Boris Johnson says Scotland to get £1.1bn for health and social care from new levy

Boris Johnson has revealed Scotland’s share of his controversial new health and social care levy will be £1.1 billion by 2024, with the UK Government claiming the amount is 15 per cent more than the National Insurance and dividend tax contributions the Treasury receives from working Scots.

In a letter to Nicola Sturgeon on Tuesday, sent hours after he revealed he was breaking a manifesto commitment not to hike National Insurance, Mr Johnson said the new levy would raise around £12bn a year across the UK, and the Scottish Government would receive a share through Barnett consequentials for spending on health and social care services.

However, the Prime Minister’s stipulation in his letter that the Scottish Government should spend money on health and social care will spark a new front in the war of words between the UK and Scottish governments.

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Ms Sturgeon has already claimed the devolution settlement is “under threat” by Mr Johnson and the post-Brexit Internal Markets Bill.

Boris Johnson in the Commons announcing the new health and social care levy.

In her latest Programme for Government, she said leaving the European Union had “triggered an assault on devolution” and accused the UK Government of trying to “control” Scotland, which she said was “one reason” for a second independence referendum.

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Analysis: What does Boris Johnson's health and social care tax mean for Scotland...

The UK Government is intending to raise £5.3bn for social care in the 2022/23 financial year with a 1.25 per cent rise to National Insurance, and then the full £12bn through a new health and social care levy from 2023/24, which will also be funded by a 1.25 per cent rise on dividends tax.

Mr Johnson said the move to create a new tax had come after meeting with the leaders of the devolved governments in the summer where “the difficulties faced by the health services across all parts of the United Kingdom” were discussed.

He writes: “Whilst health policy is of course devolved across the UK, with different provisions made in Scotland, Wales and Northern Ireland, the broader challenge is a shared one and there are lessons to be learned from different approaches about what works well and what does not.

"The government is committed to supporting our NHS and to improving health outcomes for citizens across the country.

"But the scale of the challenge we all face requires a new approach. The government will therefore make available an additional £12bn in health and social care across the UK on average per year. This is a significant and permanent increase in public spending.

“To provide this record new investment in the fairest way possible, the government will introduce a new UK-wide health and social care levy, ring-fenced to fund this annual investment. The levy will operate UK-wide to ensure that health and social care in all parts of the UK benefit from significant additional support.”

Mr Johnson said the devolved nations would benefit from Barnett consequentials when the UK Government uses the new revenue raised to spend on health and social care in England.

“Taken together, Scotland, Wales and Northern Ireland will benefit from around 15 per cent more than is generated from their residents, equivalent to about £300m a year,” he said. “Combining Barnett funding and UK-wide spending, by 2024/25 Scotland will benefit from an additional £1.1bn.”

The prospect of more money received a cautious welcome by the Scottish Government, though there was concern there had been no discussion ahead of the announcement.

Finance secretary Kate Forbes said: “The Scottish Government has a long-standing commitment to pass on in full all health Barnett consequentials to fund health and social care services in Scotland.

“It is disappointing that there has been no discussion with devolved administrations in advance of this new and very significant announcement. The UK Government must clarify immediately how much Scotland will receive in consequentials and when.”

However, in the Commons SNP Westminster leader Ian Blackford said the announcement was a “poll tax on Scottish workers to pay for English social care”.

Earlier Mr Johnson had told the House of Commons that a new health and social care levy, based on a 1.25 percentage point increase in National Insurance contributions, was “the reasonable and the fair approach” despite it breaching a Tory commitment not to raise National Insurance.

Under the new levy, a typical basic rate taxpayer earning £24,100 would pay £180 more a year, while a higher rate taxpayer on £67,100 would pay £715.

As well as providing extra funding for the NHS to deal with the backlog built up during the Covid-19 pandemic, the new package will also reform the way adult social care in England is funded.

In Scotland the government is currently consulting on the creation of a National Care Service, which would also radically change the way adult social care is delivered.

Mr Johnson said a cap of £86,000 on lifetime care costs from October 2023 in England would protect people from the "catastrophic fear of losing everything”.

The UK Government will fully cover the cost of care for those with assets under £20,000, and contribute to the cost of care for those with assets between £20,000 and £100,000.

Mr Johnson said breaking the manifesto pledge "is not something I do lightly".

"But a global pandemic was in no-one's manifesto and I think the people of this country understand that in their bones, and they can see the enormous steps this government and the Treasury have taken,” he said.

"After all the extraordinary actions that have been taken to protect lives and livelihoods over the last 18 months, this is the right, the reasonable and the fair approach."

In addition to the health and social care levy, there will also be a 1.25 percentage point increase in the dividend tax, to ensure those who receive their income from shares also contribute.

Initially, main rate National Insurance contributions will increase by 1.25 percentage points from 12 per cent to 13.25 per cent from April 2022, as systems are updated.

From 2023, the health and social care levy element will then be separated out and the exact amount employees pay will be visible on their pay slips.

It will be paid by all working adults, including those over the state pension age, unlike other National Insurance contributions.

Mr Johnson said basing the levy on National Insurance, paid by both workers and firms, will "share the cost between individuals and businesses" and ensures "everyone will contribute according to their means".

Over the first three years of the new levy, some £5.3bn will be spent on social care, with the rest set to help the NHS tackle a backlog. As the cost of the care cap starts to increase, social care will take a larger share of the funding in future.

Paul Johnson, director of the Institute for Fiscal Studies economic think-tank, said the new levy came on top of bumper tax rises already announced this year.

"This is a huge year for tax rises – a permanent increase of 1.5 per cent of national income to highest in peacetime," he said.

Professor David Bell, an economics expert at Stirling University, said a combination of the income tax rates set by Scottish ministers and the National Insurance rise would mean Scots taxed at a marginal rate above 60 per cent for earnings between £48,500 and £60,000.

He said this could not be “conducive to expanding employment in Scotland” and warned that decisions on how to fund improvements in social care in England were “being made on the hoof”.

MPs will vote on the measures on Wednesday and Labour leader Sir Keir Starmer has said his party will oppose the increase.

In his letter to Ms Sturgeon, Mr Johnson also said he hoped for an in-person meeting with all devolved leaders next month, to discuss the new levy, COP26 summit “responsibilities and roles” and to finalise the “intergovernmental relations review”, which will create a new structure for the governments to work together.

Within hours of Mr Johnson abandoning the Tory commitment not to raise National Insurance, work and pensions secretary Therese Coffey announced another breach of the 2019 manifesto.

The triple-lock, which guarantees the state pension will increase in line with inflation, wage growth or 2.5 per cent, whichever is higher, will not apply in 2022/23 due to an "irregular statistical spike in earnings" as a result of the pandemic.

She said the move "will also ensure that as we are having to make difficult decisions elsewhere across public spending, including freezing public sector pay, pensioners are not unfairly benefiting from a statistical anomaly”.

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