Second Reading (and remaining stages)
My Lords, I am pleased to open the debate on this Bill. The health and social care levy was announced only last September and then made its way through Parliament to become the Health and Social Care Levy Act 2021. This Bill, if passed, repeals this legislation. I intend to set out the background to this, the consequences of this Bill and to provide some reassurance on its impact.
First, I shall make a few comments about the events which have taken place over this weekend and this morning, which provide a backdrop to this legislation. The Government, as we are aware, have a new Chancellor who, with the backing of the PM, has continued to emphasise the importance of achieving economic growth, not for its own sake but because of the benefits it will bring to communities across the country: higher wages, better public services and greater opportunities for all.
As the Chancellor has set out this morning, there can be no economic growth without fiscal credibility. That is why the Government are acting decisively today to get the public finances under control. As well as confirming that we will not proceed with the planned reduction of corporation tax from 25% to 19%, the Chancellor has set out further steps this morning to support confidence and, vitally, stability. The Chancellor is setting out further details in the other place shortly and a Statement will follow here, in discussions with the usual channels.
It is in the whole country’s best interests for the Government to act decisively, at scale, to regain the confidence and trust of financial markets. On 31 October, the Government will publish a credible plan to get debt falling as a share of the economy over the medium term, backed by the judgment of the independent Office for Budget Responsibility. For that plan to be credible, there will be more difficult decisions to come across tax and spending. The Chancellor has made a promise that, in doing so, we will always act in line with our values, seeking to protect vulnerable families and back businesses at the same time. The repeal of the health and social care levy should be viewed, therefore, in the context of this continued commitment to support families and businesses.
The levy was originally introduced to help put the NHS and adult social care on a sustainable footing. However, given the financial pressure on households, it is right now to reverse the levy. There is a reasonable question to be asked about the long-term impact on health and social care. Overall funding for health and social care services will be maintained at the same level as if the levy were in place.
The Deputy Prime Minister and Secretary of State for Health and Social Care recently set out details of her priorities for the health and social care sectors in the booklet Our Plan for Patients. The Government will seek to expand on this in due course. The Deputy Prime Minister’s plan includes a £500 million adult social care discharge fund that will help people out of hospitals and into social care support, while providing support to the social care workforce.
Noble Lords will forgive me if I briefly touch on how we got here. The health and social care levy was originally announced last September, as I mentioned earlier. The Health and Social Care Levy Act 2021 made its way through Parliament soon afterwards and received Royal Assent on 20 October. The levy had two key elements: first, a temporary increase in national insurance contribution rates of 1.25 percentage points for the 2022-23 tax year; then, from April 2023, a formal legal surcharge of 1.25%, which would also affect those working over the state pension age. As a result of this Bill, neither of those will now happen. To be clear, this Bill repeals that legislation, reversing the temporary NICs increase from 6 November 2022 and ensuring that no new levy comes into force in April 2023.
What does that mean for people around the country? All employees earning more than the annual equivalent of £12,570 and self-employed people earning more than £11,908 in 2022-23 or £12,570 in 2023-24 will benefit. The average saving is around £330 in 2023-24, with an additional average saving of around £135 over the remainder of this year. Some 60% of businesses, 920,000 of them, will see an average tax cut of £9,600 in 2023-24.
I note that businesses which benefit from the employment allowance already pay no national insurance contributions at all. The employment allowance was increased from £4,000 to £5,000 in April 2022, meaning that businesses and charities which had employer NICs bills of £100,000 or less in the previous tax year can claim up to £5,000 off their employer NICs bill. Thanks to the employment allowance, a further 20,000 businesses will be taken out of paying NICs altogether in 2023-24.
Taking into account the threshold changes made earlier this year, almost 30 million people will be better off by an average of over £500 in 2023-24. I realise that that is quite a lot of detail to digest, but the bottom line is this: reversing the levy delivers a tax cut for 28 million people worth, on average, £330 every year. It also delivers a tax cut for nearly a million businesses, in turn boosting economic growth, as I said at the beginning. Crucially—
If I may finish my remarks, as they are nearly finished, that would be very helpful. I encourage the noble Lord to ask some questions during the debate.
Crucially, as I said earlier, reversing the levy has no bearing on the funding of health and social care services, because the Government will maintain funding at the same level as if the levy were remaining in place.
To conclude my opening remarks, the Government’s reversal of both the levy and the temporary NICs rise will make a significant difference to the lives of millions across the country. It will also have no impact on the provision of health and social care services. The Chancellor has promised that we will continue to support families and back businesses; we will keep those promises. I beg to move.
My Lords, I declare an interest as a vice-president of the Local Government Association. I am opening from the Lib Dem Benches today to focus on the health and care sectors, their need for core funding and the current crises they are facing—not least, as we need to remember, that people are dying waiting for ambulances or in ambulances outside A&E, and that those fit to leave hospital cannot do so because the care they need is not available, whether in a care home or through domiciliary care, where staff deliver care to people in their own homes. My noble friend Lady Kramer will focus on the Treasury mechanisms when she speaks later.
The journey of the Conservative Government since 2015 is from being a party that used to pride itself on being economically responsible to one now deemed by the public to be unfair and irresponsible, with crises happening so fast it is hard to keep up. Indeed, Wikipedia has recently had to put up a notice on the page called “2022 United Kingdom government crisis”. Underneath, it says:
“This article is about the mass resignation of ministers from the Johnson government in July 2022. For the Truss government crisis resulting from the September 2022 mini-budget, see ‘September 2022 United Kingdom mini-budget’.”
Before today’s debate, we had to wait until 11 am this morning to hear whether the Health and Social Care Levy (Repeal) Bill would indeed be debated today in your Lordships’ House. I do not think it is surprising that we are debating it, but we were all told that we had to wait to hear what the new Chancellor had to say. The former Chancellor, the IEA, the TaxPayers’ Alliance and even the Prime Minister now seem to be pushed sideways by the appointment of Jeremy Hunt. As we start this debate, the PM should be in the Commons responding to an Urgent Question—but she is not.
The Minister referred to the context for the original Bill. All stakeholders in the NHS and social care recognised that our social care system was fundamentally broken and had been for some decades, not least because of the very poor levels of funding for state-funded social care. The result of this was the escalating care fees for self-payers but continued very low pay for front-line staff—whether nurses, care assistants, supervisors or allied healthcare professionals—because of the public funding provided for them.
Things are so bad now that a care worker with five years’ experience is paid 7p an hour more than care workers with less than one year’s experience. The average care worker is paid £1 per hour less than healthcare assistants doing a very similar role in the NHS. As a result, the NHS is now directly recruiting staff from our already depleted care sector, and staff turnover in the sector is 29%. Your Lordships’ House has often discussed the problems of the NHS workforce, but social care is even worse off.
All this is primarily because the Government’s historical allocation to local government to fund the fees for those who cannot pay for themselves has slipped very badly. It has got so bad that most domiciliary workers are not paid for driving between clients, which results in these dedicated staff receiving less than the living wage simply because of the time it takes to travel. Three years ago, the Government agreed that it was inappropriate to allocate care packages of 15 minutes because it is almost impossible for a carer to get a client up, wash them and prepare their breakfast in that time, but they persist because there is not even enough funding for these basics. Care assistants leaving the care sector are receiving even higher wages in hospitality and retail. As a statement on our priorities as a country, that is shocking.
