On 8 September 2021, the UK Government announced a new funding plan for health and social care in England. “Build Back Better” sets out plans for a ringfenced UK-wide Health and Social Care Levy (“the Levy”). The plans were passed by the House of Commons on 7 September 2021.
The Levy will be introduced in April 2022, initially collected as an increase of 1.25 percentage points in National Insurance Contributions (NICs). In 2023, it will become a legislatively separate levy and also apply to individuals working above State Pension age (who currently don’t pay any National Insurance on their earnings). Dividend tax rates will also increase by 1.25 percentage points.
How will National Insurance Contributions change?
NICs qualify an individual for various benefits and pensions, including State Pension, Maternity Allowance and Employment and Support allowance.
You’ll make NICs if you’re 16 or over and either an employee earning more than £184 per week, or self-employed and making a profit over £6,515 annually. Employers also make a contribution on your salary and those contributions are also due to increase by 1.25 percentage points.
In 2021-22, NICs for employees (Class 1 contributions) are charged at 12% for earnings between £9,568 and £50,270, with a 0% rate for any earnings below the minimum of that band. Earnings over £50,270 are subject to a 2% rate.
Under the UK Government’s proposals, the main rate will rise from 12% to 13.25% and the higher amount by the same, to 3.25%. The nil rate band for annual earnings below £9,568, currently remains unchanged for 2021-22, with the threshold for payment for 2022-23 to be set in due course. There are separate rates for people who are self-employed, which will also increase by 1.25 percentage points.
Table 1: Health and Social Care Levy Rates, HM Government
| Employee Main / Higher Rate | |
|
Current NICs rates (2021-22) |
12% / 2% |
|
2022-23 NICs rates |
13.25% / 3.25% |
|
2023-24 NICs rates 2023-24 Levy |
12% / 2% 1.25% |
|
Charged on all earning / profits above: (2021-22 Thresholds) |
£9,568 |
Source: HM Government, Build Back Better
The 2021-22 thresholds are used as an illustration
In practice, this means that most employees in Wales will make larger NICs from 2022-23. The table below shows the increase in NICs, based on annual gross salary:
Table 2: Estimated NICs by Annual Gross Salary
| Annual Gross Salary | NICS (2021-22)¹ | NICs (2022-23)¹ | Increase (£) |
| £20,000 | £1,252 | £1,382 | £130 |
| £30,000 | £2,452 | £2,707 | £255 |
| £40,000 | £3,652 | £4,032 | £380 |
| £50,000 | £4,852 | £5,357 | £505 |
| £75,000 | £5,379 | £6,197 | £818 |
| £100,000 | £5,879 | £7,009 | £1,130 |
Source: Author's own calculations
¹ NICs are calculated on the basis of a primary threshold of £9,568, the rate for 2021-22, and a higher rate threshold of £50,270.
How much will the change raise?
The UK Government estimate that the Levy will make £12 billion a year on average over the next three-years. Around £11.4 billion of this amount is accounted for by the Levy and around £0.6 billion from the increase to dividend tax rates. On the subject of consequential funding associated with the Build Back Better paper, the Command Paper states:
In 2024-25, Scotland, Wales and Northern Ireland will benefit from an additional £1.1 billion, £700 million and £400 million respectively.
The Welsh Government have noted that “the associated increase in spending on health and social care in England could mean additional funding for the Welsh Government of around £600m a year”. Separately, the Welsh Government suggested:
...we must wait for the outcome of the UK Government’s Comprehensive Spending Review before we have any certainty about the exact amount of funding Wales will receive as a consequence.
When asked about the case for devolving National Insurance and the decision taken by the UK Government, the First Minister told Plenary (14 September 2021) that he backed the case for devolving National Insurance and that “There were better decisions that could and should have been made”.
The Prime Minister has outlined that consequential funding would be “15 per cent more than they will contribute through the levy”, which he described as a “union dividend worth £300 million”.
How much will go to Social Care?
There will be a legal requirement to allocate the Levy revenues for spending on health and social care. The Command paper states that receipts from the 2022-23 increase will go to the NHS or equivalent in the devolved administration, with the proceeds of the Levy going to those responsible for health and social care in the devolved administrations, including NHS Scotland, NHS Wales and Health and Social Care (HSC) in Northern Ireland from April 2023.
The Institute for Fiscal Studies (IFS) highlight therefore that the Levy would “fund only a small proportion of health and social care spending in the devolved nations – around 6%”. As such, devolved administrations could elect to cut (or slow increases in) other non-ringfenced health and social care funding, or choose to redeploy that money elsewhere. The IFS’ Associate Director, David Phillips, stated:
The only way the UK government could ensure the proceeds of the health and social care levy were used in full to fund increased health and social care spending outside England would be to take much greater control of the devolved governments’ budgets - something the devolved governments would be fiercely critical of.
What’s the position with Social Care reform in Wales?
Health and Social Care are devolved, so how the Welsh Government uses the additional funding remains uncertain. The Command Paper states that “the (UK) Government will look to establish a programme of joint work to share best practice across the home nations”.
The Finance Committee of the Fifth Senedd’s inquiry, The Cost of Caring for an Ageing Population, previously considered potential reforms to the funding of social care services. The Committee concluded (October 2018) it would be preferable to pursue a “UK wide solution to social care funding, subject to it being appropriate to meeting the needs of the Welsh population”.
The Welsh Government’s White Paper, Rebalancing care and support (February 2021), set out a series of proposals to “reduce complexity, increase sustainability, and strengthen integration”. It proposed focussing on three areas for improvement:
- refocussing the fundamentals of the care market;
- reorientation of commissioning practices; and
- evolution of integration mechanisms.
Subsequently, the Welsh Government’s Programme for Government 2021-26, published in June 2021, committed to pursuing “a sustainable UK solution so that care is free for all at the point of need and/or consult on a potential Wales-only solution to meet our long-term care needs”.
What next?
The First Minister told Plenary on 14 September 2021 that the Welsh Government
…continues to seek clarity on a series of issues that lie behind the headlines of last week’s announcement. That includes the quantum of funding available to Wales.
The Welsh Government has decided to reconvene the Inter-Ministerial Group on paying for social care to consider the next steps for Wales. The outcome of the UK Government’s Spending Review 2021, which is due to conclude on 27 October 2021, should provide more information about the funding available to the Welsh Government, to deliver their plans for Social Care.
Article by Owain Davies, Senedd Research, Welsh Parliament.
