IoD: Hiking national insurance to pay for social care is illogical

The Institute of Directors has criticised the government’s reported decision to hike national insurance to pay for social care and clearing the backlog of NHS work. 

The influential organisation that represents UK business leaders said using national insurance to fund social care is illogical as the levy is intended to provide a safety net for people unable to work.

According to reports, Boris Johnson will announce an at least one percentage point hike to national insurance this week in a bid to raise receipts to channel funds into England’s ailing social care system.

Johnson is also expected to announce a cap on the amount individuals have to pay for social care. Receipts raised by the NI hike will also be allocated to clearing routine operations,  appointments and treatment that have been delayed due to the Covid crisis.

Kitty Ussher, chief economist at the Institute of Directors’, said: “National Insurance should not be used in place of general taxation. It was established to protect people financially from the risks of being unable to work, based on a contributory system, and it is on that basis that employers also make contributions.” 

“There is no logic to employer national insurance contributions being used to fund anything else.”

Employees and employers make national insurance contributions, the rate of which is determined based on the worker’s income.

Johnson is under pressure from his cabinet not to hike NI over concerns it could fuel a backlash among Tory voters. However, ministers are reluctant to criticise the prime minister’s plans openly due to concerns they may be replaced in a reportedly looming cabinet reshuffle.

The Conservatives promised not to raise NI, VAT or income tax in their 2019 election manifesto.

MPs and experts have criticised the inter-generational inequity of raising NI, caused by younger working people shouldering the added burden of paying for older Brits’ social care.

The economic think tank, the Institute for Fiscal Studies, said raising income tax or NI would raise similar amounts. However, if income tax were hiked, then ten times more of the revenue would come from families with a pensioner.

Helen Miller, deputy director of the IFS, said: “Raising National Insurance rates to fund social care would arguably be unfair, including across generations.”

Another think tank, the Resolution Foundation, has suggested extending a rise in NI to working pensioners to make the system fairer.

Hiking NI would add extra costs for employers hiring new staff, which may deter them from stepping up recruitment activity, Ussher warned.

“This seems an extraordinary time to be considering adding to the cost of employing people. Due to the much publicised labour shortages, our own research shows that 73 per cent of businesses are already concerned about rising salary-related business costs,” she said.

According to The Times, Johnson has signed off on £5.5bn to plug an NHS funding deficit, £1bn of which will be allocated to clearing a waiting list of 5.5 million for operations and cancer treatments.

Triple-lock set to be scrapped

Meanwhile, chancellor Rishi Sunak is expected to announce a “triple-lock lite” this week, which will see millions of Brits’ state pensions increase 2.5 per cent, instead of the 8.8 per cent they are entitled to under the normal policy. 

This would be another breach of the Tories’s 2019 manifesto

Sunak is seeking to tighten fiscal policy to put the public finances on a more sustainable path.

Latest data from the Office for National Statistics shows the debt-to-GDP ratio is at its highest level since the 1960s, driven by the government ramping up borrowing to pay for its response to the Covid crisis. 

However, last month’s borrowing came in below official forecasts produced by the Office for Budget Responsibility. Sunak has instructed the OBR to produce budget forecasts on 27 October, indicating he plans to deliver the next budget on that date.