When the levy was announced earlier this year to great fanfare, it was recognised that at last there would be a mechanism to start to remedy this. Whether that mechanism, through national insurance, is the right one is not for debate today, because the Government chose that route earlier this year. There was one caveat, which the then Secretary of State outlined. For the first three years, the NHS would receive the proceeds of the national insurance levy to help it catch up post-pandemic, and an interim grant would be paid to the care sector to help develop its workforce and start to address the funding gap, but most of that would not kick in until after this year.
Therefore, in the mini-Budget in September, the then Chancellor—they move so quickly these days; we are now on the fourth since July—said:
“I can confirm that the additional funding for the NHS and social care services will be maintained at the same level.”—[Official Report, 23/9/22; col. 938.]
However, a briefing from the NHS Confederation says:
“Details remain unclear, but the approximate £2 billion the Treasury had allocated for the NHS to pay for their own employer National Insurance contributions to the new levy, will be reallocated. Part of this money will go towards the new”
half a billion pound
“Adult Social Care Fund announced yesterday by the new health secretary Thérèse Coffey.”
But this is smoke and mirrors. The £500 million is also covering winter costs, which were inexplicably left out of the NHS budget in March for this financial year, whereas there has been winter pressures money for the preceding five years. That left an enormous hole at a time when the NHS has been facing pressures at the level of the usual winter season right throughout this summer. This is not new money. Had the announcement not been made by the Secretary of State for Health and Social Care, it would have been an unforgivable dereliction by the Government. Worse, Health Service Journal reported on 6 October—so, after the mini-Budget—that increases in inflation will force the NHS to drastically scale back services. It faces £20 billion in efficiency savings because of the cost of goods and services.
Even worse, the day before, 5 October, Health Service Journal reported that the Government’s own new ground-breaking integrated care systems, which took over from clinical commissioning groups on 1 July, are already in deficit. Two out of three ICS funding plans are already in deficit because of the impact of inflation, Covid costs—which were not funded in the Budget for this year, despite numbers rocketing up to 200,000 new cases a day last week—and the increased spend on agency staff because of the continued struggle to retain and recruit staff across the NHS.
The funding from this levy was intended to help reduce the backlog of cases initially. When identified in the spring, the formal backlog was just over 5 million patients, including those with suspected cancers and other time-critical illnesses. Because of the pressures this summer in the NHS, not least due to the wave of Covid we had, last week it was announced that the waiting lists are now at 7 million. We should forget any idea that funding is available to reduce this significantly; it is not going to happen.
Today, the new Chancellor said that savings would be required from every department on top of the positions that they find themselves in now. For the NHS and Social Care sector, this is in direct contradiction to what his predecessor said a bare three weeks ago—and, frankly, a bit of digging showed that it was not quite the promise that Mr Kwarteng had made. Indeed, the Minister made that promise at the Dispatch Box just now.
The Minister and the Treasury try to reassure us that the consequences of this Bill are neutral. That is not the case. In the words of the letters that banks used to send out to clients about cheques, “The words and the figures do not agree”. Those fighting on the front line of our NHS and social care sector know this, and so do the public. The question is, does the Treasury understand the pressures that the NHS and the social care sector will face, not just because of, but partly because of, the repeal of this levy?
My Lords, I speak with some trepidation, as I am not sure whether the Bill is still government policy; it may well have changed since this morning. I gather that Jeremy Hunt has already won the Chancellor of the week competition so he may well be moving on.
When the Health and Social Care Levy Bill had its Second Reading in this House on 11 October 2021, the then Minister said that the levy was part of the plan to tackle “the NHS backlog”. Since then, as the noble Baroness, Lady Brinton, mentioned, the NHS England waiting list has grown to 7 million people. Of course, that Minister, the noble Lord, Lord Agnew, became so disenchanted with the Government’s policies and practices that he resigned, so we do not know whether the Government stick to any of these promises; certainly, the NHS queue has increased. I hope that the Minister can answer a number of questions.
It was claimed that the £12 billion originally associated with this levy would be used to fund social care and the National Health Service. Can the Minister confirm that that £12 billion will still be provided in real, not just cash, terms? On 7 September, the Health Secretary said:
“Instead of having, in effect, a ring-fenced levy, we will be funding”
health and social care changes
“out of general taxation, so the investment going to health and social care will stay exactly the same.”
That is a highly ambiguous statement. It does not say whether that investment or funding will be the same in real terms or just nominal terms.
Of course, the NHS needs proper funding. Can the Minister explain when the queue of 7 million people will be reduced? In each of the 12 years that the Government have been in office, that queue has increased. It is part of the austerity measures that the Government have introduced. Between 2012 and 2019, 334,000 people died because of austerity. There is no record of any previous Government killing so many of their own people at the altar of economic ideology. Will the Minister tell us now that there will be no more austerity measures for the National Health Service and that this Government will not kill their own citizens any more? That is unacceptable.
At the end of 2021, the EU divorce bill stood at £36.7 billion. That was after paying £10 billion in 2020. Of course, we all remember Ministers telling us at the time of the Brexit referendum that vast amounts would be saved by coming out of the EU and that this would boost the NHS. Does the Minister agree that that was a complete lie and misinformation, because the Government have not properly funded the NHS? Hopefully the Minister can tell us how much has been saved by coming out of the EU and how much of that has gone to the National Health Service and social care.
The Government’s spin machine is promoting the view that the repeal of this levy will somehow promote growth, although no evidence has been provided to support that. Contrary to the numbers cited by the Minister earlier, let me cite for him an alternative analysis of the benefits of this levy repeal. The poorest tenth of the population will gain just £7.66 a year. The second-poorest tenth will gain £37.36. Then, it is £73.33, £143.52, £247.59, £375.89 and so on. The richest tenth will gain £1,802 a year from the repeal of this levy. That is wrong. Some 21 million adults will gain absolutely zero from this repeal because they are surviving, not living, on an income of less than £12,570 a year.
The gains to the poorest have already been wiped out by government-engineered inflation, wage freezes, higher energy, food and water bills, and higher mortgage charges and rental costs—and let us not forget the stealth taxes that the Government have imposed by freezing personal allowances and income tax thresholds. As usual, they are looking after the rich and nobody else. They could have reduced the rate of VAT to help the poorest, but they have chosen not to. They could have calibrated the repeal of the health and social care levy in such a way that the poorest received the most benefit, but the poorest are just ignored; they simply do not really count.
The Government should have taken the opportunity to reform national insurance contributions, a highly regressive tax, but again they have chosen not to. After this Bill is enacted, most employees on incomes of between £12,571 and £50,270 will pay 12% of it in national insurance. Incomes above that will incur a charge of only 2%. This is highly regressive and ensures that low and middle-income workers pay a disproportionately high percentage of their income in national insurance, compared to people with vastly higher incomes.
I am sure the Minister will defend the Government continuing to shower gifts upon the richest, but I remind him that in open letters and seminars in this building, patriotic millionaires have urged the Government to tax them more. Therefore, why will the Government not tax the rich more? Why will they not increase their national insurance contributions and help the people at the bottom? The recipients of dividends and capital gains, generally the richest in the country, use the National Health Service and social care but will pay zero national insurance.
