National Insurance: What’s the new Health and Social Care tax and how will it affect me?

The government has announced an extra tax to fund social care in England, and help the NHS recover after the pandemic.

But there has been criticism – including from within the Conservative Party – that it will be unfair on younger people and the lower paid.

Employees, employers and the self-employed are all going to pay 1.25% more tax from April 2022.

For the first year, this will be collected as an increase in National Insurance.

But from April 2023, National Insurance will return to its current rate, and the extra tax will be collected as a new Health and Social Care Levy.

This levy – unlike National Insurance – will also be paid by state pensioners who are still working.

The increase will see an employee on £20,000 a year pay an extra £130. Someone on £50,000 will pay £505 more.

People earning under £9,564 don’t have to pay National Insurance and won’t have to pay the new levy.

National Insurance is a UK-wide tax – and while Boris Johnson’s announcement focused on funding health and social care in England – Scotland, Wales and Northern Ireland will also receive an additional £2.2bn to spend on their services.

There are concerns that the increase will have a higher impact on the lower-paid.

Currently workers pay 12% National Insurance on earnings between £9,564 and £50,268. However, anything earned above this amount attracts a rate of just 2%.

Consequently as your income rises above £50,000, National Insurance becomes a smaller and smaller proportion of your wage packet.

The same rate will also apply to the Health and Social Care Levy.

The government is also going back on a promise made in its 2019 election manifesto that it would not raise National Insurance.

However, Boris Johnson said the increase was necessary given the pandemic and the burden it placed on the NHS.

The government says the changes are expected to raise £12bn a year, which will go initially towards easing pressure on the NHS .

A proportion will then be moved into social care system over the next three years.

This mainly helps older people and people with high care needs, with tasks such as washing, dressing, eating and taking medication.

The aim is to make sure that people in England pay no more than £86,000 in care costs from October 2023 (not including accommodation and food).

In addition, anyone with assets – their home for instance, or savings and investments – which are worth less than £20,000, will have their care fully covered by the state.

Those who have between £20,000 and £100,000 in assets will have their care costs subsidised.

At present, to get your care paid for by your local council, you must have a very high level of need and also savings and assets worth less than £23,250 in England.

Below that level the amount you pay reduces until you have less than £14,250, at which point the council pays for your care if you qualify.

The care system is under pressure because of an ageing population and the pandemic. It has been hit by staff shortages and falling government spending.

This has also put pressure on the NHS because people cannot be discharged from hospital if they don’t have anywhere suitable to go.

In Wales, no-one who is eligible for care at home is expected to pay more than £100 a week.

In Northern Ireland, no-one over the age of 75 pays for home care.

Scotland provides free personal care for people who are assessed as needing support at home, whatever their age.

In Scottish care homes, people get free care if they have savings or assets of less than £18,000.

Those with savings and assets of between £18,000 and £28,750 have to fund part of their care.

People with more than that have to fund their own care, apart from a £193.50 a week contribution towards personal care and £87.10 a week towards nursing care.