National Insurance not to be converted into health and social care tax

The Government has ruled out converting National Insurance contributions into a special tax to fund health and social care.

Treasury spokesman Lord Ashton of Hyde said the Government had no plans to make the change because ministers were opposed to hypothecation of taxes.

Hypothecation of taxes is a tax where the money raised, or a portion of it, is used for a particular purpose, rather than spent on a number of things

At question time in the House of Lords, he said a fixed proportion of each class of NI receipts was already allocated directly to the NHS with the remainder of its funding coming from general taxation.

But Liberal Democrat Lord Taverne warned the NHS was facing an “existential crisis” and insisted a change in funding was the answer.

He said NICs were a “regressive and inefficient tax on jobs” and urged ministers to meet cross-party campaigners who believed that to save the NHS it required a “new Beveridge”.

Lord Ashton said the Government was spending an extra £10 billion a year by the end of the Parliament on the NHS under the five-year forward view.

Former Labour leader Lord Kinnock said health funding was “in crisis” and spending on adult social care had gone down as a proportion of GDP since 2010.

He called for ministers to consider the “direct connection between tax contributions and the quantity and quality of social care provision,” insisting it would enhance public understanding and improve transparency, while potentially generating “additional buoyancy” for these vital services.

Lord Ashton said it was a generally established principle that government did not like hypothecation of taxes because it restricted flexibility.

“Ultimately the taxpayer has to pay for the NHS,” he said. “We don’t agree with hypothecated taxes beyond that 20% of NICs does go to the NHS.”

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