Why are the recipients of capital gains and dividends let off making even one pennyworth of a contribution to national insurance? What is the case for that? It would be nice to hear from the Minister on that. Why are the Government giving them a free ride on contributions? By charging national insurance on dividends and capital gains, the Government could raise £15 billion. Why is that opportunity being shunned? I hope that the Minister will answer these questions.
My Lords, I welcome the Minister’s opening remarks on the Government’s economic policy. The Chancellor should be congratulated for restoring a more sensible fiscal policy and a modicum of calm to the gilts market, and for listening to his Treasury officials.
Returning to the Bill before us, the health and social care levy has few friends, so I will probably make myself unpopular by speaking in its defence—a defence less of its detail, which I will come to, and more of the principle behind such a levy. On a day when the Chancellor has rightly unpicked much of his predecessor’s mini-Budget Statement, he may have missed a trick in not keeping this levy in place. It is worth revisiting why it was introduced.
There are massive spending pressures on the National Health Service and the social care system. Those have not suddenly gone away over the last few weeks. Indeed, judging by the length of waiting times, they have got worse. We are still dealing with the aftershock of coronavirus, which exposed the weakness of the social care sector. The fact is that this country delivers social care on the cheap. We rely on underpaid workers and a thinly capitalised private sector. It is no wonder that its shortcomings have been exposed. It is also unrealistic to expect doctors, nurses and care workers to accept cuts in their real wages year after year. Above all, the much-awaited demographic timebomb is already upon us. The old-age dependency ratio is set to rise inexorably in the decades ahead.
I sometimes wonder whether the Government read the Office for Budgetary Responsibility’s Fiscal Risks and Sustainability report. It was published as recently as July. If Mr Kwarteng had read it, perhaps he would still be in post. It shows health and social care projections rising from 9.7% of national income in 2026 to 10.2% in 2031, to 11.9% in 2041 and to 13.7% in 2051. That is an increase of 4% of GDP, which is the equivalent to £100 billion a year in current prices.
Meanwhile, much of the tax base is eroding. We no longer have substantive oil revenues and tobacco duty revenues are rightly in decline. As the country moves from petrol-fuelled cars to electric vehicles, fuel duties are likely to decline. In the end, the best way of raising revenues is to rely on the big taxes: income tax, national insurance and VAT. We can all fantasise about getting more tax from the rich, and I certainly support having a go at that, but actually it needs to come from the taxes that everybody pays.
The health and social care levy is based on national insurance. It is therefore likely to be a buoyant tax. It also has the positive feature of linking the raising of revenue to increasing expenditure. Now is not the time to go into a long discourse on hypothecation. I am not in favour of hard hypothecation; that was tried with the road fund before the war and it did not work: it created rigidities in the public finances. But it is important that taxpayers understand why their taxes are rising. Linking increased tax to increased spending, as Gordon Brown did in his 2002 Budget and Mr Sunak did in 2021, ensures that higher spending is funded and sustainable, and a tax increase is more acceptable.
In my view, it is inevitable that the health and social care levy will be resuscitated at some point. When it is, I would recommend a different tax base. The problem with national insurance is that it is paid only on employment income. It is not payable on rents, dividends or pensions, however well off the pensioner is—and old people are exempt altogether. The big change in income distribution in my lifetime is that old people are less likely to be poor than younger people.
It is right that the tax burden should be shared across the generations. Mr Sunak tried to put right some of the anomalies in national insurance, but he did not put right all of them. I strongly recommend that any future levy is based on the income tax base and not the national insurance base. Indeed, the whole issue would be made much simpler if national insurance and income tax were fully integrated, although, having explored that for many Chancellors, I will not hold my breath.
Meanwhile, we are burying the levy. I recognise that I am one of the few mourners, but I am confident that, whatever the Government and Opposition are saying now, one day it shall rise from the dead.
My Lords, I have some technical questions about the implications of repealing this levy, but they prompt more significant questions about the sustainability of health and social care funding, as other noble Lords have already suggested. The sustainability of health and social care is hugely important to me, not just as a former Government’s Chief Nursing Officer, but as a bishop. This is about funding a service well with a long-term view, so that those who work hard to care for us have the resources to do the job. This is about the fact that every person is of great value in God’s sight and should be treated with dignity and equity. This is about a thriving economy because, without a healthy population, we will not have an economy that grows.
When the levy was introduced, the then Financial Secretary wrote to the Treasury Select Committee to justify it, saying that
“it would not be possible to fund this from existing tax revenues, nor would it be responsible to fund it through borrowing.”
This uncertainty about the direction does not inspire confidence that the Government have a sustainable plan to fund health and social care. If repealing this levy will not affect health and social care funding, can the Minister guarantee that a detailed breakdown of how this tax cut will be funded will be set out clearly?
As we have already heard, departments have been asked to double their efforts to make savings on spending. Presumably, this will include the Department of Health and Social Care. In that context, how will spending on health and social care be maintained? The Secretary of State announced £500 million for the health plan for patients. Is this additional funding, or will it be absorbed into the cost of maintaining the level of spending in the department after cutting this levy?
If we are concerned about the sustainability of health and social care funding, we must be even more concerned about the sustainability of the workforce. They are the bedrock of this sector. The noble Baroness has already mentioned the social care workforce. There is a very serious issue, particularly around retention. The Nuffield Foundation’s recent research stated that 40,000 nurses have left the workforce this year. The Government responded to the BBC by saying that they were already half way to meeting the target of 50,000 additional nurses in the NHS. I am not sure that this is being felt in the NHS, nor that the loss is being kept up with. Almost as many nurses are leaving the sector as are joining, resulting in the loss of valuable expertise. This is an inefficient and expensive approach to staffing, and one that sees people as expendable.
We are in the midst of a cost of living crisis, of which the health and social care workforce are at the centre. They are not exempt because they look after us. In fact, they are feeling some of the worst effects. One in four hospitals has food banks set up for nurses. The NHS Providers report on the rising cost of living said:
“Increasing numbers of nurses and other staff, particularly in the lower pay bands, are finding they are unable to afford to work in the NHS.”
It cannot be overstated how difficult things have become. Can the Minister say what is being done to make sure that we have a sustainable workforce? Only with this will we find that health and social care funding is sustainable.
One of the most effective ways, perhaps, to ensure the sustainability of health and social care funding is to reduce the need for it. The Government have not confirmed whether they will publish the long-awaited and desperately required health disparities White Paper. There are rumours that they are stepping back from the tobacco control plan and obesity strategy. What are the Government doing to reduce health inequalities? Health and social care funding is only sustainable if the need for these services is reduced.
I started by speaking about values. I am grateful that the Minister mentioned some of the values behind the Government’s objective for this Bill, including the flourishing of the economy not for its own sake but for the most vulnerable. Forgive me: I am concerned that, without a long-term plan for sustainable funding for health and social care and plans that ensure effective public health to reduce health inequalities, it will in fact be the most vulnerable who will suffer.
We need a sustainably funded health and social care system that has the resources to invest in good and equitable health and social care, but also in public health. Surely this is the bedrock of a flourishing community and economic growth.
My Lords, I do not know what set that phone off. There is no need to drown me out just because I am going to speak.
