My Lords, the Government have published several assessments of the health and social care levy’s impacts, including distributional analysis of the tax and spending announcements’ combined impact, a technical annexe in our plan for health and social care, and a tax information and impact note. Some 6.1 million individuals earning less than the primary threshold, equivalent to £9,980 in 2022-23, will not pay the levy; the highest-earning 15% will pay over half the levy’s revenues.
My Lords, from next month, workers with earned annual income above £9,880 will pay national insurance at a rate of 13.25%. At the same time, 265,000 recipients of at least £65.8 billion of chargeable capital gains will not pay a penny, even though they use the national health service and social care. Does the Minister agree that this is outrageous and that this injustice should end as soon as possible?
My Lords, we have introduced the levy through the national insurance system—that is the system that we have used previously to fund improvements to the healthcare system and, in this case, the social care system. We have ensured that the levy also applies to dividend income, so that it reaches a wider number of people who will benefit from it.
My Lords, last Friday, disgracefully, to my mind, Shell bought 750,000 barrels of Russian crude at a record discount price of £28.50 to lock in a minimum of £20 million in additional profits. Brent crude has soared to £139 a barrel, cascading yet greater profits to the oil and gas companies. Can the Minister think of a single excuse not to cancel the rise in NICs and replace it with a windfall tax on those companies?
My Lords, we have discussed a windfall tax before and, in addition to the reasons that I gave then, the increase in NICs—the health and social care levy—funds an ongoing increase in health and social care funding in this country. A windfall tax would be a one-off tax; it would not provide the sustainable basis that we need to fund our health and social care system.
My Lords, the Minister will be aware that, even before the pandemic, the poorest 10% of households paid 47.6% of their income in direct and indirect taxes. That compares with 33.5% by the richest 10% of households. So the national insurance hike will just worsen the hit on the poorest. Can the Minister explain what the latest hike in national insurance will do to the tax burden on the poorest, and when the Government will begin to reverse that trend?
My Lords, as I explained in my original Answer, the 6.1 million individuals earning less than the primary threshold will not pay the levy at all. In addition, in the analysis that I mentioned earlier, if you take the package together, both the levy and the spending that is ring-fenced for the health and social care system, lower-income households will be the largest net beneficiaries from this package, with the poorest households gaining the most.
My Lords, does my noble friend the Minister agree with me that those who call for a windfall on the oil companies would in fact be penalising the shareholders? And who are the shareholders? They are the pensioners of this country—they are the one who hold most of the shares in these oil companies.
My Lords, we have strayed more on to a windfall tax than I expected, but I say to my noble friend that he makes a good point. The issue of energy security is at the top of people’s minds at the moment. The Government see gas, for example, as part of our transition towards net zero. We want to allow people to invest in our North Sea oil and gas fields as part of that, so a windfall tax could also have a negative impact on that.
My Lords, there is no doubt at all that at the lowest level this tax will be a detrimental pay cut for most workers in our country—there is no doubt at all about that. It will be felt most harshly by them, while they are at the same time caught up in the cost of living crisis that we have. They are being squeezed dry, as we know, by soaring inflation—and that is before next month’s massive hike. Can the Minister possibly justify this attack on the lowest-paid workers in our country and, if so, how can she?
My Lords, the Government have been very clear in their justification for the health and social care levy. The Government are committed to the responsible management of the public finances, which is why we have had to take tough but responsible decisions to increase taxes in order to fund a significant increase in permanent spending on the NHS and social care. On the cost of living challenge, that is why, this year and next, the Government will provide £20 billion of support to help those people who are struggling to meet their household bills.
My Lords, if the Government were persuaded to go down the windfall tax route, would they be further persuaded to go down the windfall rebate route in the years that oil companies make a loss, such as last year?
My Lords, my noble friend is correct that, as well as seeing record highs in prices recently, we have in recent years also seen record lows. With that came record lows of investment; that is why the Government are very careful before considering questions such as a windfall tax.
My Lords, would it not be more socially equitable if the upper cap on national insurance were removed, so that those on high incomes pay the same marginal rate as those who are earning modest incomes? Would that not be a far fairer way of doing it?
I say to the noble Lord that it is important to take the impact of national insurance and income tax together. When you do that, the combined tax rate for those earning in the lower bracket is 32% and, in the upper bracket, it is 42%. So, overall, we still have a progressive system.
My Lords, there is no doubt that the social care and health sectors need money from the taxpayer, but why can it not be from those people who are the richest—the large companies that pay no tax? When will the Government get round to them, rather than oppressing ordinary working families?
My Lords, an important aspect of the health and social care levy is that it is paid by employers as well as employees—because they benefit from having a healthy, supported workforce. Of course, we have also announced increases in corporation tax, because the Government did an awful lot to support businesses during the pandemic and everyone needs to contribute now to getting us back on to a path of sustainable finances.
My Lords, I declare an interest as I am of pensionable age and therefore will not have to pay national insurance until next year. Given the extra money the Government will receive as a result of taxes on fuel, is there not a case for considering deferring the increase in national insurance until next year, so that everyone is in the same boat, as it were? People are going to be faced with immense costs for fuel, as well as the impact of inflation on the standard of living.
My Lords, the additional spending from the levy kicks in from this year onwards, so we matched the introduction of the levy with the introduction of the new spending, which cannot wait; we need to address the significant backlogs we have in our healthcare system. But my noble friend is correct that we have designed the new levy to apply also to people over pensionable age, as they will benefit in no small degree from the increased spending.
My Lords, the decision to increase national insurance this April and introduce a longer-term health and social care levy was taken in a certain economic context. Things have changed substantially since. Inflation is high and will rise further. The Bank is likely to hike interest rates as a result. The Russians’ illegal invasion of Ukraine will bring its own economic consequence. A U-turn is supported by the public, businesses, Conservative Back Benchers and even some in the Cabinet. Will the Chancellor finally take note and act immediately to ease the cost of living crisis?
My Lords, I acknowledge that the circumstances have changed—that is why the Government have also changed our approach by, for example, announcing £9 billion of support to help people with their increased energy costs. The things that have not changed are the pressure on our healthcare system, the pressure on our social care system and the long waiting lists we see as a result of Covid. We need to start dealing with those now; they need proper funding and that has to come from within the levy.
My Lords, the Minister is right to point out the pressure on the health and social care sectors. Assuming the Government do carry on with their plan, does she agree that it is unlikely that social care is going to see very much of this money and, even if it sees all of it, it is completely not enough to solve the problem in our social care service?
My Lords, the noble Lord is correct that in the early years it will go further towards the NHS to help deal with the backlogs; the spending on social care is aligned with the introduction of our social care reforms. But that is not the only funding that is going into the social care system; in recent years, additional funding has gone in to support the social care system.