Chancellor Kwasi Kwarteng’s ‘fiscal event’ is off to a flying start with the abolition of the Health Care Allowance, a disguised premium on national insurance.
It was a poorly designed tax, outside the fiscal cycle and seized by the Treasury as an opportunity to restore the tax base after the pandemic.
Initially, Rishi Sunak was only going to levy it on employees.
Tax cut: Chancellor Kwasi Kwarteng’s scraps controversial Health and Social Care Levy introduced by his predecessor Rishi Sunak
But when he realized how much could be raised, he planted it with employers, raising a total of around £13 billion a year.
The levy was marketed as an opportunity to solve Britain’s tangled social welfare system. For the first few years the aim was to solve the NHS bottlenecks after Covid, and then the social care would come.
A major cause of overload in hospitals is bed-blocking by the elderly and infirm (through no fault of their own) across the NHS.
These are patients, fit to leave, who should have been transferred from hospitals to care homes or home care.
The money from the levy could have been better spent on the social side of the problem.
But the reality is that the nation has lost more than a decade since the Dilnot Report was published in 2011, marking the start of social care reform.
A more robust approach would have been a social market solution, similar to the Blair administration’s for occupational pensions.
If such a plan had been in the air, there would already be an endowment fund that would ease the path to social care.
As in the case of occupational pensions, a small portion of the salary, which is tax-deductible, would be withheld at source and deposited into a fund managed in the private sector.
There would be an option to unsubscribe. As the pension levy shows, very few people would do that.
The abolition is a tax cut for 28 million people and worth £330 a year. There will no doubt be protests that it helps the rich more than the less fortunate.
The reality is that it gives everyone more control over their finances and frees up money for spending and growth.
Reducing the burden on employers also makes it cheaper to hire staff and acts as a barrier to inflation.
How is all this paid for? The Treasury says improvements to the NHS and social care will come from general taxation.
What is often forgotten is that the most horrific recent tax increase was Sunak’s rights freeze at a time of high inflation. That will bring in, and rise, about £40 billion in additional revenue for the Treasury.
Awash with retail deposits built up during the pandemic, banks have been terribly slow in rewarding savers as the Bank of England raised interest rates from 0.1 percent last year to 2.25 percent now.
However, the end of emergency interest rates and the start of the £80bn rollback of QE on the bank’s government bonds is dramatically improving options for retirees.
Brokers Hargreaves Lansdown calculated that annuity rates have risen by as much as 35 percent in the past year, to the best level in ten years.
Annuities, which guarantee pensioners a certain income, fell out of favor after the financial crisis.
Former Chancellor George Osborne decided it was fairest to do away with the rule that pension sums should be used to buy an annuity.
Do-it-yourself investment became all the rage and there was fear that a whole new generation of silver-haired Ferrari drivers would opt for excitement.
Uncertainty in the stock markets, unlimited bills for repairing fast cars and rising borrowing costs offer another opportunity for retirees looking for a safer choice.
When ownership of Neil Woodford’s Patient Capital Trust was transferred and renamed Schroder UK Public Private, the worst seemed over for investors.
Shares in the publicly traded trust have now hit new lows after it was revealed that the valuation of one of its largest holdings, Amsterdam-listed Benevolent AI, had been misquoted for more than five months.
The embarrassing mistake was made before Link Fund Solutions was removed by Schroder as an alternative fund manager.
Another issue for the Financial Conduct Authority as it zooms in on Link’s role in the Woodford scandals.
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