Revealed: The next bill for the over 40s: Your social care tax

 

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Without huge coverage MPs from two influential Parliamentary committees yesterday proposed a new tax system to pay for the burgeoning cost of social care.

The proposal could mean a new hike in national insurance contributions, some redistribution of money going to fund your local council, higher council, inheritance and income tax  and/or abolishing some of the existing universal pension benefits, like the heating allowance or cutting future state pension rises.

Significantly it includes making existing pensioners pay more tax particularly if they are still supplementing their pension by working.

This makes this the first serious policy proposal to deliberately tax people differently depending on their age – and exempting the millennials  at the expense of the elderly. In that it feeds into the current  and my view misconceived debate that millennials are being robbed by wealthy pensioners and the system must be changed to tax pensioners more.

The proposals may well prove to be attractive to the present government which has been trying to create an inter generational wedge between the young and old people – as a sop to the younger generation who have been burdened with huge student loan debts by government policy and can’t afford to buy a home.

No one can deny that the present system for social care is in a mess and is underfunded and it is estimated by the report  using  data from the Institute of Fiscal Studies that spending on  care needs to rise by 3.9 per cent a year just to keep the current severely means tested system which means many cannot get help. It will cost billions more if personal care like the NHS became free at the point of use.

At the moment many people are already paying for care through  local council tax. When people ask where is all the council tax  money  is going – anything from 25 pc to 57pc  is going on social care for the young and old. The average of 37.8 pc according to the report.

The government is also transferring a big tranche of business tax revenue from Whitehall  to the councils and at the same time abolishing grants – but not according to the MPs  earmarking any of this money for social care.

The MPs have done a lot of groundwork – suggesting an independent body should supervise the new earmarked tax-  and have used a citizens assembly to advise them of how they could do it-. The report can be read in full here.

MPs need to tread very carefully over their funding proposals because there is no doubt it could make matters worse for a lot of people.

For a start – and it is picked up by people they consulted – 40 year olds will probably have the expense of  large mortgages, or higher rents, the cost of bringing up children and  may find, if they have had successful careers that they are  paid enough to have to pay back student loans. So they may be even more squeezed.

They have completely ignored the plight of  3.9 million 50s women. – many being forced to work for up to six years – and would now have to pay extra insurance or tax just at the point when they find it difficult to get a highly paid job.

Also by extending national insurance contributions at a higher rate for those who still have a job after turning 65 could well hit people who have taken part time low paid jobs to make ends meet. The MPs also suggest the premium should apply to unearned income and investments held by pensioners – which amounts to a tax on pensioners savings.

The committee talks of  setting an income threshold to make sure some pensioners are exempt – but does not state what this threshold should be.

To my mind there are too many questions  that have not been answered or evaluated for the government to go ahead with this. People should remember that everybody who drew up this report was on an MPs salary of  £77,000 a year, way above many people’s incomes.

Yes we need a debate on how to fund social care – but it shouldn’t be used as part of way to drive a wedge between generations- and we shouldn’t rush into  yet another use for the National Insurance Fund when  they are so many women who have been robbed of a decent pension by the existing system.