Boris Johnson, the UK Prime Minister outlines new 1.25% health and social care tax to pay for reforms

A new health and social care tax will be introduced across the UK to pay for reforms to the care sector and NHS funding in England.

Boris Johnson said it would raise £12bn a year, designed to tackle the health backlog caused by the Covid pandemic and to bolster social care.

He accepted the tax broke a manifesto pledge but said the "global pandemic was in no-one's manifesto".

The tax will increase from April 2022 by 1.25% for both workers and employers and will then become a separate tax on earned income from 2023 - calculated in the same way as National Insurance and appearing on an employee's payslip.

This will be paid by all working adults, including older workers, self-employed and the government says it will be "legally ring-fenced" to go only towards health and social care costs.

Income from share dividends - earned by those who own shares in companies - will also see a 1.25% tax rate increase.

The Institute for Fiscal Studies said the latest tax increases amounted to £14bn. Together with those announced in the March Budget, it said, 2022 had seen the highest tax rises in 40 years.

MPs will vote on the new proposals in the Commons on Wednesday, 08 September 2021.

A portion of the money - £5.4bn over the next three years - will also go towards changes to the social care system, with more promised after that.

A cap will be introduced on care costs in England from October 2023 of £86,000 over a person's lifetime.

All people with assets worth less than £20,000 will then have their care fully covered by the state, and those who have between £20,000 and £100,000 in assets will see their care costs subsidised.

Mr Johnson insisted that with the new tax, "everyone will contribute according to their means", adding: "You can't fix the Covid backlogs without giving the NHS the money it needs.

Mr Johnson said no Conservative government wanted to raise taxes - but he defended the move as "the right, reasonable and fair approach" in light of the pandemic, which saw the government spend upwards of £407bn on support.

Who will pay the new Health and Social Care tax?

Employees and the self-employed will pay more tax from April 2022. At first this will be as a 1.25 percentage point increase in National Insurance.

From April 2023 National Insurance will return to its current rate, but a new health and social care tax will be introduced at a rate of 1.25% - making up for the change to National Insurance.

On wage slips it will appear as a "Health and Social Care Levy".

The levy - unlike National Insurance - will also be paid by pensioners who work.

People who earn under £9,564 don't have to pay National Insurance or the new levy.

Employers will pay more National Insurance - and the levy.

How much will the tax changes cost me?

Somebody on £20,000 a year will pay an extra £130, while someone on £50,000 will pay £505 more.

The same increase will still apply after the National Insurance rise is replaced by the Health and Social Care Levy in 2023.

What are the criticisms of the tax increase?

There are concerns that this increase will have a higher impact on the lower-paid.

Currently, workers pay 12% National Insurance on earnings between £9,564 and £50,268. However, anything earned above this amount attracts a rate of just 2%.

This makes National Insurance different from the rate of income tax, which rises from 20% to 40% after you reach annual earnings of about £50,000.

The same principle will still apply when the National Insurance increase is replaced by the Health and Social Care Levy.

Following the announcement, Paul Johnson, director of the Institute for Fiscal Studies said, "pensioners will pay next to nothing for this social care package - overwhelmingly to be paid by working age employees".

Former Conservative minister Jake Berry MP said the changes would disproportionately affect working people "on lower wages than many others in the country". He said they would end up "paying tax to support people to keep hold of their houses in other parts of the country where house prices may be much higher".

What is social care?

The social care system mainly helps older people and people with high care needs, with tasks such as washing, dressing, eating and taking medication.

Under the government's changes, people in England will pay no more than £86,000 in care costs from October 2023. This is for actual care, rather than accommodation and food.

In addition, anyone with assets (which may include your home) worth less than £20,000 will have their care fully covered by the state.

Those who have between £20,000 and £100,000 in assets will have their care costs subsidised.

What's the present arrangement?

At present, to get your care paid for by your local council, you must have a very high level of need and also savings and assets worth less than £23,250 in England.

Below that level the amount you pay reduces until you have less than £14,250, at which point the council pays for your care if you qualify.

The care system is under pressure because of an ageing population and the pandemic. It has been hit by staff shortages and falling government spending.

This has also put pressure on the NHS because people cannot be discharged from hospital if they don't have anywhere suitable to go.