I have worries about hypothecation. I thought the Treasury used to be against it and it is a difficult doctrine to make work well, because it is not always the case that a particular tax just happens to raise the right amount of revenue for a particular purpose, or if it does in one particular year, that may not be true in a future year because the revenue may grow too slowly for the purpose, or the purpose may become less popular and the revenue may exceed what is needed. I have always favoured the Treasury orthodoxy—I am not always someone to support Treasury orthodoxy—that it is better that we have a very big general pot into which we collect the taxes, and then we have general distribution based on tightly argued issues between Government Ministers and Departments on what their spending priorities are and the minimum amounts that they need to spend to get good results in their leading areas.
However, now that Ministers are treading the boards of hypothecation for the first time in this interesting way, I advise them that it is a very good rule, if they wish to sell the idea of hypothecation, that the tax revenue that they collect should pay for the thing that they are attaching to the hypothecated revenue. My big worry about this hypothecation is that the sum of money for social care—when we eventually get to that point after three years—collected by the so-called social care tax will be only about one fifth of the actual costs of social care to the public sector. Of course, there are additional costs to private individuals as well and I
would not want my constituents to be misled. I have already had emails from constituents saying, “As the Government seem to be pressing ahead with this social care levy, I assume that I will no longer be asked to make any contribution through my council tax to social care”. Being an honest man, I have written back and said, “No, you can’t assume that at all. Social care is going to need a lot of money and I don’t think the idea is that the council tax levy part of it, or the need for that, will suddenly disappear.” So I think one does need to look again at hypothecation. If, for example, we wish to have hypothecated taxes to pay for the current costs of health, as identified by the Treasury for the current financial year, we would need to say that all income tax, all capital gains tax, all inheritance tax and all stamp duty—in other words, all income and wealth taxation—were already going to pay the large sums required for health in this year’s public budgets. Maybe we could start by renaming income tax and all the wealth taxes as a health tax, which would give people some idea of the scale of expenditure that we are talking about. There might then be a more interesting and useful debate to be had.
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I am also a bit concerned about gross and net, a point that I asked my expert hon. Friend the Member for Amber Valley (Nigel Mills) about a few minutes ago. Clearly, if we put up a tax such as national insurance—or the son or daughter of national insurance, the care tax—companies will make less profit, so there will be less profit to tax after we have taken off the other costs. Individuals will also have less money to spend because of the deduction from their pay packet, so they will pay less in VAT and other taxes on things that they would otherwise spend their money on. There must be some tax loss as an offset, so the net will not be as large as the gross. One of the dangers of overcomplicating the tax system is that we get too many gross-to-net net-offs and it starts to get expensive. I am glad that my hon. Friend also raised questions about whether the set-up cost is worth while and what the running costs will be, because there will be HMRC running costs and, clearly, private business running costs as a result of introducing a new tax.
The best way to get the deficit down, which the Treasury rightly worries about, is to grow the economy faster. We have seen already that, with a very sharp rate of recovery in the early months once lockdown started to be relaxed, there was a very good impact on revenues: they outperformed the predictions of the Office for Budget Responsibility and the Treasury. I think that that is the best way to proceed. I am still surprised by the Treasury’s precision in thinking that £12 billion is the magic extra number that will first solve health and then go on to resolve social care; it is a very small percentage of the much larger totals that we already spend, and it is a tiny percentage of the total revenues that we hope to collect if we promote a really good recovery.
I am also concerned about the impact on those people, on whom much of our debate has focused, who find that they need care home assistance in their later months or years of life—the impact on their family finances as well as on their lifestyle. At the moment, there are broadly three categories of people: those
whose financial and care needs are taken care of entirely by the state because they do not have the benefit of capital, a home of their own and all the rest of it; those who are quite well off enough that they can make their own provision and pay all their own bills; and those in the middle, who may need a mixture of the two kinds of funding, or who may start off by self-funding and then turn to the state for assistance when the money runs out.
As I understand it, the purpose of the policy is to increase the middle category, allowing more people to have a mixture of state money and self-funding, and reducing the number in the entirely self-funding category. If that is the purpose of the policy, it is very important to be honest about how much protection it will actually give and how easy it is for people to work out what their personal liability will be, what the legitimate calls on their capital or income will be, and what the state will do that it is not currently doing. I do not think that I have that clarity yet. We need a much more detailed paper with working examples, so that we can see what the impact will be on individuals in our constituencies who may face that problem.