This has been an enjoyable debate for those of us who think that the scrapping of the levy is a disaster. I particularly enjoyed the speech of the noble Lord, Lord Macpherson, and all the wisdom he brings to these matters from his experience in the Treasury. I had a rather wicked thought that the Government could consider one more U-turn when they read his remarks: on the sacking of Sir Michael Scholar, the splendid Permanent Secretary at the Treasury, no doubt because he suggested that there were some things wrong with the Government’s proposals. If they had listened to Sir Michael they might not be in this complete and utter mess today.
Sorry; I know Michael better than Tom. I thank the noble Lord for that correction.
Let us be in no doubt: this Bill is another U-turn, not by the Truss Government—they have got in so many—but on this Conservative Administration’s policy. The levy was brought in by the Johnson Government as a way of funding the changes they wanted to make in health and social care, which I will speak more about later. The contributions will now be frozen under this legislation, if it goes through Parliament. That means that there will be more spend, less tax and another mighty addition to the fiscal deficit. I hope, for the Minister’s sake, that the markets are looking elsewhere today—they have plenty to look at.
The revenue to pay for the extra spending has been ditched, but I wonder what will happen to the Government’s policies that these contributions were supposed to fund. In particular, what will happen to the Government’s scheme to introduce a cap on what individuals have to pay for social care? Will this be another U-turn? Has the cap passed on? Is it no more? Has it ceased to be, expired and gone to meet its maker, as with Monty Python’s parrot?
In fact, I would be very pleased if the cap was a victim of the Government’s unwillingness to put up national insurance contributions. The cap has three enormous flaws in today’s circumstances. First, it adds hugely to the fiscal deficit—according to Library figures, £13 billion a year. That is not a small number. I know that we get used to billions these days, but £13 billion is a substantial sum of money to be added to the deficit as a result of giving up this increase. The more the fiscal deficit goes up and the more the markets are scared of it, the more we have a problem. We know what will happen, broadly: fuel prices will go down and interest rates will go up. Most mortgage holders will be struck with a further blow to their pockets when they are reeling from the cost of living crisis. You honestly could not make it up as a policy. That is one reason against the cap: it is jolly expensive.
The second reason is more obscure: the scheme that the Government have come up with is unworkable. They are going to trial it in one or two areas. Local authorities, quite rightly and quite reasonably, are screaming at the cost and unviability of it. The Government might have to drop it simply because it does not work. Funnily enough, that might suit them rather well: they do not want to ditch it and admit to yet another U-turn; if it has to go for administrative reasons, that is a better excuse than the fact that they have an unworkable scheme to get out of—it is also now unaffordable.
Thirdly—my noble friend Lord Sikka and others have referred to this—what gets me about the cap is this: it is exactly the same as the income tax changes made in the mini-Budget. It is a simple way of taking money from the poor and giving it to the rich. Only half of those needing care have to pay for it themselves; the rest are funded one way or another by the Government or local government. It follows that only the better-off half of the population will benefit from this cap, but it gets worse. Take just the richer half—nobody who is not in the richer half gets anything. The poorer half of that group will do much less well than the richer half of the group. That is especially so because—noble Lords will remember the row we had about it in this House and in the other place—the Government are insisting that any money local authorities have paid towards people’s care should be knocked off the cap. So here we have small amounts of money going to the poorer, but what a bonanza for the rich. Be you a millionaire, a multi-millionaire or billionaire, the maximum you have to pay for your care is capped at £86,000—and you can keep the rest. If you get better, you can go out on your yacht again, and even if you do not get better, when you die you will have all the more money to leave to your kids.
This is not a sensible priority because there is an enormous problem with social care at the moment. It is not so much a problem of who pays for it as who gets it. Noble Lords will have seen the utterly terrifying report last week from Skills for Care. It is an official government policy. It shows the deepening shortage of care workers and the grotesque underpaying of social care workers—they are hopping off from their care shifts, doing some of the most intimate and desirable things a human being can do, to go to the tills in the supermarket. Those are real problems and they are leading to real suffering for real individuals who need care. To prioritise over that necessity giving more money to the poor old rich so they do not have to fork out for their own care makes no sense. It is genuinely immoral.
I will summarise my argument so far:
“returning contributions to their previous level is regressive … It benefits higher earners more, both in cash terms and proportionally, than lower earners. It benefits the poorest not at all.”
That is the admirable Paul Johnson from the Institute for Fiscal Studies, who knows of what he speaks.
For all those reasons I hope that, when the Minister rises tonight, he will announce that the cap is dead and gone. I noticed he did not refer to the cap once in his speech. He said that funding would be maintained, which is a very different thing. If he meant that funding on care would be maintained rather than funding on this blessed cap, I would be very pleased, although I expect that when he replies—the Minister is a most able master of this House—he will say that the Government have no plans to get rid of the cap. It is a useful Civil Service phrase that has no content whatever because if the Government do not have plans now they can develop them tomorrow if they need them. I expect the Minister to say that the Government have no plans to abolish the cap. That does not stop them later on taking measures to abolish the cap. This is at a time when we are going through huge public expenditure cuts. This is a huge addition to public expenditure that has to be met and which makes cuts in other things more strict.
However, it is perfectly possible that the markets will deal with this when they see how the Government are squandering money on this handout to the rich. The markets, although populated by rich people, know the political disadvantages of assisting them, and may well smell a rat here. Alternatively, the Government could go ahead with this ill-designed cap, which would show what the mini-Budget has already demonstrated: that this Government are concerned only with how much money they can stuff into the pockets of the rich.
My Lords, at 11 am today, sitting on the number 29 bus, I flicked over to my favourite live blog to follow the speech of our newly minted Chancellor, the fourth in four months. As was noted widely over the weekend, if you are looking for some good news, it is only two more Chancellors until Christmas.
It was an historic event, but not in a good way—an emergency mini-Budget delivered not to the House of Commons but by broadcast from the Treasury. I was particularly attentive because I wanted to know whether this debate would happen today. After three years in your Lordships’ House, this was another new procedural question arising—there is always one: how late can the Government pull a Bill from the Order Paper? The Energy Bill, on which so many in your Lordships’ House and the NGO community had been labouring mightily, just disappeared from our lists over the Summer Recess. The Schools Bill, to which many stood in opposition—including, honourably, many on the Government Benches opposite, including several former Secretaries of State for Education—until the Government pulled the entire first, main section of the Bill, also appears to have gone west. Would the health and social care levy Bill go the same way? Well, we are here now and have just heard the Minister speak in favour of it, so obviously it has not—not today, anyway—which is, in its own way, very telling.
Tax cuts, to which the current Prime Minister was so attached and on which she ran her entire campaign among the 100,000 or so Conservative Party members who got to decide the direction of the Government, nearly all disappeared. In the Chancellor’s own words:
“We will reverse almost all the tax measures announced in the Growth Plan”.
That means, again in his own words,
“no longer … proceeding with the cuts to dividend tax rates, the reversal of off-payroll working reforms introduced in 2017 and 2021, the new VAT-free shopping scheme for non-UK visitors or the freeze on alcohol duty rates.”
That means that cuts announced last month—on the basis of which some people may have made important economic decisions such as applying for a mortgage; or, in the case of small businesses focused on tourism, for example, decisions about their future business plans—have gone “puff”.
As the First Minister of Scotland, Nicola Sturgeon, said today in setting out an independence plan for Scotland, the UK
“does not offer economic stability”.
The Minister might like to comment on that quote.
