Wednesday 8 September 2021
The government has just put up National Insurance to help pay for the NHS to recover from Covid and to improve social care. Did they choose to increase that particular tax because a lot of us don’t know what it is?
Hi, I’m Claudia – and this is Sensemaker.
One story every day to make sense of the world.
Today, the hidden tax that affects us all and how the government is trying to increase it.
It’s the biggest rise in personal taxes in decades. It’s supposed to rescue the NHS from its dreadful backlog of operations and transform care for people in old age.
“And it will enable radical innovation to improve the speed and quality of care. We need reform and change. ”Boris Johnson speaking in the House of Commons, September 2021
And what’s the tax which is going to work these miracles? Not income tax, that’s a percentage of what you earn, and not VAT – which you pay on things you buy.
“From next April we will create a new 1.25% health and social care levy on earned income, hypothecated in law, to help with health and social care with dividend rates increasing by the same amount this will raise almost 36 billion pounds…”Boris Johnson speaking in the House of Commons, September 2021
No – the tax which is gonna do all these things is National Insurance. It’s the Cinderella on your payslip – always neglected and overlooked.
And here’s the odd thing about it: I’m not sure many people even know what National Insurance really is. So I went round the corner from the Tortoise offices to find out…
[Clips: vox pops asking whether people know what National Insurance is]
There’s nothing new about National Insurance. The first version of it appeared more than a century ago, in 1911. And back then, it was a kind of insurance policy against losing your job.
Around one in six workers had it, particularly people who worked in industries like mining or on the railways who were more at risk of unemployment.
And having National Insurance also meant you could get access to what was known then as a ‘panel doctor’; what we now call a GP.
The “deal” was this…
You pay 4 pence, your employer pays 3 pence, and the state pays 2 pence.
So, as the then prime minister Lloyd George liked to say, “ninepence for fourpence”. Not a bad deal.
Employers would put stamps on a card to prove the money had been paid and once you left your job, your employer would give you that card to prove you’d paid your National Insurance so you could claim your benefits.
All sounds pretty simple.
And the fascinating thing is, that perception of National Insurance – the idea that it pays for benefits, your pension, and healthcare – has stuck for a hundred years.
“It seems to have a sort of special aura, National Insurance, people see it as definitely being spent on nice things, they feel like pensions and the NHS…”Channel 4 News
But in reality, over time, the link between paying National Insurance and receiving benefits has got weaker and weaker.
Back in the day, National Insurance was a flat rate – everyone paid the same. But then it became a percentage of your earnings – just like income tax.
It used to be the case that you’d have to show that you’d contributed to National Insurance throughout your lifetime before you could get a full pension
Now you can claim a state pension even if you only moved to the UK two years before you turn 66.
And National Insurance definitely isn’t set aside for ‘special’ things any more. It’s true, the rules say the government can’t just spend money from it on any old thing – but they get round that rule by “loaning” money from the National Insurance pot to other parts of government to pay for things outside of what it’s intended for.
So, in many ways, it’s just another income tax now. But if we already have income tax, why doesn’t the government just merge the two together?
In short: the government might be able to take advantage of the fact that a lot of us don’t know much about National Insurance. And what we think we know is kind of positive.
“There is, at the moment, the poll suggests, quite a lot of public support for just that sort of level and moving on national insurance, not on income tax…”Channel 4 News
And recent opinion polling shows that the public would support a rise in National Insurance if it was presented in the right way.
Now you could say, nothing’s really changed.
Back in 2002, Gordon Brown put up National Insurance by 1p in the pound to boost NHS spending and that move, although it was a tax rise, well it was considered one of the most popular tax rises in history.
But what much of the public don’t realise is that it’s all just part of the government’s income; its general taxation pot.
If National Insurance and income tax were merged, it would make tax more transparent.
People would realise that while they think they’re paying say 20 percent tax, they’re actually paying 32 percent, if you include the extra 12 percent from National Insurance.
That’s going to get even more complicated on your tax bill when the National Insurance rise comes in. It’s going to be labelled separately and called a ‘levy’ for the NHS. And the gamble is that people won’t mind paying it.
It’s a smart choice for a prime minister with a political problem.
“Let’s go for sensible, moderate but tax cutting one nation Conservative government and take this country forwards…”Boris Johnson speaking during the 2019 election campaign
That was prime minister Boris Johnson back in 2019 on his campaign trail.
And his promise was…
“Not just cuts in national insurance but a tax lock, a tax lock.”Boris Johnson speaking during the 2019 election campaign
A triple tax lock. On income tax, on VAT, and on National Insurance. No rise in any of them – guaranteed.
When it came to deciding how to break that promise to pay for the NHS backlog and social care, Boris Johnson had a choice.
Should he put up income tax – which, let’s face it, nearly everyone understands?
Or National Insurance which is badly understood, and people think pays for good things? Politically, that probably wasn’t too hard a decision to make.
Today’s episode was written and produced by Imy Harper.
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