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Opinion

The national insurance hike is a scam — and won’t fix social care

Increasing national insurance is a half measure that will hit workers harder without actually addressing the crisis of social care.

The government is planning to increase national insurance to help fix social care.

On the face of it, few proposals look more reasonable – not least because we all have a sense that paying for things like social care is what national insurance is there for. If social care needs more money, why not increase national insurance?

The reality is a messy swindle that will short change everyone. It robs people on low incomes of take-home pay they sorely need, makes it more expensive to hire staff when there’s a national recruitment crisis and conveniently leaves out older generations from footing any of the bill, all while not doing nearly enough to actually fix social care.

Let us be clear about one thing: social care is in crisis, and not just for older adults – working age adult social care and children’s social care are also in dire need of major reform. The current system is chronically underfunded, leaves service users with awful quality, and is a disjointed mess, lying between local councils and the NHS, leading to all sorts of bureaucratic barriers.

But why is social care the one area of spending we feel like we have to ‘fix’ with new tax rises? When we needed money to pay for test and trace, or furlough, the government didn’t come out and announce how it would fund it through taxation. Similarly, when we renew Trident, we aren’t told what tax will pay for it. What makes social care different?

The cynical answer is that it is to keep up the great fiction of “national insurance”, which many of us still believe is some separate pot we pay into each month, funding our own pensions, social care, and more.

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The reality is very different: the money from national insurance goes into exactly the same general taxation pot as income tax, VAT, corporation tax and everything else. It is not ring-fenced for any particular use and it’s certainly not ring-fenced for our individual accounts.

Many older adults feel like they have “paid into” their own state pension or their own social care. The reality is that today’s taxes pay for today’s pensions and today’s social care – there is no savings pot. The reason services were cut and funding is in crisis is that collectively we have not been paying in enough. We are expecting Fortnum and Mason’s quality while paying Poundland prices.

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Why is national insurance such a poor way to “pay for” social care, given we could use any extra taxation revenue to cover extra spending? There are four main reasons.

The first is that people on low incomes start paying national insurance at a much lower threshold than they start paying income tax – meaning it takes money out of the pockets of people who most need it.

The second is the reverse of the first – unlike income tax, there is an earnings threshold above which you do not pay extra national insurance contributions, meaning that a national insurance hike is always less fair than an income tax hike.

The third problem is that a national insurance hike also means employers pay more for each person they hire – at a time when many sectors, including social care itself, have recruitment crises and the economy as a whole has more vacancies since records began. That’s not a good time to increase a tax on jobs.

The final problem is one of fairness: imagine someone aged 50 and someone aged 70 working in identical jobs. The 50-year-old will pay national insurance, but the 70-year-old won’t. Hiking national insurance for social care ensures the group that benefits the most from the change is the one that is asked to contribute least.

Some older adults tend to argue they have “paid into” the system already – but this is not, in reality, the case. Others argue about the unfairness of using savings or property wealth to pay for social care, which tends to fall on deaf ears to a generation priced out of owning a home and often paying punishing rent to the generation above – who then count that rent income as “hard earned” savings.

But this generational squabble is a sideshow. Social care is paid for from tax, just like everything else. We can get a system that pays for it and sort out taxation at the next budget – just like we do with every other facet of public spending.

Instead, the government is making the national insurance hike the attention-grabbing part of a package of half-measures that won’t fix social care. While this won’t fix the system, it could accomplish two goals for the government – for one, making us feel like we still have a social insurance system.

The second, perhaps more significant point, would be making those of us who don’t access social care ourselves feel the system is “fixed” – it must be, after all, as we’re paying for it now, aren’t we?

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