It is clear that these are all, broadly speaking, impacts that affect not householders but businesses. Of course, we are also seeing the scaling back of the energy bill support. It is the changes to health and social care and support for households struggling with the cost of living that have been abandoned. It is a measure of who those in charge do and do not value. I say “those in charge” because I do not really know whether I should call them a new Government. It is hard to say, although—for anyone who missed it—Downing Street has just issued a press release saying that Liz Truss is still in charge. But will she be doing Prime Minister’s Questions in the other place on Wednesday? That is not a question to the Minister, just a question out to the ether.
The Health and Social Care Levy Act received Royal Assent on 20 October 2021. This Bill, almost exactly a year later, repeals it. They say a year is a long time in politics, but these days 48 hours is an age.
The Bill maintains a legislative basis for keeping tax receipts collected under the provisions of the former Act until early November 2022. As always, the very useful House of Lords Library briefing notes that the Bill has been fast-tracked to give employers enough time to implement the changes to national insurance rates planned to be effective from 6 November this year. The Health and Social Care Levy Act 2021 was fast-tracked for similar reasons, so we have had a seesaw in respect of which businesses, particularly small and medium-sized enterprises, must be struggling to keep up.
I come to my main area of concern with this Bill. I note that the Treasury factsheet says that
“funding for health and social services will be maintained at the same level as if the Levy was in place.”
That is, I think, a promise from the previous Chancellor—it is hard to keep up—not the current Chancellor. Can the Minister confirm that the briefing also fits with this?
I shall skip over some points so as not to cross over with what others have said, but I want to highlight what the noble Lord, Lord Sikka, said in a direct question to the Minister: “That was £12 billion a year ago. Is the spending for the NHS going be maintained in real terms?” I also highlight and strongly agree with points made by the noble Baroness, Lady Brinton, and the right reverend Prelate the Bishop of London about the extreme strain under which our NHS and social care systems are suffering with the current levels of spending.
Sticking for a moment with the specific Treasury elements, I note that the Institute for Fiscal Studies, responding to today’s Statement, said that
“it remains hard to see where significant spending cuts could come from.”
As the noble Lord, Lord Sikka, said earlier, austerity has killed. Two separate studies in the British Medical Journal and from the Institute for Public Policy Research, using different methodologies, came to very similar figures when covering the period from 2012 to 2018: respectively, 120,000 and 130,000 excess deaths, in which both studies said austerity had to be considered a significant or causal factor.
I should perhaps declare my position, as did the noble Baroness, Lady Brinton, as a vice-president of the Local Government Association. We have seen local services, particularly local government services, cut to the bone. Infection has already set in, with closed libraries and community centres struggling to survive—those very same libraries and community centres that we are hoping will be warm banks to keep people alive this winter. I am aware that the Minister may not be able to comment on what cuts are coming, but it would be nice to get some reassurance on which essential services we will see maintained.
I want to pick up on a point made by the noble Lord, Lord Macpherson, who was following what might be described as Treasury orthodoxies. There are some Treasury orthodoxies that, I agree with Liz Truss, need to be busted. The noble Lord suggested that it would be nice to tax the rich and multinational companies, “But it is all too hard; they’ll just escape it.” The first thing we need to do is to get a Government who want to tax rich individuals and multinational companies and to put that money into the NHS; alternative money to that which we are taking away from government funding today. There are other alternatives: a wealth tax, a land value tax—land, of course, cannot run away—higher corporation tax. These things are indeed possible.
I want to make two brief final points. First, there has been very little discussion during our current scramble of the fact that the new Chancellor is indeed a former Secretary of State for Health. Little attention has been paid to this point. Phrases such as “a safe pair of hands” have been bandied around. We might need to look back and make a comparison with what happened from 2012 to 2018 with our National Health Service, and the discussion and the debates as we undid many of the things done in those years in the Health and Social Care Act.
Finally, I raise the point covered extensively in Oral Questions today: the fact that we have an extraordinarily parlous state of public health as huge numbers of people, particularly those over 50, are unable to take paid employment, even though they wish to, because of their health conditions. If we do not provide funding for the NHS and social care, that situation will surely only worsen. It seems unkind to ask Ministers for assurances at this moment—how can they give them?—but I will ask the noble Viscount this: does the Treasury acknowledge that the state of public health, the NHS and social care are acutely important to the state of our economy?
My Lords, honestly, what a mess. This is really ludicrous. Some 371 days ago, we had the Second Reading of the Bill that became the Health and Social Care Levy Act 2021, and today we have the Second Reading of the Health and Social Care Levy (Repeal) Bill. This is no way to run a taxation system. The changes which have taken place do not justify the time that this House has had to spend on dealing with what was always going to be a fool’s errand. I have taken the opportunity to reread the debate that took place 371 days ago, when it was explained in enormous detail why that Bill was a bad piece of legislation. The Government would have been helpful to all of us if they had simply said. “You’re right, this legislation should not proceed.” We could have saved time then and now.
I have much respect for the noble Viscount, but in his opening remarks he referred to tax cuts and in the accompanying paper, the Government refer to making employers better off. This is nonsense when it is not a reduction in taxation but not proceeding with an increase. Indeed, the Government have told us many times over the past few days—before they reversed direction—that the change in corporation tax was not a tax cut; it was not proceeding with an increase. Perhaps the Minister would do us the respect of not attempting to tell us that this is a tax cut.
There is only one qualification to that, because this tax has been in force for some months already and around £10 billion has been raised through the levy. Can the Minister give us a clear assurance that that £10 billion has augmented the resources available to the National Health Service? I suspect that it has not made an iota of difference but it would be interesting if the Minister could give us some guidance on that.
I reread the debates on the previous Bill. The Minister speaking from the Dispatch Box was, of course, the noble Lord, Lord Agnew of Oulton. He told us that the Bill was required to
“tackle the NHS backlog, put the adult social care system on a sustainable long-term footing and end the situation in which those who need help in their old age risk losing everything to pay for it”—[Official Report, 11/10/21; col. 1657.]
Can the Minister assure us that those three objectives will still be met and, if he can, why was the Act required in the first place?
There are two points I always want to make on Bills affecting national insurance. I am still a believer in a national insurance scheme funded by contributions which pays for adequate benefits on retirement, in sickness and on unemployment. This was the vision based on the Beveridge report enacted in 1948 by the Labour Government. I am still a believer and the problem over many years has been that national insurance contributions have been seen as a too-ready source of money—“We need a bit of money, let’s get it from national insurance.”
There was always a National Health Service element in contributions, which is part and parcel of the scheme. However, the way in which it is employed—I hesitate to say “prostituted”—to create additional resources destroys the basis of the scheme, which I think the public in general still support. It is interesting that we still talk about national insurance. The Treasury still sees national insurance in a different light from other forms of taxation. I am in favour of a social care levy. We can get into an interesting discussion on hypothecated taxation, and it is all a bit of a nonsense because you can always change the rules as long as you have hypothecation. Either you make social care an integral part of national insurance or it is paid for by a separate social care tax, which could be spread more widely on the tax base. It is worth making the point that the original national insurance scheme had a Treasury supplement for this very reason—so it could be supported by taxation more generally. That principle has been lost.
Finally—again, I always make this point—we have significant changes to the funding of the national insurance scheme. There is a National Insurance Fund, and we should not make changes without a report from the Government Actuary on the impact of these changes on the fund, now and in future.
