Two thirds of health and social care levy could be lost in growth slump

Two thirds of health and social care levy will be lost to slower growth, new analysis has revealed today.

Ahead of Wednesday’s spring statement, the TaxPayers’ Alliance (TPA) campaign group 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 model compared a ten-year baseline scenario to an altered scenario with a 1.25 percentage point change in three classes of NIC and found that GDP would decrease by 0.76 per cent, equivalent to £24 billion. This is almost twice the value of the UK’s agriculture sector.

It also found that investment would decrease by 1.99 per cent, equivalent to £6 billion, equivalent to the baseline whole life costs of the coronavirus Vaccine Taskforce.

John O’Connell, the TPA’s chief executive, 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.”