‘Morally, economically, and politically wrong’: PM’s manifesto-breaking gamble

‘If you get all your income from investments and property you don’t pay a penny, but if you work your guts out for minimum wage you get clobbered’

‘What’s the reform programme? What’s this for? How is this going to work?’

THE inside cover of the Conservatives’ 2019 election manifesto, headed “My Guarantee”, emphasises six core pledges that Boris Johnson said voters could trust the party to deliver.

The final guarantee, sitting above Mr Johnson’s signature, stated: “We will not raise the rate of income tax, VAT or National Insurance.”

Now, barely 18 months on from the landslide win resulting from Mr Johnson’s campaign, the Government is preparing to announce a planned National Insurance hike that will break that pledge. The irony that Sajid Javid, now the Health and Social Care Secretary backing the move, was the chancellor who signed off on the manifesto, is not lost on senior Tories outraged by the apparent betrayal of voters.

This week, Mr Johnson and Mr Javid are expected to make the case for a National Insurance rise of between 1p and 1.25p to generate extra funds to finance the NHS and fulfill Mr Johnson’s earlier promise, in July 2019, to “fix the crisis in social care once and for all” with a plan to “give every older person the dignity and security they deserve”.

The next 72 hours are likely to determine whether Mr Johnson manages to persuade an increasingly agitated parliamentary party of the case for pushing through the National Insurance increase, or if early signs of discontent, including fierce criticism on Tory WhatsApp groups, snowball into a seismic Conservative backlash.

Tory opponents of the plan currently being finalised by Mr Johnson, Mr Javid and Rishi Sunak, the Chancellor, generally fall into one or more of three categories: those who regard any tax rises as un-Conservative; those who believe that specifically targeting National Insurance as the vehicle for a tax rise would be disastrous; and those who fear that committing billions of pounds without a rigorous plan for a social care system would be a catastrophic error.

Those expressing concern and, in some cases, barely concealed anger, at the proposals include Cabinet ministers, government advisers, ministerial aides, former frontbenchers and backbenchers representing seats in areas from the South East to the so-called Red Wall conquered in 2019.

In one extraordinary intervention, a Cabinet minister said yesterday: “Putting up National Insurance would be morally, economically and politically wrong. It kicks in at a low level and there are all kinds of exemptions which benefit the rich. If you get all your income from investments and property you don’t pay a penny but if you work your guts out for minimum wage you get clobbered.”

Many MPs are concerned about the “optics” of increasing a tax from which those aged over 66 are exempt to fund social care for millions of pensioners. In an attempt to sweeten the pill, the Government is expected to announce a temporary halt to the pensions “triple lock” – another manifesto commitment – to avoid the same group of people benefiting from a 8.8 per cent increase in their state income.

Tim Pitt, a former Treasury adviser to Mr Javid, said the inter-generational argument should not be “overplayed”, as “half of the adult social care budget is spent on under 65s”. But one concern emanating from discussions with Tory backbenchers this weekend was that such a move would put an uneven burden on younger people who have already been hardest hit by the pandemic. Mr Pitt acknowledges that the move could “easily backfire”, potentially resulting in an about-turn from No10.

Mr Johnson’s attempts to persuade his backbenchers to support the move are likely to centre on arguments being rehearsed behind the scenes this weekend. The first is that major reform, including a cap as low as £50,000 on individual care costs, will cost an annual sum running into the billions of pounds, which could only realistically be generated by raising VAT, National Insurance or income tax, in the absence of eyewatering additional borrowing.

Some Tories see one upside of a National Insurance hike as the ability to explicitly list a new NHS and Social Care levy as part of the deduction set out on workers’ payslips – allowing the public to see a direct link between increases in Government spending and tax rises.

“The only time we lose the arguments on increasing taxes is when we’re talking about the health system,” said David Davis, the former Brexit secretary. “In that case, let’s tell [taxpayers] exactly what they’re spending. Then when nurses and doctors say ‘we want a 10 per cent pay increase’ we can tell people what it means for them.”

Another argument being discussed by proponents of the National Insurance Contributions (NICs) rise is that NICs is a UK-wide levy set by the Westminster Government, meaning that any new NHS and Social Care levy would be built into the tax across the Union.

By contrast, any decision on an income tax increase in Scotland would be down to the Scottish Government, which could reject the move and create a major divide between the nations.

Advocates of the proposed NICs rise also argue that an equivalent increase in income tax would result in a much more significant “direct” hit to households, because it is only paid by workers, as opposed to being split between employers and employees. Mr Pitt said: “To raise £10 billion, you need to put income tax up 2p; NICs only 1p.”

Mr Pitt acknowledges that increasing employers’ share of the tax would “feed in” to workers, including by impacting wages. But he adds: “People don’t see that immediately in their payslips.”

The tax hike is also seen as a way to urgently generate billions for the NHS, amid fears that the number of patients on hospital waiting lists could soar to 13 million as a result of Covid and lockdowns. In remarks studied closely in

Downing Street, Jeremy Hunt, the former health secretary, has said that, “the attraction of a Health and Social Care levy is it would fund the NHS backlog in the short term and desperately needed improvements in the social care system in the medium/longer term”.

Mr Hunt says that the sum raised by a 1p levy – about £10billion per year – is “more than the social care system needs or could cope with right away”, meaning that the proceeds could be directed towards the NHS until a new system is up and running.

But one of the most common criticisms on Tory WhatsApp groups this weekend was that Mr Johnson appears to be gearing up to ask for his party’s support for proposals to fund social care without a proper plan for a new system to deliver that care.

One exasperated Conservative MP said: “What’s the reform programme? What’s this for? How is this going to work?” One former minister, said: “The Government shouldn’t underestimate the level of concern. It would be unwise to draft the budget before consulting fully with the parliamentary party.”

Labour will oppose the tax rise and make hay of the broken pledge on National Insurance. The Opposition will also accuse the Tories of a third breach of the party’s manifesto, given that its 2019 commitment on social care was to “build a cross-party consensus to bring forward an answer that solves the problem, commands the widest possible support, and stands the test of time.”