My Lords, this levy came into force under the then Chancellor Rishi Sunak in spring this year. I agree with other speakers that this feels like a lifetime ago; it was three Chancellors ago. We opposed it then because it was the wrong tax levied on the wrong people; I say this to the noble Lords, Lord Macpherson and Lord Lipsey. For me, that is the fundamental reason for opposing this. I was rather interested that when the noble Lord, Lord Macpherson, praised the idea of the national insurance levy and suggested it might come back in the future, what he described was basically income tax and nothing to do with the character of the national insurance levy. It almost makes my point for me so, although he did not intend to, I thank him for that.
For years now, Conservative Governments have been shifting the tax burden away from unearned income—a source of income primarily for wealthier individuals and the elderly—to earned income. When this levy was introduced, it fell on those earning over £9,500 per year, which is well below the income tax threshold of £12,500 per year. It excluded earnings over £50,000 per year; it excluded earnings by pensioners and all unearned income. It also fell on businesses, despite the hardships post Covid, whether they were profitable or not. When this was introduced, it had a whole series of damning characteristics.
There have been so many twists, turns and U-turns since then, and we have heard about them in this debate. However, I remain very glad to see the back of this levy, which is now so complicated, confusing and different from standard national insurance, and yet still remains less progressive than normal income tax.
I also agree with those who say that it is very important to establish that the cancellation of this levy must not mean a £12 billion cut in funding for health and social care services. The Minister sought to give us that assurance, but you could tell from the general response that there was concern about quite what the phrasing meant. As so many have said in this debate, the IFS has identified that public services are in a fragile state, particularly in the health and care system.
Both my noble friend Lady Brinton and the right reverend Prelate the Bishop of London raised the issue of uncertainty: how on earth unfunded costs in the sector were going to be dealt with, the spectre of constantly increasing waiting lists and what the consequences would be. The noble Lord, Lord Sikka, hit the nail on the head by asking whether this equivalent funding—which, in a sense, could be in nominal terms rather than real terms—would enable us to keep up with the original intent of increased funding in real terms, or whether there would be in effect a row back from the original intent, by funding constraints, to nominal terms.
Hypothecation in this country is really no more than smoke and mirrors. I pick up the point of the noble Lord, Lord Davies of Brixton: there is a real role that could be played by a national insurance scheme if its true integrity were protected. In the UK, hypothecated revenues—and certainly those from this levy—were simply intended to reduce the amount of general taxation used to fund health and social care. The levy was a rather cynical strategy to find a more palatable way of taxing, tugging at the heartstrings of our affection for the NHS and social care. Initially, it was very notable that the tax take was coming, to a significant degree, from very low earners. So the levy’s primary purpose was to give the then Chancellor leeway to cut income taxes just before the next general election. It would have made him a hero of the Tory right, because cuts in income taxes always help the highest earners the most. To anyone who doubts that, I give them an illustration: the 1p cut in the basic rate of income tax—which we now hear is scrapped—would have provided, on average, a gain of £125 a year for basic-rate taxpayers but a gain of £377 a year for all higher-rate taxpayers. So the shift from income tax to this rather strange national insurance levy certainly played into that agenda of delivering for those in the higher income brackets.
Like everyone else in this Room, I have very little idea of what comes next. I agree with those who think that it should be a general election, but realistically it probably will not be. I say to the Government that they absolutely need to bring forward a plan that is not driven by ideology—we see that so much in the social care and health sector. We need real answers, real funding and some degree of certainty. I pick up the issue raised by the noble Lord, Lord Lipsey, on the funding for the cap on social care: is that still in the frame or is it disappearing from the frame? These are the kinds of questions that must be answered with real clarity.
I fully accept that Covid and Russia have created global problems, but our crisis is significantly homemade. The IFS estimate is that at least a quarter of the rise that we have seen in interest rises has been attributed to our own ability to shoot ourselves in the foot, including that appalling mini-Budget. Although many of the relevant people are not in the Room today, I must say that I have never heard so much hokum on what creates growth than we heard from the Conservative Benches in the debate on the economy last week—although I acknowledge a few brave Conservative speakers who chose fact over fantasy. We really are now past the time of playing ideological games; people are genuinely hurting, and we must have, in the plan that now comes forward, a real basis both to protect people and to grow the economy. It must be one that stacks up in the real world and not just in the ideological world.
My Lords, I am grateful to the Minister for introducing this Bill, and to the other noble Lords who have contributed to this debate. It is somewhat natural that the debate has strayed beyond the narrow measures in the Bill before us; that is an inevitable consequence of the chaos that we have seen in recent days, with the departure of one Chancellor and the unprecedented Statement from his successor. If it had not been for the explicit commitment to continue with this U-turn, I would have been tempted to ask the Minister whether he was completely sure that the Bill remains government policy. It does—and, for reasons I shall come on to, I am pleased this measure is one of the few to survive the shambles that has been the mini-Budget.
The Chancellor may not have said it in his Statement this morning but let us be under no illusion: this was, at long last, an admission from the top of government that the recent economic crisis was made in Downing Street. Liz Truss may have thrown her first Chancellor under the bus on Friday, but we must remember that it was she who proposed much of the mini-Budget during the recent leadership election. She created it, she endorsed it and she defended it, and no amount of spin can change that—and the public, who are paying higher mortgage bills as a result, will not forget it.
On the subject of spin, the Prime Minister has been keen to present Labour’s support for this legislation as an endorsement of her discredited economic policies. It is anything but. We back this Bill because it will put money back into the pockets of working people, at a time when they need it most. It is money that should never have been deducted from pay packets in the first place. Labour has always opposed the Conservatives’ national insurance hike. We support the repealing of the 2021 Act because it should never have reached the statute book in the first place.
Noble Lords will remember the Labour Party spending much of 2021 warning that, with a cost of living crisis brewing, this legislation was the wrong policy at the worst possible time. Many Back-Bench Conservatives privately agreed; their postbags had convinced them of the very serious financial struggles being faced by their constituents. Crucially, this was all brewing long before Putin’s invasion of Ukraine and its impact on energy prices. Those MPs agitated behind the scenes, but the former Prime Minister pressed on regardless, and the current Prime Minister supported him every step of the way. As a member of Johnson’s Cabinet, she was an enthusiastic supporter and staunch defender of the very levy that she is now scrapping.
The NICs rise was never the right way to address issues with our health and care systems. However, the NHS and social care are, under the Conservatives, at breaking point. The need to support them is clear. Several NHS trusts have declared major incidents or introduced special measures in recent weeks, and we are only just into the autumn. Although Covid infections and admissions are increasing, we have not yet encountered a significant wave of coronavirus or flu. There is, unfortunately, a chance that both—a so-called twindemic—will hit at once.
Why are hospitals and other NHS settings struggling so badly right now? Despite the incredible efforts of doctors and nurses, the NHS has the longest waiting lists since records began. Thanks to successive Health Secretaries undermining the strong record of the last Labour Government, waiting times are up across the board: in A&E; in urgent referrals; for routine treatments; for GP appointments; and for ambulances. This is, in part, because of the Conservatives’ recruitment and retention crisis. They cut bursaries for nursing courses and wondered why so few people wanted to train. They work doctors and nurses to the point of physical and mental exhaustion and wonder why staff leave their posts. They refuse to reform GPs’ prohibitive pension arrangements and wonder why they opt not to return to the profession or commit to extra hours. Labour has a plan to expand the NHS workforce, so that our beloved health service has the doctors and nurses it needs. Rather than taxing working people, we will scrap the controversial non-dom status and use the proceeds to fund thousands of additional nursing and midwifery placements, and to double the number of medical students.
