The new Health and Social Care Levy is a body blow to those who are only just managing. That’s the conclusion of Sarah Coles, personal finance analyst at Hargreaves Lansdown.
She suggests that the levy could spark family breakdowns, job losses and wage stagnation. It could also make it harder to find work and may force more people into long-term unemployment.
Here, I take a look at the impact of the new Health and Social Care Levy. I investigate why the new tax could push more families into poverty, trigger families to split and cause a cost of living crisis.
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How the Social Care Levy will affect the poorest
The poorest workers will be hit hard by the new Health and Social Care Levy. Someone earning £20,000 will see their yearly National Insurance bill rise from £2,736 to £2,867. That’s a huge increase for someone on a tight budget!
And by increasing National Insurance rather than Income Tax, the levy catches more of the poorest workers. That’s because National Insurance kicks in at £9,500 earnings per year, whereas Income Tax doesn’t start until you earn £12,570 per year.
People earning £20,000 will have to pay £131 extra per year. If Boris had chosen to increase Income Tax by 1.25% instead, then someone earning £20,000 would only pay £93 extra per year. That £38 difference is a lot if you’re already struggling to pay your bills.
Why the levy could affect jobs
Not only will workers face a bigger tax bill, but employers will also have increased costs with an extra 1.25% National Insurance to pay on salaries.
Some businesses are already on their knees after the Covid crisis, and this extra bill could affect their decisions about wages and recruitment. They could freeze wages to absorb the extra cost, or they might decide to halt recruitment, which would make it even harder for people to find work.
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How the Social Care levy could cause family breakdown
For families, there’s a perfect storm of tax rises and wage freezes on the horizon. About a third of adults already report that arguments over money are a big source of conflict in their relationships.
According to Coles, these conflicts are likely to increase as many families will struggle to afford a bigger tax bill. The new Health and Social Care Levy could cause more couples to split up as they are driven apart by money worries.
Why it could cause a cost of living crisis
Some poorer workers are already in financial crisis after the last couple of years. That’s because they’ve had to cope with a 20% pay cut during furlough followed by job cuts and pay freezes.
Many of the poorest people will also see their income drop once the current £20 per week uplift on Universal Credit comes to an end.
For people trying to get their finances back on track, this latest tax rise comes as a body blow. It’s likely to push more struggling families into poverty.
What to do if you’re struggling to pay the Social Care Levy
So what should you do if you will struggle to pay the extra Health and Social Care Levy? Here are some tips:
- Make a budget – if money is tight it’s really helpful to sit down and work out where all your money goes. You’ll feel more in control and be able to see if there’s anywhere to cut costs.
- Make sure you are applying for all available benefits – Entitledto has a really useful tool to help with this.
- Get help if you’re in debt – Citizens Advice and StepChange are charities that can help you get your finances back on track.
- Transfer any credit card balance – there are lots of 0% credit cards around. It’s worth investigating to see if you can move an existing balance to one of these cards. That way, you can save on interest while you pay it off.
