Wednesday 8 September 2021

Tax Increases for NHS Backlog and Social Care

Yesterday, the PM announced plans to increase taxes to pay for the NHS backlog resulting from Covid and to increase funding for the costs of long term care.

So, from next April this will include an extra 1.25% on NICs for employees who's earnings are above the lower limit of £120 p.w. and will also include those who are still working beyond state pension age. In addition there will be an extra 1.25% for employers.

This will mean an extra £255 for those on an average wage of £30,000 p.a.


In addition, there will be a 1.25% increase to the tax on dividend income. This will include the self employed and company directors who choose to pay themselves with dividends in addition to a salary. From next April the tax for basic rate will increase from 7.5% to 8.75% and the higher rate will go up to 33.75%.

The first £2,000 of dividend income is tax-free so this tax increase will affect those who receive dividends above this figure. For example, investors who pays basic rate tax and have an income portfolio of £80,000 which pays an average of 4% in dividends i.e. £3,200, will pay an additional 1.25% on £1,200 or £15 per year. Of course dividends held in a tax-free ISA or pension will not be affected.

Social Care Cap

From October 2023, the total anyone will have to pay towards care costs will be capped at £86,000. However the cap only applies to care costs such as assistance with dressing, washing and eating, it does not apply to accommodation costs such as the cost of food, heating and rent which could amount to one third of residential care bills.

Those with assets of under £20,000 will have these costs fully paid by the state whilst those with assets between £20,000 and £100,000 will get some help.

The above tax hikes are estimated to bring in an additional £36bn in the first three years but most of this - around 85% - will go to the NHS and only around £5bn for social care.

I doubt there will be much improvement in social care provision any time soon.

State Pension Triple Lock

I was on track for an 8% rise in my state pension next year due to the link to the increase in wages but 'for one year only' in 2022, the triple lock will be replaced by a double lock and the increase will be linked to the higher of inflation or 2.5%.

I suspect most pensioners will understand this move and that to have kept the link to artificially high earnings growth due to the pandemic and furlough scheme would have been unfair.

The current (new) state pension is £179.60 per week so an expected 3% inflation increase will take the figure to £185...£9,600 p.a. An 8% uplift would have resulted in a payment of £194 - £10,090 p.a. so my contribution to pay for the NHS and social care is £490 per annum!


  1. How strange we're having to fund the NHS with extra taxes when we have that £350m a week earmarked from our much-promised Brexit Dividend!

    That's £17.5bn a year in windfall cash, after all.

    Maybe, like London buses, it'll all come at once in the future, eh? ;)

    Fully agree with your comments about the pension uplift, and good for you for recognising it despite the hit to your wallet.

    I equally wouldn't want pensioners to suffer an 8% decline if some freak combination went the other way (impossible with the triple-lock, but you get my meaning).

  2. Funny how the government can find the money to house thousands of Afghans and illegals who also place extra pressure on an already stretched NHS, not to mentioned schools, the environment, etc, etc, etc. Oh wait, that's not the government's money is it....

  3. I am thinking on the anniversary of 9/11 that we really need to find ways to heal and unite, to find ways to understand where others are coming from and realise that maybe we are fortunate to be alive.

  4. The money to go towards social care has to come from somewhere. I expected a higher tax, the government picked NI and dividend tax but it could have easily been income tax, or reduction in tax relief for pension contributions. Actually, the tax relief reduction will probably be the next one for the government to grab, to hit those paying higher rate of tax. Whether it will be the Tories or Labour doing it, someone will have to do the dirty job!