Boris Johnson and senior ministers have agreed to increase national insurance to fund long-term reform of social care and reduce NHS waiting lists.
The prime minister is expected to announce plans to increase payments by 1 percentage point — a penny in the pound — for both employers and employees in a move that will raise £10 billion a year.
The new health and social care tax will initially be used to address the NHS backlog following the pandemic. Sajid Javid, the health secretary, has raised concerns that the waiting list could rise from 5.3 million to 13 million.
Later the fund will be used to cap care costs. Johnson is understood to favour plans by Sir Andrew Dilnot, a former government health adviser, to limit costs to £50,000 per person so families do not end up selling their homes.
Ministers are likely to argue that a tax rise will give people an effective insurance against spiralling care costs in old age. However, increasing national insurance is contentious as it affects people of working age rather than those who have already retired.
Paul Johnson, head of the Institute for Fiscal Studies, said: “Funding social care just from national insurance would be very inequitable. It would be a continuation of a long-term policy of hitting those of working age while protecting pensioners even for something designed to benefit people well over pension age. It’s a question of fairness.”
Torsten Bell, chief executive of the Resolution Foundation think tank, said: “Tax rises will be needed to deliver decent social care, but a national insurance rise is a terrible way to raise the funds required.
“It’s a tax disproportionately loaded on to younger and lower-paid workers, compared with a fairer rise in income tax. Why we would target a tax rise on the groups who have been hardest hit by the economic impact of this pandemic, while exempting older and wealthy individuals, is beyond me.”
Dilnot has previously suggested that pensioners should pay national insurance to fund care reforms. However, the approach has been rejected because it is considered too complex.
Ministers have also discussed increasing income tax but are understood to have opted for national insurance because the burden will fall on both employers and employees. The prime minister agreed the approach in principle with Javid and Rishi Sunak, the chancellor, on Friday. The plan was due to be announced this week as Johnson marked two years of his premiership.
It is now likely to be delayed until after the summer recess since Javid tested positive for the coronavirus. As a result of his close contact with Sunak and Johnson at the meeting on Friday both men are self-isolating.
Yesterday Johnson declined to commit his government to the Conservative manifesto pledge not to increase income tax, national insurance or VAT. He confirmed, however, that the announcement was likely to be delayed. “All I can say is we’ve waited three decades, you’re just going to have to wait a little bit longer,” he said.