The National Institute of Economic and Social Research (Niesr) has advised Prime Minister Andy Burnham that he must increase HMRC tax rates for workers to fund his social care plan. The think tank warns that without additional revenue, the government will face real-terms cuts to planned spending on hospitals and schools unless it finds an extra £24bn by the end of the decade.
Niesr recommends breaking Labour's manifesto promises by raising income tax rates by one percentage point across all bands. This would increase the basic rate from 20% to 21%, the higher rate from 40% to 41%, and the additional rate from 45% to 46%.
Tax Increase Breakdown
According to HMRC estimates, an extra penny on the basic rate would raise £8.2bn annually. Increasing the higher rate to 41% would bring in £2.1bn, while the additional rate hike to 46% would generate £230m. Combined, the three changes would yield approximately £10.5bn per year.
Marginal tax bands mean that individuals only pay the specified rate on the portion of earnings within that band. For example, a worker in the 40% bracket still pays 20% on income up to the higher-rate threshold and 0% on earnings within the personal allowance.
Political Context
In a social media video posted on Wednesday, Mr Burnham expressed his desire to find “common ground” for social care reform, stating he is “prepared to put everything I’ve got” behind this goal. The Prime Minister, who previously served as Mayor of Greater Manchester, has made social care a cornerstone of his early tenure.
Social Care Commission Views
Louise Casey, the cross-bench peer and former civil servant leading the government’s social care commission, said on the Today programme that she sees “room for a mixed market” in social care provision. However, she voiced strong opposition to “profiteering”.
“I don’t like the idea of profiteering out of human misery and human life. I object to that,” Casey said. “I’d object to it, whether it was homelessness you were asking me about, or whether it was anything else I’ve been responsible for.”
The debate over funding mechanisms continues as the government seeks to balance fiscal responsibility with investment in social care infrastructure. Niesr’s recommendations highlight the scale of the challenge facing the Burnham administration.
