Tax Hikes on the Rise?
The pandemic has led to the NHS and other social care providers coming under tremendous pressure given the swarm of Covid cases which has slammed the brakes on patients requiring treatments for other ailments such as cancer.
Nevertheless, the cost of an ameliorated social care system is an astounding £10 billion annually which would invariably require a commensurate increase in government revenues to be able to fund such an improvement over the long term. The chancellor and health secretary have made clear to the prime minister that any improvements wouldn’t be sustainable without such action with the unfortunate implication of such taxes being a heavier burden placed on middle-income families.
Whilst alternatives as to how this sum should be raised are numerous, care must be taken by the Treasury to avoid any backlash from the public who have already suffered economically and mentally from the pandemic’s impact for the nearly one and a half years. The chancellor has thus decided to delay introducing any new taxation policies after factoring the continuing economic turbulence spawned as a result of the spread of the Delta variant which has questioned the efficacy of vaccines.
Options which have been mooted include hiking the national insurance contributions for both employers and employees by 1% which would be sufficient in itself to raise the required sum of money. Isolating the effect of the tax-hike on solely the rich also presents considerable obstacles since the required amount of £10 billion would only be achieved if the tax rate for the higher rate income taxpayers rose by 6%. Given the hypothesis posited by the Laffer curve, a higher rate of tax on the richest would in fact reduce the total tax collected since incentives to work would drop and thus discourage paying taxes and reduce employment.
A final option is to impose a new kind of tax known as the “social solidarity” levy which would be primarily targeted at individuals aged around or over 40, with consensus amongst experts that such a levy of around 2% to 3% would be sufficient to fund the desired improvement in England’s social care system which many have argued lacks the required resources and support to maintain its quality of service.
It inevitably follows that the government would have to persuade the public for this to work successfully albeit past experience of raising taxes for the benefit of the elderly and the NHS have faced minimal resistance from the public such as the 2002 increase in National Insurance by 1%.
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