The Prime Minister has announced to parliament plans to tackle the backlog of procedures in the NHS, to reform adult social care and to align the health and social care systems.
To raise the £36 billion that these programmes will require over the next three tax years, a number of tax increases will come into effect from April 2022.
The government will introduce a new 1.25% Health and Social Care Levy with the funds generated ring-fenced for health and social care.
In the 2022-23 tax year, this will be collected through National Insurance contributions with both the Employer and Employee contributions increasing by 1.25%. From April 2023, this will change to the Health and Social Care Levy which will be a separate deduction identified on an employee’s payslip with the contributions will remain the same.
There will be a similar increase in the Class 4 National Insurance rates paid by the Self-Employed.
The levy will apply to all working adults, including those over the state pension age who are exempt from other National Insurance contributions.
In addition, from April 2022, the rates of tax on dividends will each increase by 1.25%.
Opting for National Insurance as the route to raise the additional funds is attractive for the government as it can be applied evenly across the United Kingdom unlike Income Tax which is, in part, devolved to the national governments.
However, with many businesses struggling to recover from the impact of COVID-19 and the furlough scheme coming to an end this month, there is a risk from adding to their tax burden.
In addition, whilst the government talks everyone contributing fairly, there are some glaring omissions, particularly those in receipt of private pensions, who generate their income from property or from the buying and selling of assets.
In other news, the government announced that the ‘triple lock’ on the state pension will be temporarily suspended next year.
This is the rule that the state pension increases by the higher of by 2.5%, inflation or earnings. However, with earnings likely to increase by 8% in the current tax year, the state pension increase in April 2022 will be limited to the higher of 2.5% or inflation.=
Finally, the Chancellor has confirmed that the date of the Autumn Budget will be Wednesday 27th October in which the Government’s future spending plans will be unveiled.