to ensure state pensions were uprated by 2.5 per cent in recognition of their manifesto promise and commitment to pensioners. 

Coffey said: 'Last year we saw earnings fall by one percentage point. In response we legislated to set aside the earnings link allowing me to award an uprating of 2.5 per cent, as this was higher than inflation. If we had not done this state pension would have been frozen.'

She then added: 'This year as restrictions have lifted - and we experienced an irregular statistical spike in earnings over the uprating review period - I am clear that another one-year adjustment is needed.' 

Why was the triple lock brought in? 

The triple lock was brought in after years of derisory state pension increases brought repeated outcries. 

By some measures the UK's state pension is one of the lowest in terms of replacing employment income among major economies. However, those figures are distorted by many comparison countries in some way combining work pensions into their state systems. To find out more read: Is the UK state pension really among the worst in the world? 

When the state pension triple-lock was announced in 2010, then chancellor George Osborne pledged it would provide 'lasting help for pensioners' and ensure they 'have the income to live with dignity in retirement'. 

Maintaining a double-lock will ensure that, at the very least, pensioners don't see their spending power eroded by inflation.

However, there are fears that even a temporary adjustment to the triple-lock could lead to pensioners losing out in the long run.

TUC General Secretary Frances O'Grady said: 'The UK has one of the least generous state pensions in the developed world.

'The triple lock was introduced to close this gap and lift pensioners out of poverty. Suspending it will only halt our progress.

'This is a dangerous precedent. If the government is allowed to pick and choose when to apply the triple lock, the result will be lower state pensions for future generations and more pensioners experiencing hardship.' 

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