Five ways the government could have funded the NHS and social care, from tax to borrowing
Here are five more ways Boris Johnson’s government could have raised the funds needed to fund the NHS and social services, from income tax to increased borrowing
Image: Andrew Parsons / No10 Downing Street)
Boris Johnson proposes to increase national insurance contributions by 1.25% to fund the NHS and social care.
The tax hike would raise around £ 12 billion a year, but it has been widely criticized for being unfair to low-paid workers and young people.
Indeed, NICs are not paid by people aged 66 and over, even if they receive rental and investment income.
Here are other ways the government could have raised the money:
Raising the basic income tax rate by 1% would raise around £ 6 billion a year.
Advantages: The advantage of income tax is that it is more equitable and spreads the burden among all generations.
The current income tax threshold is £ 12,570, so those less paid are protected.
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Unlike national insurance, which is not paid for by people over the age of 66, retirees still have to pay income tax on any income in excess of their personal allowance.
The inconvenients:Boris Johnson rejected income tax because it would not be paid by companies, but only by employees. It would also only increase half the amount earned by increasing network cards by 1.25%. It would also break a Tory manifesto commitment, but so does the increase in network cards.
The richest 10% have seen their wealth double over the past decade. A 5% wealth tax on couples over £ 1million would raise around £ 50 billion a year. A 1% tax on households worth £ 4million or more would raise £ 20 billion a year.
Advantages: Wealth inequality is much broader than income inequality. A one-time wealth tax would place the heaviest burden on those with the broadest shoulders.
The inconvenients: The tax is difficult to design, so it avoids hitting those who are rich in assets but low in income. It could also penalize, for example, farmers who earn little money but whose land means they are rich on paper.
Rishi Sunak said that a wealth tax would be “non-conservative,” which could mean that the Chancellor does not want to upset the well-to-do supporters of her party.
Capital gains tax
Capital gains tax is the amount you pay when you sell something that has increased in value. Currently, the highest rate is 28%. Raising it to 40% – the same level as the highest income tax rate – would raise around £ 9bn.
Advantages: The increase in capital gains would be fairer because it only concerns companies and high net worth individuals and does not require breaking a clear promise.
The inconvenients: The Prime Minister rejected the option on the grounds that it would only raise £ 9bn. But if Entrepreneurs’ Relief were included – a tax that benefits 5,000 businessmen – then it could raise nearly £ 13 billion a year.
Savings and investments
The moment you pay taxes on the money you earn from your stocks and shares. The basic dividend tax rate is 7.5%. Boris Johnson is proposing to increase this amount by 1.25% to help fund health care and social services.
But if it were increased by 15%, it could bring in around £ 7bn.
The Chancellor could also save £ 3 billion a year by removing tax breaks on ISAs.
Advantages: This would make it possible to collect money from those who are relatively well off without harming people’s income. Joe Biden is planning a similar tax hike in the United States.
The inconvenients: This would discourage low income families from building up savings. It also goes against the Conservatives’ wish to expand shareholding.
Chancellor Rishi Sunak has spent £ 407 billion to help the country weather the pandemic. Adding an additional £ 36 billion – the amount raised through the increase in network cards – to that amount wouldn’t make a huge difference.
Advantages: With interest rates at an all time high, it has never been cheaper for the government to borrow money. Adding to the nation’s credit card would also excuse the Conservatives from having to break their manifesto promises.
The inconvenients: At some point, the mountain of debt must be reduced. There are also fears that inflation may start to rise, forcing the government to spend more and more to service its existing debts.