Johnson announces £12bn tax increase to fund NHS and social care

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UK prime minister Boris Johnson announced national insurance rates hike for both employees and employers on Tuesday. Photo: Wiktor Szymanowicz/Barcroft Media via Getty
UK prime minister Boris Johnson announced national insurance rates hike for both employees and employers on Tuesday. Photo: Wiktor Szymanowicz/Barcroft Media via Getty

UK prime minister Boris Johnson announced a tranche of tax increases on Tuesday in a move set to provide funds for a COVID-crippled NHS and social care system. 

Speaking in parliament, Johnson said the government will raise national insurance (NI) by 1.25 percentage points. He also said that dividend rates are to increase by the same amount.

This is set to raise about £12bn ($16.6bn) per year, or £36bn over three years, and would break a Conservative manifesto pledge not to increase national insurance contributions (NICs), income tax or value added tax.

Employee national insurance rates have been unchanged at 12% since 2011. The move would mean that someone earning £30,000 a year would pay about £250 extra in tax. 

It is the biggest UK tax increase for 28 years. 

Read more: UK national insurance hike: What it means for your finances

Johnson also included shareholder profits in the levy where the most profitable market speculators would be targeted.

It comes as hospital waiting lists edge towards the 13 million mark. On Monday, Johnson announced an additional £5.4bn boost in funding for the NHS to help take on backlogs caused by the pandemic. 

"We are beginning the biggest catch-up programme in NHS history," Johnson said.

According to AJ Bell, fewer than 1-in-6 (15%) people the investment platform surveyed backed increasing NI to pay for the plans when presented with it alongside eight other money-raising options. Just 8% supported changes to the state pension triple-lock. A national insurance increase is particularly unpopular with younger generations with just one-in-ten 18 to 44 year olds supporting a rise.

Watch: What is National Insurance and do I have to pay it?

The move also comes despite a slew of criticism of the policies from both benches. Cabinet ministers, Tory MPs, the Labour party, business groups and trade unions have all voiced their concerns.

In an interview with Times Radio on Sunday, Lord Philip Hammond, a former Tory chancellor, said he thought raising NICs would “cause the government — the Conservative party — significant damage” and was “the wrong thing to do.”

Before it was confirmed, the tax was criticised for its potential for hitting young working people, while pensioners would avoid it. 

The Confederation of British Industry said the move "amounts to a tax on jobs which could derail the UK's economic recovery".

Speaking to the BBC's Today programme, the IoD's chief economist, Kitty Ussher, also said: "It just seems such an extraordinary time given everything that British business has gone through in the pandemic, to be to be facing an extra cost of employing people."

Read more: Top five reasons why the pensions triple lock has to stay

Some have said that the target should be trained on unearned wealth and capital gains, while others have suggested the tax would be better targeted at tech giants such as Apple (AAPL), Amazon (AMZN) and Facebook (FB). 

"Given the economic challenges we face as we recover from the impact of Covid, and the lockdowns, I think this is the wrong policy at the wrong time," said Scott Gallacher, director at chartered financial planners Rowley Turton.

"The working population is being asked to pay more today (in increased NI contributions) to provide additional support for those already in retirement."

Watch: Is a UK state pension enough to survive on in retirement?

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