Here are five other ways Boris Johnson’s Government could have raised the money needed to fund the NHS and social care explained, from income tax to increasing borrowing
Image: Andrew Parsons / No10 Downing Street)
Boris Johnson is proposing to raise National Insurance Contributions by 1.25% to fund the NHS and social care.
The tax hike would raise an estimated £12 billion a year but it has been widely criticised for being unfair on the low-paid and younger workers.
This is because NICs are not paid by anyone aged 66 and over even if they have income from rental and investments.
Here are the other ways the Government could have raised the money:
Increasing the basic rate of income tax by 1% would raise an estimated £6billion a year.
Pros: The advantage of income tax is it is fairer and shares the burden across all generations.
The current threshold for income tax is £12,570 so the lowest paid are protected.
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Unlike National Insurance, which is not paid by those aged over 66, pensioners still have to pay income tax on any income over their personal allowance.
Cons:Boris Johnson rejected income tax as it would not be paid by business, only earners. It would also raise only half the amount gained from raising NICs by 1.25%. It would also break a Tory manifesto pledge but so does raising NICs.
The richest 10% have seen their wealth double in the last decade. A 5% wealth tax on couples worth more than £1million would raise an estimated £50billion a year. A 1% tax on households worth £4million or more would raise £20billion a year.
Pros: Wealth inequality is much wider than income inequality. A one-off wealth tax would see those with the broadest shoulders bear the greatest burden.
Cons: The tax is difficult to design so it avoids hitting those who are asset rich but on low incomes. It could also penalise, for example, farmers who earn little money but whose land means they are wealthy on paper.
Rishi Sunak has said a wealth tax would be “un-Conservative” which could be translated as the Chancellor not wishing to upset his party’s well-heeled supporters.
Capital gains tax
Capital gains tax is the amount you pay when you sell something that’s increased in value. At the moment the highest rate is 28%. Increasing that to 40% – the same level as the highest rate of income tax- would raise an estimated £9billion.
Pros: Increasing capital gains would be fairer as it only affects wealthy firms and individuals and does not require breaking a manifesto promise.
Cons: The Prime Minister rejected the option on the grounds it would only raise £9billion. But if Entrepreneurs’ Relief was included – a tax which benefits 5,000 business people – then it could raise nearly £13billion a year.
Savings and investments
At the moment you pay tax on money you earn from your stocks and shares. The basic rate of the dividend tax is 7.5%. Boris Johnson is proposing to raise this by 1.25% to help fund health and social care.
But if it were increased by 15% it could raise an estimated £7billion.
The Chancellor could also save £3billion a year by scrapping tax relief on ISAs.
Pros: This would raise money from those who are relatively well off without hurting people’s incomes. Joe Biden is bringing in a similar tax hike in the United States.
Cons: It would discourage low-income families from building up savings. It also runs against the Tory wish to expand share ownership.
Chancellor Rishi Sunak has spent £407billion on helping the country through the pandemic. Adding an extra £36billion – the amount raised from increasing NICs – to that amount would not make a huge difference.
Pros: With interest rates at a record low it has never been cheaper for the government to borrow money. Adding to the nation’s credit card would also excuse the Tories from having to break their manifesto promises.
Cons: At some point the debt mountain has to be brought down. There are also fears that inflation is starting to rise which would result in the Government having to spend more and more servicing its existing debts.