Health and social care levy

An overview

This is an overview of what Boris Johnson said in his statement.

• The NHS is getting £36bn over the next three years “to fund the biggest catch-up programme in the NHS’s history, tackling the Covid backlogs”. Adult social care will be reformed to stop people facing “unpredictable and catastrophic costs”. And health and social care will be brought closer.

How will the social care be funded

• This will be done through a new UK-wide 1.25% “health and social care levy”.  It will come in from April 2022, based on national insurance contributions. It will be paid by working adults, including people over the state pension age (unlike normal national insurance, which is not paid by pensioners). The 1.25% levy will also be paid by employers, meaning that the cost is being shared.

• Initially from April 2022 national insurance contributions rates will go up by 1.25%. However, from April 2023 the levy will be separated, so that the levy will appear as a separate line on pay slips. This is known as a a ‘hypothecated tax‘.   

How much will you have to pay

• What you pay will be based on what you earn. For example, a basic rate taxpayer earning £24,100 will pay £180 a year, or £15 per month. A typical higher rate taxpayer earning £67,100 – in the top 15% of earners – will pay about £40 per month.

• Additional rate tax payers (those paying the highest rate) will, according to the Government, contribute 20% of the revenue, even though they represent 2% of taxpayers.

• Higher rate taxpayers, which according to the government represent 14% of the total – will pay half the revenue.

• Around 6 million people earning less than £9,568 will not have to pay.

• Dividend tax is going up too by 1.25%, to ensure people who receive income through dividends make the same contribution.  

• Businesses will pay the most of the extra revenue.  This will come from the increase to employers National Insurance Contributions. According to the government this means 70% of the money coming from the biggest 1% of employers, which is defined to be those with more than 250 employees.

• 40% of all businesses (mostly small business) will not have to pay anything extra.

• No 10 says that, because employers also contribute, raising NICs is fairer than raising income tax. To raise this money from income tax, income tax would have to go up by 2%. A typical basic rate taxpayer would pay around £230 a year, instead of £180. For a higher rate taxpayer, that would be £1,090 instead of £750.