ANALYSIS: Two thirds of health and social care levy lost to slower growth

Embargoed: 00:01 Monday 21 March 2022

Ahead of Wednesday’s spring statement, the TaxPayers’ Alliance (TPA) has modelled the impact of the planned national insurance rise on growth, wages, and investment.

The model, produced by economics consultancy Europe Economics, lays bare the impact of the health and social care levy plans, predicting that it will result in the UK economy being £24 billion smaller over ten years. The figures also show that the UK will lose £6 billion of investment and see wages £5 per week lower than they would have been without the hike in national insurance contributions (NIC). As a result, two thirds of the amount expected to be raised by the tax rise could be lost through lower growth.

Using official data from the Office for Budget Responsibility and other sources, the model can be used to show the outcome of a range of tax changes, including taxes on income, businesses, capital and expenditure. Similar modelling was used by then-chancellor George Osborne to show the dynamic effects of cuts to corporation tax and fuel duty.

The TaxPayers’ Alliance is calling on the chancellor to scrap or defer the NIC rise in his spring statement and boost Britain’s long term economic prospects.  

CLICK HERE FOR THE FULL RESULTS

Key findings:

• The model compared a ten-year baseline scenario to an altered scenario with a 1.25 percentage point change in three classes of NIC (reflecting the new health and social care levy). This found:
  
  
  • GDP would decrease by 0.76 per cent, equivalent to £24 billion. This is almost twice the value of the UK’s agriculture sector (£13.8 billion gross value added at basic prices 2019).
    
    
  • Investment would decrease by 1.99 per cent, equivalent to £6 billion. This is equivalent to the baseline whole life costs of the coronavirus Vaccine Taskforce (£6.2 billion).
    
    
  • Average weekly earnings would decrease by 0.76 per cent, equivalent to £5 per week. This is over 60 per cent of the total amount (£8.20) average households spend on healthcare, such as medical products and hospital services.
    
    
  • 66 per cent of the tax rise, or £13 billion, would be lost through lower growth.

CLICK HERE FOR THE FULL RESULTS

John O’Connell, chief executive of the TaxPayers' Alliance, said:

“Hiking national insurance will not only hit people’s pockets, but stifle the wider economy too. 

“Bumper growth is what we need to tackle the colossal cost of covid, not tax hikes which will see jobs and investment stall.

“The chancellor should instead go for growth, and give taxpayers and businesses a respite from tax rises by scrapping the health and social care levy.”

TPA spokespeople are available for live and pre-recorded broadcast interviews via 07795 084 113 (no texts)

Media contact:

Danielle Boxall
Media Campaign Manager, TaxPayers' Alliance
[email protected]
24-hour media hotline: 07795 084 113 (no texts)

Notes to editors:

1. Founded in 2004 by Matthew Elliott and Andrew Allum, the TaxPayers' Alliance (TPA) campaigns to reform taxes and public services, cut waste and speak up for British taxpayers. Find out more at www.taxpayersalliance.com.
   
   
2. TaxPayers' Alliance's advisory council.
   
   
3. The model was made in collaboration with economic consultants Europe Economics.