Could working pensioners be forced to pay 8% levy on pay to help fund Social Care? | Personal Finance | Finance
An exemption to paying National Insurance for working pensioners could be scrapped to help fund Social Care, it has emerged.
Alternatively, 1p could be added to Income Tax for all workers as government ministers struggle to find the cash to pay for the nursing care needed by Britain’s ageing population.
The proposals have been raised by government social care advisor Sir Andrew Dilnot, who has criticised successive governments for failing to tackle the crisis in funding.
Plans for a cap of £86,000 on social care costs have been scrapped by the Chancellor Rachel Reeves in a move that means a bill for around £1.1 billion will put on the shoulders of the sick and elderly.
Labour is now under pressure to come up with some sort of alternative to cover social care costs for the growing number of older people who will need support and risk losing their life savings to pay the bills.
Sir Andrew, who has described the decision to scrap the cap on social care costs as a “tragedy”, has suggested alternative fund raising options.
Currently, older people who continue to work past the official state retirement age of 66 are not required to pay National Insurance at 8 percent.
Removing this exemption would put them on a par with other workers. As an illustration, someone earning £1,000 a week currently pays no NI on the first £242, then 8 percent – £58 – on the next £725 and a further 2 percent – 66p – on the next £33.
Sir Andrew said it is “not unreasonable to expect older people as well as younger people to make a contribution”.
He suggested scrapping the age limit for individual contributions, meaning those who continue to work past the state pension age would pay the tax.
“At the moment, pensioners do pay tax. They pay income tax and they pay indirect taxes. But they don’t pay the national insurance contributions,” he said.
“I think if a government does decide to have a tax that is used explicitly to pay for (social care) in part, then it does seem reasonable to have pensioners covered by that tax, just as those of working age are.”
As an alternative to making pensioners pay national insurance, Sir Andrew suggested the Government could raise income tax by a penny.
He told the Telegraph: “I don’t think pensioners should foot all of the bill, because all of us are going to become pensioners.”
Increasing income tax by a penny would raise roughly £7.5bn a year towards the end of the decade, which Sir Andrew said would more than cover social care costs.
He argued that raising income tax was in line with a proposal from Rishi Sunak, when he was Chancellor, to fund social care by adding a Health and Social Care levy to National Insurance. However it was later abandoned.
The levy, which was stopped from coming into effect by Kwasi Kwarteng, was intended to be a 1.25 percent tax on earnings for employees, the self-employed and employers that also applied to pensioners.
Sir Andrew said: “I thought that was a perfectly reasonable thing to do. Or you could just put up income tax. The Health and Social Care Levy, in fact, was almost identical to income tax in the end.”
Simon Bottery of the King’s Fund said the decision to scrap the £86,000 has left the government with no plan for social care.
He said: “It has mooted the idea of a cross-party royal commission to decide what to do, but this is likely to take at least two years to report. Nor is there any guarantee that the government would accept whatever recommendations it made.
“The current social care system is not fit for purpose. Ministers have a small window of opportunity to reform the sector and ensure that more people can access free or subsidised care when they need it.
“They should urgently decide how to progress reform at speed. Otherwise, families and people who draw on care will again be left in uncertainty about when – and indeed whether – they can expect to see a genuinely reformed social care system.”
