8 September 2021
The question of how to fund social care is one that has dogged politicians of all parties for decades. On entering Downing Street in July 2019, the Prime Minister Boris Johnson said “…we will fix the crisis in social care once and for all, and with a clear plan we have prepared…”. On Tuesday 7 September 2021, details of that plan finally emerged.
The new social care funding proposals
The government’s reforms will use the existing framework of the Care Act 2014, which in turn was based on a set of proposals developed in the Dilnot report on social care of a decade ago. The new reforms will only apply to care in England, as Wales, Northern Ireland and Scotland have their own care schemes and funding mechanisms.
The main changes, which apply to those starting care from October 2023, includes areas such as:
- Capital means testing
- A new fee cap
- NHS-funded Nursing Care (FNC)
Meeting the cost
The Institute for Fiscal Studies (IFS) described the measures to meet the proposed costs of the reform as “A Budget in all but name”. The amount raised, which the IFS puts at £14 billion a year, will be directed mainly at dealing with the NHS’s Covid related issues until the new care provisions start to operate in two years’ time. There are two tax increases to fund the costs involved.
National insurance contributions
As was widely trailed, the bulk of the cost will be met by increasing national insurance contributions (NICs). The mechanics of this are that:
- In 2022/23 there will be a new 1.25% ‘Health and Social Care Levy’(HSCL), operated as an increase on Class 1 (employer and employee) and Class 4 main and higher NIC rates. Thus, all the main in-work NIC rates will rise, although Class 2 (self-employed) flat-rate payments will be unaffected.
- In 2023/24, NIC rates will return to their current (2021/22) levels and the HSCL will reappear as a separate 1.25% charge. This separation is necessary to allow the HSCL to be charged on the earnings of employees and the self-employed who are over The State Pension Age (SPA) – currently 66. At present employees and the self-employed past SPA do not pay NICs, although employers generally pay Class 1 NICs regardless of employee age.
- The current employer NIC reliefs, e.g. for apprentices under 25, will continue to apply.
NICs: 2021/22 – 2023/24
| Tax Year | Employer* % | Employee % | Self-employed % | ||
| Main | Higher | Main | Higher | ||
| 2021/22: NICs | 13.80 | 12.00 | 2.00 | 9.00 | 2.00 |
| 2022/23: NICs | 15.05 | 13.25 | 3.25 | 10.25 | 3.25 |
| 2023/24: NICs | 13.80 | 12.00 | 2.00 | 9.00 | 2.00 |
| 2023/24: HSCL | 1.25 | 1.25 | 1.25 | 1.25 | 1.25 |
| Threshold (21/22) | £8,840 | £9,568 | £50,270 | £9,568 | £50,270 |
* Under the Employment Allowance employers do not have pay the first £4,000 of Class 1 NICs unless the sole employee is a director OR total NICs for the previous tax year are £100,000 or more.
Dividends
From 2022/23, all dividend tax rates will rise by 1.25%. This move is designed to discourage private company owners from drawing remuneration as NIC-free dividends, but in practice it is likely to have the opposite effect. Including dividends also has the political benefit of raising some revenue (albeit a small amount) from the wealthy retired, who pay no NICs.
Dividend tax: 2021/22 and 2022/23
| Tax Year | Basic rate % | Higher rate % | Additional rate % |
| 2021/22 | 7.50 | 32.50 | 38.10 |
| 2022/23 onwards | 8.75 | 33.75 | 39.35 |
Scotland, Wales and Northern Ireland
NICs and, to a lesser extent, dividends were chosen to fund the social care reform because, unlike income tax on earnings, they are not devolved taxes. As a result, residents of Wales, Northern Ireland and Scotland will suffer increased tax bills for a reform limited to England. However, the amounts raised will be returned to the devolved nations’ health and social care services (not the devolved governments) via the Barnett formula.
Can we help?
If you would like advice on how the proposed changes would affect your personal income, please contact one of our team of specialists shown on this page.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary. If you would like advice or further information, please speak to your usual Shipleys contact.
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