Johnson hands UK workers and firms annual health bill of US$17b

[LONDON] UK Prime Minister Boris Johnson has announced a tax hike on workers, businesses and shareholders to help rescue the National Health Service (NHS) from soaring backlogs that built up during the Covid-19 pandemic and to reform the "broken" social care system.

National insurance, a payroll tax, will rise by 1.25 per cent from next year - breaking the Conservative Party's key manifesto pledge against increasing any of the main rates of tax. A tax on dividends will also be raised by 1.25 per cent to ensure high earners pay their share, Mr Johnson said.

The increases are expected to generate £36 billion (S$66.7 billion) over the next three years.

Mr Johnson's decision risks sparking a major backlash from his own colleagues, some of whom had already warned the burden could fall more on younger people and the low-paid - because national insurance is traditionally not paid by pensioners.

But the premier attempted to head off that criticism by including all working adults in the rise of National Insurance Contributions (NICs), including those of pension age. From April 2023, NICs rates will revert back to the current level and the rise will be replaced by a new dedicated "health and social care" levy that Mr Johnson made a statement to a hushed House of Commons on Tuesday, ahead of a joint press conference with Chancellor of the Exchequer Rishi Sunak and Health Secretary Sajid Javid.

As he begins his third year in office, 57-year-old Johnson is looking to move beyond the Covid-19 pandemic by delivering on a policy promise that he set out in his first speech as prime minister to "fix the crisis in social care once and for all" - as well as ensure the NHS can keep functioning under extreme pressure.

But by attempting to meet this pledge, he is tearing up another one: the Conservatives vowed in their manifesto not to raise income tax, national insurance or VAT. Some Conservative Members of Parliament have warned this risks alienating voters, particularly those who switched from the opposition Labour party to back Mr Johnson in the so-called "red wall" seats of northern England in 2019.

There have been calls for the government to instead focus on income tax - but Mr Johnson's office believes raising NICs is fairer because businesses are also on the hook.

BLOOMBERG