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TISA responds to new 2.5% health and social care levy

September 8, 2021

  • TISA expresses grave concern about the impact of the new levy on the economic recovery, particularly on younger people’s finances and job opportunities.
  • Disproportionate contributions from younger cohorts compared to those most likely to benefit raise issues around generational fairness. TISA believes housing wealth should contribute to social care costs, rather than just funding social care through taxing income.
  • The new levy may cause employers to deflect money from pension provision to cover additional NI costs, potentially leading to worse pension outcomes for many.

TISA, the cross-industry financial services membership body, today responded to the Government’s announcement of a new health and social care levy, set at 1.25% of employees’ annual income, with a further 1.25% matched by the employer.

TISA raised concerns that the tax rise will have a negative impact on the economic recovery in the wake of the pandemic. The past 18 months have put a heavy toll on both consumers and businesses, and a tax rise may just stymie incipient growth. Combined with the increase in corporation tax, this could also reduce the attractiveness of the United Kingdom as a place to do business.

The effects of the social care levy will also be disproportionately felt by the young and employed, with those benefitting disproportionately older and with significantly more housing wealth. It is a longstanding TISA position that housing wealth should contribute to the costs of paying for social care.

It is also vital that the levy does not increase costs for employers to the point where money is deflected from pension provision to cover additional NI costs, leading to worse pension outcomes. The current 8% through auto-enrolment is significantly below the level required for a dignified retirement, and savers should be under no illusion that the new social care levy will contribute to better circumstances prior to entering the care system.

Prakash Chandramohan, Strategy Director at TISA, said:

“Tackling the looming social care crisis is an understandable priority for the Government, with significant funding required to secure dignified later life care for those who require it. That the Government has now grasped the nettle of developing a social care policy should be commended.

“However, this new social care levy raises many questions and concerns.  Raising taxes just as an economic recovery is starting may stymie growth. Incomes have been under pressure for many households, and a further squeeze at this point may suppress spending, and therefore growth and job creation.

“This levy will disproportionately impact the young and employed, in contrast to those who will benefit from the increased funding. Those with significant housing wealth should contribute to the costs of their care out of it, and the burden should not fall disproportionately on employment income.

“Furthermore, we were already concerned that 8% auto-enrolment contributions were insufficient for a dignified retirement, and adding another tax on income will discourage both employers, who may have wanted to contribute more to their workplace pension schemes, and employees who may have wanted to put that extra one percent away into their pension, from doing so.

“At TISA, we have serious concerns about this policy and will await further detail as it is published.”