Institute for Fiscal Studies accuses Rishi Sunak of 'propagating myth' on National Insurance rise

Rishi Sunak’s Spring Statement has highlighted that there is "no relation" between the rise in National Insurance and spending on health and social care, leading economists have said.

The Conservatives are breaking a manifesto promise to bring in a 1.25 percentage point increase in National Insurance from next month, which they have termed a ‘Health and Social Care Levy’.

When it was put forward in autumn, it was expected to raise around £12bn per year.

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But at an Institute for Fiscal Studies press conference assessing the Spring Statement yesterday, it was highlighted that higher inflation means the levy is now on course to raise billions more than expected - but there has been no corresponding change in budgets for social care and the NHS.

The Institute for Fiscal Studies has questioned Rishi Sunak's claims about the Health and Social Care Levy.

Ben Zaranko, a Senior Research Economist for the IFS, said the levy is now forecast to raise £17.4bn by 2024/25.

He said while the rise in thresholds before people start making National Insurance contributions will take away around £0.5bn from what the levy would have otherwise raised, neither figure has been reflected in budget changes for health and social care.

“The levy is now forecast to raise more than £17bn by the end of this decade which is a lot more than when it was first announced,” he said.

Rishi Sunak repeated on Wednesday that every penny of this is going straight to the health and social care budgets.

“At the same time he announced changes to the National Insurance threshold which means the specific 1.25 percentage point levy will raise about half-a-billion less.

“These are all changes to how much the levy raises but shockingly the NHS budget wasn’t changed, the social care budget wasn’t changed.

“There is no relation between how much is raised in those tax measures and what is spent on NHS and social care.

“The hypothecation is a useful myth for the Chancellor and it was disappointing to see him propagating that in the House of Parliament.”

The Treasury today insisted "every penny" from the levy will go into social care and NHS spending.

Mr Sunak told Parliament during the Spring Statement: “There is now a dedicated funding source for the country’s top priority, the NHS and social care, providing funding over the long term as demand grows, with every penny going straight to health and care.

“When I said the Conservatives were the party of public services — the party of the NHS — I did not just mean when it was easy; it is a total commitment.”

At the same IFS press conference, the organisation’s director Paul Johnson made a similar point to Mr Zaranko.

He highlighted that the change in threshold for National Insurance contributions, which Mr Sunak had described as “a £6 billion personal tax cut for 30 million people across the United Kingdom” had not been reflected in any change to health and social care spending.

Mr Johnson said: “The absurdity of the idea that the NI increase, which will become the health and social care levy, is in any way hypothecated to health and social care was laid even more bare yesterday. The cut in NI receipts from yesterday’s new measure is not leading to, and of course should not lead to, a cut in funding for the NHS and social care.”

Mr Johnson described the Chancellor as “something of a fiscal illusionist”.

He said: “He told us that he cut taxes. In a sense he did. He increased the floor for NICs and promised a cut in income tax in 2024. So Mr Sunak’s statement contained big new tax cuts. But it also allowed taxes to rise. Taxes are set to rise to their highest level as a fraction of national income since Clement Attlee was prime minister.”

A Treasury spokesperson said: “Every penny collected from the Levy goes direct to the NHS and Social Care, investing billions in tackling the NHS backlog, reforming social care, and continuing the fight against Covid.”

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