Corporate Finance Partner Luke Morris examines whether the additional NI contribution just announced will damage businesses at a crucial time for their economic recovery.
The Prime Minister has set this out as a measure to deal with the “Covid backlog”. But regardless of Covid, it is difficult to see how the Government’s 2019 manifesto could have ever simultaneously promised not to raise taxes, whilst at the same time dealing with Social Care. This commitment never really stacked up: Social Care challenges plagued the Governments of John Major and Tony Blair, long pre-dating Covid.
Would it be naïve of me to ask if we shall see a corresponding tax cut when, and indeed if, the “Covid backlog” is ever cleared? The fact that this levy is to be rebadged as a new “Health and Social Tax” from 2023 answers that question. This tax is here to stay, and once again I fear that the Government has not been entirely straight with the country.
There is a historical resonance with the Income Tax Act 1803 introduced by Henry Addington during the Napoleonic Wars: although promoted as a temporary measure, income tax has been levied continually in Britain ever since, which is one of the reasons we have a Budget statement in Parliament. We can now confidently add “Health and Social Tax” to the growing list of items to be tweaked by the Chancellor each year.
Putting matters into context: the £36bn that this hypothecated tax is forecast to raise has already been earmarked for new healthcare spending. So it does not, in itself, actually deal with the national debt and the current state of the Government’s finances. Austerity, and sound money, is a relic from a former age. So it is difficult to see if that structural debt will ever be addressed. If it is never addressed, then there are some much bigger questions for the whole system of money in the coming decade. More on that anon.
On the politics, people instinctively understand that we have spent billions during an unprecedented period of time and someone has to pay. The Government’s Covid measures of the past 18 months have added in excess of £400bn to the country’s national debt. But irrespective of the banging of pots, this tax – starkly scheduled on the payslip – will presumably mean that people will be less forgiving if they or their loved ones do not receive the services they will feel they have paid for. Nice words aside, elections of yore have proven that everyone wants great public services, just as long as they think someone else is paying for it when in the privacy of the voting booth.
For what it’s worth, I feel this is little more than political posturing to bring forward higher public spending, and votes in demographics that currently expedient for the Tories. It is a gamble: there is plenty of evidence to prove that increasing tax by X% does not increase tax revenue by X%. Especially in a world where money moves globally, assets are increasingly digital, and tax domicile is ever harder to pin down. I fear this is only the start of the miserable process to deal with the past 18 months, and it is not the right start.