Despite Boris Johnson’s very first address as Prime Minister promising a plan for social care, we have seen things worsen. The sector is desperately in need of extra staff, yet is haemorrhaging personnel to supermarkets and other businesses which pay higher wages. Hospitals are increasingly unable to discharge patients with care needs, blocking beds that are so badly needed to clear backlogs or improve A&E waiting times. This is not a new phenomenon; it has been happening for years. The fact that it is still happening points to another example of Conservative failure to grip the problems facing our country.
Among other things, a Labour Government will ensure that care workers get the pay they deserve. That will not only help to alleviate the staffing crisis but lead to better outcomes for patients. Until then, and following the passage of the Bill, who or what will pay for the Government’s health and social care policies? The Treasury expects the funding which replaces the levy to come from general taxation, although Ministers have acknowledged that additional borrowing may be required in the short term. Will the Minister outline how much higher the cost of borrowing is at present, compared to the weeks or months before the disastrous mini-Budget? We may have seen the markets responding relatively positively to today’s announcement, but we know that recent events have increased the effective cost of borrowing.
The Chancellor acknowledged earlier that growth requires “confidence and stability.” It is increasingly clear that the Conservative Party, with a fourth Chancellor in four months and a third Prime Minister in just over three years, is unable to provide either. We welcome this specific U-turn, but the truth is that the Government have lost all credibility. It is not for today, but there are serious questions for the Government to answer about their climbdown on energy, which will cause alarm in households across the nation. Shelving the mini-Budget was not supposed to involve shelving the two-year energy commitment too. We will support the Bill, but this whole episode demonstrates that only Labour offers the leadership and ideas that Britain needs to fix the economy and get us out of this mess.
My Lords, despite the challenging environment I said I was pleased to open the debate and I am very pleased to close it. I thank all noble Lords who have contributed this afternoon, and I will do my best to respond. As noble Lords might imagine, I may not be able to answer all questions, some of which will be due to what is happening or has happened over the past few days, but I shall have a go.
First, I noted the strong remarks of the noble Lords, Lord Macpherson and Lord Lipsey, on keeping the levy. I make no bones about it; the decision has been made to reverse the levy and make it up through general Treasury funds. A number of noble Lords, including the noble Lord, Lord Lipsey, the noble Baronesses, Lady Bennett, Lady Brinton and Lady Kramer, and the right reverend Prelate the Bishop of London asked about the amount that the Treasury has set aside in place of the levy and—the real question—whether it is based on real terms. It will be in cash or nominal terms. This is because the budgets were announced last year at the spending review and are now fixed on that basis until 2024-25. I hope that helps to answer that question. The bottom line is that reversing the levy delivers a tax cut for 28 million people worth, on average, as I said at the beginning, £330 every year.
I will respond to a number of questions raised by noble Lords, including the noble Baroness, Lady Kramer, who is absolutely right that we have to continue to bear in mind—as I do—that very many people are suffering at the moment, not just with their bills but mentally, which puts a huge strain on the National Health Service. I will make a few remarks about the NHS, which remains a vital sector in our country.
The noble Lord, Lord Macpherson, said that we should keep the levy; the general thrust of his remarks was that there should perhaps be, alternatively, a rise in income tax. The tax cut is designed to support people and businesses, with an average saving of £330 for people next year. As I said at the beginning, 920,000 businesses will save an average of about £9,600 in 2023-24. To reiterate, I say that the Chancellor has acted to demonstrate fiscal credibility. Further detail may come out on 31 October.
As I said, it remains incredibly important to support the NHS. However, as the new Chancellor said very frankly this morning, an ongoing efficiency and reprioritisation review has started, covering all departments. Although I have not heard what he said in the Chamber, I suspect it was with the same frankness. He also said that there could be cuts. However—I do not know whether he said this, but I will—the NHS is incredibly important, so we have to bear in mind that juxtaposition. There may or may not be further announcements on 31 October; I really have no idea about that.
The noble Baroness, Lady Brinton, and the noble Lord, Lord Sikka, asked further questions about the NHS. To paraphrase, they stated that it is at crisis point and it is not even winter. The levy has been reversed, but the overall level of funding for health and social care services will be maintained, as I said earlier, at the same level as if it was in place. The Deputy Prime Minister and Secretary of State for Health and Social Care has set out more detail on her priorities for health and social care in Our Plan for Patients. The money will go to the NHS, as I think noble Lords asked.
As I made clear at the beginning, it will be in nominal or cash terms.
Further to the theme of health, picking up a very fair question from the noble Baroness, Lady Brinton, on why we are not increasing spending on health and social care, I say that the Government are committed to taking a responsible and disciplined approach to spending. The Government will continue to ensure that we deliver social care reforms and that the NHS gets the resources to tackle the elective backlog, reduce A&E waiting times and support its workforce. I very much listened with care to the important points she raised, particularly about ambulance waiting times. I know there is more.
The noble Baroness and the right reverend Prelate the Bishop of London also raised workforce issues. We absolutely recognise the challenges faced by the sector and are responding to them. As part of Our Plan for Patients, the Government announced a £500 million adult social care discharge fund to help people out of hospitals and into social care support. The fund will bolster the social care workforce and target the areas facing the greatest challenges, freeing up beds for patients who need them.
There is more. We are all aware of the shortage of nurses and other NHS staff, and there needs to be a sustainable workforce, as the right reverend Prelate picked up on. Although I do not have all the answers today, I reassure the House and those Peers who have raised it that this is a very important matter. As we are on the subject, I think the right reverend Prelate has raised the health disparities White Paper twice today, as I think it was also in a Question earlier. I do not have an answer to that, but her question was very clear: where are we on this? I need to write to her to give her chapter and verse on that.
I want to say a little more about ambulance waiting times, because I do not think I answered the noble Baroness, Lady Brinton, fully. Again, as set out by the Secretary of State for Health and Social Care in the plan for patients, the Government are improving ambulance response times by taking steps to reduce the time lost to ambulance handover delays, facilitating ambulance trusts to support each other during the busiest periods, and exploring a new ambulance auxiliary service. This is supported by other measures in the plan, such as recruiting more 111 and 999 call handlers to answer patient calls more quickly and opening up 7,000 extra beds this winter. I hope that goes a little way to answering that; the noble Baroness has probably heard these answers before, but they are what they are.
The noble Lord, Lord Sikka, asked why the additional rate of NICs is so low and why it is not a progressive tax, and I will do my best to answer that. The personal allowance, as he will know, is set at £12,570 this year, with income tax rates increasing from 20% to 40% for earnings above £50,270 per year—which is the higher rate threshold, as he will know—and to 45% for earnings above £150,000 per year. After the levy is reversed, employee NICs rates will decrease to 12%, and to 2% for earnings above £50,270 per year. Taking NICs and income tax together, this means an overall progressive rate structure of 32%, and then 42%. I will have a bit more to say about this in a moment, but on the question about the rich paying more, or too much, the top 10% of earners are estimated to pay over 60% of all income tax in 2022-23, so I really do not believe that his remarks are quite as they seem.
