Economics – New Health and Social Care Levy

Date : 09 September 2021

The UK Prime Minister has announced new financial measures intended to help pay for NHS activities and social care. These were approved in the House of Commons on 8th September.

The NHS has come under extreme pressure as a result of COVID-19 and many non-COVID treatments have been delayed, with large backlogs developing.

Funding social care for an ageing population is a serious and longer-standing challenge which no government has yet been able to tackle.

The PM has stated that, from April 2022, National Insurance (NI) will increase by 1.25%.

From April 2023, NI will return to the usual rate, but a new tax, the Health and Social Care Levy will be paid by both employers and employees across the UK, amounting to 1.25% of earned income.

Unlike National Insurance, this new levy will be payable by workers of pension age. However, very low earners and small businesses will be exempt.

These changes are expected to raise c £12bn per year for the next three years. Money will be used initially to support the NHS and later for the provision of social care.

It is intended that better funding for social care will allow government to place an upper limit on the cost of social care (eg: dressing. washing and eating – not accommodation and food) for older people, set at £86,000.

Those with assets worth less than £20,000 will have all care costs covered by the government. Those with assets of £20,000 - £100,000 will have care subsidised.

This level of financial cover is more generous than is currently available in England and may help to preserve the assets of older people for their heirs (although large estates will still attract inheritance tax).

The new tax will, however reduce “take-home” incomes for workers and increase cost for businesses - some impact on demand and confidence may occur, especially in the first year.

Plans have proven controversial, criticised by both the governing Conservative party and the Opposition parties, for the way that care cost will be distributed between older and younger citizens.

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