Older workers to pay healthcare levy

Older workers who work past the state retirement age and the self-employed will have to pay the extra healthcare levy announced by the Government this week.

The levy of 1.25% on employee earnings and on employer wage costs (which equates to a 2.5% overall increase in the tax rate on earnings) aims to raise £14 billion a year for health and social care.

The levy, which was voted through on Wednesday, is being extended to those over state pension age from 2023-24, although pension-related income is exempt, and to dividends, affecting limited companies and investments. The aim is to tackle concerns that the burden of paying for health and social care is falling unfairly on younger voters, who are least likely to vote for the Conservatives.

The Institute of Fiscal Studies, however, says is the tax “will be overwhelmingly borne by workers with very little coming from pensioners”. It add that the new levy continues a trend seen over many decades of the burden of tax being shifted towards earnings.

The IFS says: “It is disappointing that the government did not find a better package of tax measures to fund these spending increases. A simple increase in income tax would have been preferable. But  overall much needed reforms to social care are being introduced and unavoidable pressures on the NHS are being funded through a broad based and broadly progressive tax increase. That is better than doing nothing.”

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