I am grateful to the Minister for giving way. Of course, the rich will pay more in tax, because of the maldistribution of income. They are sitting on a bigger share of income, which is why they pay more. According to the figures produced by the TaxPayers’ Alliance—the head of which is now an adviser to the Prime Minister—the bottom 10% of earners are paying over 47% of their income in direct and indirect taxes, and the top 10% are paying only 33.5%. You cannot just say that the rich are paying more. Of course, they will pay more, because of the maldistribution of income—will the Minister address that?
I do not believe the noble Lord and I will agree on this. It could be that we write a letter to spell out exactly what we mean by this, because I have spelled out the facts. To say a little more on this, cutting NICs from November will provide an average tax cut of around £135 for workers this year, and £330 next year. Taking into account the increase to NICs thresholds in July and the levy reversal, almost 30 million people will be better off by an average of over £500 in 2023-24. So, this directly affects lower economic groups rather than the higher ones. I think there is a lot more I could say in a letter because, as I say, I do not think that the noble Lord and I will end up agreeing on this particular matter.
This is an interesting question. I do not want to take up the time of the House but I think the two noble Lords are talking right past each other. One is basically saying that the rich pay 60% of all income tax, but they receive far more than 60% of all income, so I think that is the issue that links the comments between them. Perhaps the letter might deal with that.
If I may answer that first, that would be sensible. The noble Baroness makes a helpful point and it would be helpful to give detail in a letter; it is more appropriate to give that sort of detail in a letter where we have the technical detail involved. I hope that will be helpful all round.
I will pick up another point from the noble Lord, Lord Sikka, about the so-called regressive theme: why do NICs not apply to unearned income—why can people with unearned income pay less tax than those with earned income? I will try to answer that, although it may have to be included in the letter. National insurance contributions are part of the UK’s social security system, as the noble Lord will know. The system, based around the long-standing contributory principle, is centred around paid employment and self-employment, with employers, employees and the self-employed paying towards the protection of those who have been in the labour market. Payment of NICs builds an individual’s entitlement to claim contributory benefits, which then replace earnings in certain circumstances—for example, if someone is unable to work or is retired; that is the theme behind it. Unearned income is generally excluded from liability for NICs as it is not derived from paid employment.
I thank the noble Lord, Lord Tunnicliffe.
I will go into a deeper and important issue, which was raised by a few Peers but in particular the noble Lord, Lord Sikka, with regard to what we are doing to help the poorest. It is important to broaden the scope of this debate. As I said earlier, we understand that many people across the UK are very worried about the cost of living and are seeing their disposable income decrease as they spend more on the essentials, which of course include energy. That is why we have taken decisive action to get households and businesses through this winter and the next while ensuring that we act in a fiscally responsible way.
I will not go through everything because the House will know about the energy price guarantee, which means that a typical UK household will pay no more than £2,500 a year on its energy bill. That is in addition to the £400 discount already announced through the energy bills support scheme, and we also have the energy bill relief scheme, which will provide a discount on wholesale gas and electricity prices. In short, therefore, these measures will save the average household around £1,000 per year from October, so that protection is there in that respect.
The noble Lord, Lord Davies of Brixton, basically stated that the levy was not a tax cut and went on to say that the funding has not supported the HSC—health and social care—levy. However, it is a tax cut for people and businesses this year, who are already paying an extra 1.25%. The average saving for people is £135 this year, and I believe it has helped the NHS, particularly in helping it through the recovery from Covid.
I was grateful for the remarks the noble Lord, Lord Tunnicliffe, made. My remarks now also take into account the points raised by the noble Baroness, Lady Brinton, and, once again, the noble Lord, Lord Sikka. The comments were broader, on the capacity of the NHS, current Covid infections rising and waiting lists generally, as well as NHS recruitment and retention, which I touched on slightly earlier, and, crucially, the adult social care sector. The 2021 spending review allocated £188 billion in total to the Department of Health and Social Care, which includes helping to tackle elective backlogs in the NHS and plans to spend £8 billion by 2024-25; these were raised during the debate. That includes an 50,000 extra nurses in the NHS. The Government accept in full that this year’s recommendations from the independent NHS pay review bodies are in stone—a pay rise, that is, for over 1 million staff.
On the social care side, the Prime Minister and the Secretary of State for Health and Social Care announced a £500 million adult social care discharge fund; I have mentioned it at least twice in this debate, I think, but it is worth mentioning it again. This will bolster the social care workforce, which the noble Lord, Lord Tunnicliffe, raised as a concern. It will also help people out of hospitals and into crucial social care support.
In what was a rather downbeat speech, if I may say so, the noble Baroness, Lady Bennett of Manor Castle, raised issues including stability, businesses and individuals who are not able to make decisions, and spending cuts and austerity. As always, I listened to what she said. My response is that the Chancellor has taken swift action today precisely to ensure that the country’s economic stability is sound and to show commitment to sound public finances. That is very important. This matter will be discussed further when the Statement is made to the House. I say again that spending restraint is needed. Departments have been asked to find efficiencies. Priority will be given to those at the vulnerable end of society.
The noble Lord, Lord Tunnicliffe, spoke about fiscal sustainability. He asked whether I could outline how much higher the cost of borrowing is at present compared with in the weeks and month before—as he put it—the disastrous mini-Budget. The Government are taking action to assure the markets of their credibility and reduce the amount of borrowing needed. In his Statement today, the Chancellor made it clear that the UK’s public finances must be on a sustainable path in the medium term.
I will finish on this note: to state the obvious, as we all now know, the Chancellor will publish his medium-term fiscal plan, including a fully costed plan, on 31 October. I will leave it there. Once again, I thank noble Lords for taking part in this short debate.
I listened carefully to the Minister’s response. He did not respond to the points made by the noble Baroness, Lady Kramer, and the noble Lord, Lord Lipsey, about the social care cap, which is terribly important but has been absolutely invisible. I have heard no announcements from either the most recent Chancellor or the new one. The problem is that the Government planned to introduce legislation via regulation to allow people to have money given to them for social care because of the cap that was being set in place. Because this Bill focuses only on national insurance contributions, it is not at all clear what is happening with that cap. If the cap continues, local government in particular will be in even more of a crisis because a large part of the levy was to fund the new social care cap. If you take away the income but do not change the system for local government, it will have a large black hole. I would be grateful if the Minister could add that point to his increasingly long letter.
I thank the noble Baroness for that. I know that I cannot give a full answer, partly because we have a new Chancellor, but I can perhaps be a little helpful in saying that we have provided councils with £1.6 billion each year in new grant funding to meet core pressures in social care and other services; that is the largest annual increase in more than a decade. I can tell that this may not satisfy the noble Baroness entirely so I will add whatever I can to my increasingly long letter.
I have a question that is easier, and which may not need to be added to the letter. Does the Minister acknowledge that the Treasury sees that the overall state of public health, the health of the nation—which addresses issues such as obesity, the rate of diabetes and heart disease, and issues such as poor housing contributing to asthma—is an economic issue for the UK?
I most certainly acknowledge that and of course agree with the noble Baroness. The challenge for any Government is that there are a whole range of priorities, including defence and all other departments, but I cannot disagree with her; these are all very important. There are so many other priorities but, essentially, I agree with the noble Baroness.
Bill read a second time. Committee negatived. Standing Order 44 having been dispensed with, the Bill was read a third time and passed.