Labour To Raise Social Security Taxes

by Jason Gorringe, Tax-News.com, London

13 March 2002

UK Chancellor Gordon Brown is likely to announce an increase in National Insurance rates (social security tax) in his forthcoming April budget which will be billed as a means of financing the cash-strapped National Health Service, although the new tax will not be 'hypothecated' in deference to the Treasury's long-time resistance to earmarked taxes.

In an interview with the Financial Times, deputy prime minister John Prescott said: "You've got to remember the health service did start off as a payment out of national insurance."

Mr Prescott said discussions were still going on about a "further extension of taxes" and there was "much debate" on whether to link the increase to health spending.

Michael Jacobs, general secretary of the Fabian Society, who has been advising the prime minister's office and the Treasury on ideas for increasing taxes to fund the NHS, said he expected a rise in NI contributions to be announced on April 17.

"Both Downing Street and the Treasury have accepted the basic logic of the argument that the public is much more willing to pay a tax if they know where it is going and like where it is going, rather than disappearing into the black hole of the Treasury's pot," he said. "I would expect to see an increase in NI contributions politically earmarked for the NHS."

The rise could include an increase in the rate of employee NI contributions from 10 per cent, and a rise in the upper earnings limit, which caps the total bill for higher earners.

Governments that raise taxes on individuals are taking a big politcal risk, but this government, like all second term governments, has become arrogant. Mr Prescott said: "I think it's a different time for us to put it now, 10 years on. Arguments today will be against a background of a government that has shown stability in the economy, shown prudence if you like, and not the traditional Labour tax and spend."

But Mr Prescott is guilty of believing his own spin. The reality is that taxation has risen steadily under Labour, and is taking 2% more of GNP than it did when Labour came in.

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