5 Alternatives To Fund Social Care That Don't Penalise Young People

The government is expected to hike up National Insurance in a bid to fix the social care system.
Boris Johnson meets workers during a visit to Scotland in August. The prime minister is expected to make an announcement on a National Insurance hike this week.
Boris Johnson meets workers during a visit to Scotland in August. The prime minister is expected to make an announcement on a National Insurance hike this week.
JANE BARLOW via Getty Images

Boris Johnson is set to announce an increase in National Insurance today in a bid to help save the crumbling social care system.

The move to increase National Insurance contributions by at least one percent will disproportionately affect younger people, as only workers and employers have to pay it until they reach state pension age.

The prime minister also made a manifesto pledge during the 2019 general election not to increase National Insurance, income tax or VAT, so Tory backbenchers including former Chancellor Philip Hammond are pushing back against the proposal.

Labour leader Sir Keir Starmer has confirmed he will not back a hike in National Insurance either.

But an estimated £10 billion a year is needed to overhaul the health system, so where will the money come from?

Here’s a look at just some of the other options available to the government which could help prop up the NHS and England’s social care system.

1. Introduce a wealth or a capital gains tax

Lisa Nandy, a shadow cabinet minister, claimed Labour are willing to tax wealth in order to pay for social care.

She told Sky News that the government must “make sure that we don’t load an unsustainable burden onto people who can’t bear it”.

Nandy explained that she would back a new sustainable approach “if that means that those who make their money out of something other than income – out of assets – pay a bit more, if it means that people pay a bit more on their income”.

Labour have also openly supported the Trades Union Congress, which called for an increase in capital gains tax to raise £17 billion year, which would prop up elderly care and enable a £10 per hour minimum wage for care staff.

Conservative Lord David Willets told the New Statesman that a one-off wealth tax could be “quite hard to get at”, but suggested: “You could certainly do things like reform capital gains tax so there a re fewer exemptions and perhaps increase the rate.”

An LSE and Warwick commission from 2020 also estimated a one percent tax on millionaires would raise £260 billion over five years.

Equalising capital gains tax and income tax would raise an estimated £90 billion over five years, according to research from the Institute for Public Policy Research.

Capital gains tax is the amount an individual has to pay when they sell property, shares, personal possessions worth £6,000 or more, or business assets – the profit made from the sale is what ends up being taxed.

You only have to pay the tax on your total gains above the £12,300 annual tax-free allowance, and are not expected to pay it on gifts to your spouse or civil partner.

2. Increase income tax

Income tax is another area the government pledged not to increase back in 2019, but £10 billion needed to revive social care could be raised if there was a two percent increase on the basic income tax rate.

Alternatively, a 1.5 percent increase could be applied to the standard rate of VAT.

Back in March, chancellor Rishi Sunak also said the thresholds at which tax starts being paid will be frozen until 2026.

That means from April 6 this year, those earning up to £12,570 will be tax free, those above will pay the 20 percent rate and those earning more than £50,270 will pay the higher 40 percent rate.

But the Office for Budget Responsibility revealed an extra 1.3 million people in the UK were due to start paying income tax over the next five years anyway due to fiscal drag, as wages will inevitably rise on the coming years.

The Institute for Fiscal Studies estimated that an extra three percent of all adults would have to pay income tax by 2026.

3. Make pensioners pay for NI

The current arrangements mean people stop paying National Insurance when they reach State Pension age, unless they are self-employed.

Sir Andrew Dilnot, former director of the Institute for Fiscal Studies who led a cross-party commission on care funding, has suggested that pensioners should start paying National Insurance.

He said: “It’s very important that charge should be paid by older people as well as younger people.”

Hargreaves Lansdown’s personal finance analyst Sarah Coles also noted that by increasing National Insurance – thereby impacting younger people – the government could be forced to extend the payments to pensioners too.

She said: “It could be the precursor to making National Insurance payable on earned income over State Pension age too.”

Those who work after State Pension age could also be charged National Insurance to drum up some funding.

They could end up paying an additional £1,252 per year.

Alternatively, people could pay National Insurance on their retirement income including money from pension pots.

4. Charging the estates of social care users

Local authorities currently pay the full cost of nursing home care if the individual’s assets fall below £14,250 in value.

But, Bright Blue, a centre-right think tank, suggested charging the estates of social care users.

Labour Mayor for Greater Manchester Andy Burnham has also backed this strategy.

Writing for the New Statesman, he said: “It is a much fairer system than the indiscriminate dementia taxes – otherwise known as means-tested care charges – that we have now.”

He argued: “Rather than leaving people facing unlimited costs, surely it would be better to pay a defined amount from what they leave behind – let’s say 10 per cent – rather than face losing everything?

“They would have the peace of mind of free, high-quality care integrated with the NHS and the certainty they could plan to pass on 90 per cent of what they worked for.”

5. Removing the upper earnings limit on NI

The New Economics Foundation has suggested removing the upper earnings limit, claiming this would raise £11.1 billion for the NHS.

It proposes abolishing the upper earnings limit on National Insurance Contributions, so the top 15 percent of taxpayers pay more for their share in the health system.

At the moment, workers earning more than £46,000 a year pay only two percent on those additional earnings, compared to the 12.5 percent standard rate.

Alfie Stirling from the NEF said: “At the moment, high income taxpayers are contributing proportionally less than those who can least afford it. That is fundamentally unfair and needs to be addressed. By asking the top 15% of taxpayers to pay their fair share, we can go a long way to closing the NHS funding gap.”