Raising National Insurance to fund social care? Reports last week suggested that the Government plans to raise the rate of National Insurance contributions (NICs) by 1% to fund a $10bn a year increase in social care spending. However publication of the full social care plan has been delayed again till the autumn.
~~The funding problem(s). Adult social care is both under-funded relative to the growing needs of an ageing population, and paid for through a complex and hard-to-understand system of private user payments and means-tested support, with services varying widely between different local authorities. The Kings Fund provides a clear analysis.
Raising NICs would be a regressive way of funding social care. Explaining the structure of employees’ National Insurance contributions, which are levied at 12% on earnings between £9,568 and £50,270 but at just 2% on earnings above that, with those over 66 not paying at all however much they earn, the Resolution Foundation showed how a NICs rise would hit young low earners harder than the elderly wealthy. This would be “100% wrong”, they argued.
Progressive alternatives. Various alternatives have been proposed to fill the funding gap for social care more equitably.
~~Reforming NICs.Responding to the Government’s plan, the Women’s Budget Group argued that reforms to the structure of NICs would make an increase in its level more acceptable. NEF have proposed abolishing the Upper Earnings Limit on NICs, thereby making the top 15% of earners pay a larger share. This could raise £11bn a year by 2023/24.
~~A health and social care levy. The Resolution Foundation has proposed the introduction of a Health and Social Care Levy of 4% on all incomes above £12,500 (essentially an increase in income tax), coupled with an equalising of NICs on employees and the self-employed.
~~Taxing wealth. A growing number of voices, led by Tax Justice UK, IPPR, the Resolution Foundation and others, have called for wealth to be taxed more highly to pay for public services. This would include equalising tax rates on income from wealth and labour, reform of inheritance tax and reform of property taxes. The LSE Wealth Tax Commission proposed a 1% wealth tax on millionaires, which it estimated could raise £260bn over 5 years.
~~Public opinion supports progressive taxation. IPPR has presented its survey findings.
Re-owning social care. Looking beyond the funding issue, CLES’s Tom Lloyd Goodwin argues for the de-marketisation of social care provision, explaining the various options for ownership reform to “re-animate the demand of decency for service users over dividends for shareholders and to return to a system where the default position is state delivery of services in conjunction with alternative models of ownership, such as community businesses, social enterprises, co-operatives and the like.”
Weekly Updates
Trade, environment and climate change
Border carbon taxes. Following proposals for border carbon taxes from both the EU and US Democrats, International Trade secretary Liz Truss has said the UK government would also consider such a tax if multilateral efforts to reduce global emissions fail. By imposing a levy on imports made in a higher-carbon way than domestic products, border carbon taxes protect domestic industries subject to stringent carbon regulation or taxation from being undercut by overseas competitors not so restricted. Their aim is to prevent “carbon leakage”, by which production - and pollution - are effectively transferred from a country with strong climate policies to those without. Sky News’ Ed Conway produced a short video explaining how such a tax would work in the UK.
~~The EU’s proposal. The European Commission this month published its proposals for a “Carbon Border Adjustment Mechanism”, a border tax applying initially to imports of iron and steel, cement, fertiliser, aluminium and electricity generation. The EU says its proposals are compatible with WTO rules, but critics have warned that they could spark a trade war. Clean Energy Wire explains the debate.
~~The US. Democrats in the US Congress last week also proposed a carbon border tax, expected to be attached to a $3.5tn budget resolution. The Biden Administration has not yet said whether it supports the measure.
~~Green protectionism? The EU’s proposal has been criticised by developing countries, which tend to see border carbon taxes as a form of protectionism designed to keep out their exports. With COP26 less than 100 days away, there are concerns that these could erode negotiating trust and aggravate a trade war between the Global North and South.
~~Cooperative solutions. Examining the impact of the EU’s proposals on developing countries, UNCTAD suggests that accompanying policies, including the use of revenue generated by its border tax, could be used to accelerate the uptake of cleaner production technologies by developing countries, thereby alleviating the impact of the tax on them by helping them cut their emissions.
Revisiting the Limits to Growth. Gaya Herrington, Director of Sustainability Services at KPMG, revisited the famous 1972 Limits to Growth report, which predicted that continued economic growth would lead to overwhelming resource scarcity and pollution within a century. Her aim was to see whether the world had in fact turned out as the study predicted.
~~Sobering conclusion. Herrington’s study (full peer-reviewed version here) suggests that the Limits to Growth scenarios aligning most closely with actually observed data over the last 50 years indicate a halt to growth and subsequent decline in food and industrial production and welfare over the next decade or so, with one depicting collapse. The author “questions the suitability of continuous economic growth as humanity's goal in the twenty-first century.”
Calculating the cost of net zero for consumers. Demos and WWF launched climatecalculator.co.uk, a website to help readers explore how different policy approaches to decarbonise the UK could change weekly living costs for consumers. (Twitter thread summary)
Work
Public sector pay. The Government announced that NHS staff including nurses, paramedics, consultants and dentists in England will be given a 3% pay rise backdated to April 2021 “in recognition of the unique impact of pandemic”.
~~Pay freeze for teachers. Other key workers such as teachers, however, will have their pay frozen. The IFS calculates that teachers have experienced a 4-8% drop in salary since 2007. IFS head Paul Johnson noted that is “much worse than for the workforce as a whole. Government can’t keep doing this. Consequences for teacher recruitment and retention, not to mention living standards, will become too much.”
Labour’s “new deal for working people”. Labour announced new policy commitments on work, based on five principles: “security at work, quality jobs, a fairer economy, opportunity for all and work that pays”. The package includes giving workers rights from day one of employment, outlawing “fire and rehire” practices, a real living wage of £10 an hour, a “jobs promise” for young people with a guarantee of education, training or employment, creating a “level playing field” on tax between large and small businesses, and more. Shadow Employment Rights Secretary Andy McDonald MP explained.
Welfare
U-turn on SSP eligibility. The government has U-turned on a promise to grant Statutory Sick Pay (SSP) to workers earning below the £120 threshold. Analysis from the TUC finds that 51% of workers in insecure jobs receive no pay at all when off sick, a third of workers on zero hours contracts don’t qualify for any sick pay, and 70% of workers below the £120 threshold are women. Resolution Foundation’s Mike Brewer emphasised the importance of sick pay to help workers self isolate in compliance with the test and trace system.
Poverty and social mobility. The Social Mobility Commission (SMC) released its report on social mobility and the pandemic. The SMC highlighted that every driver of low social mobility - such as inequality, child poverty, access to housing, unemployment and school attainment gaps - has been exacerbated by the pandemic.
~~Proposals. The SMC proposed a £14bn package of measures to lift 1.5m children out of poverty. Among other measures it called on the government to scrap the two-child limit to Universal Credit payments and increase the level of payments for each child.
Finance and monetary policy
TCFD or TFCI? James Vaccaro, Executive Director of the Climate Safe Lending Network, argued that the remit of the Taskforce on Climate-related Financial Disclosures (TCFD) is too narrow. He calls for a Taskforce on Finance-related Climate Impacts to “allow financial institutions and regulators alike to better establish how finance can become an ally, rather than an antagonist, in the just transition to a climate-safe world”.
QE and nature loss. Common Wealth’s Adrienne Buller and UCL IIPP’s Katie Kedward and Josh Ryan-Collins released a report exploring nature-related financial risks and impacts in the ECB’s corporate bond portfolio. The report finds that the ECB’s QE programme has “significantly negative impacts upon nature which threaten the future provision of vital ecosystem services”.
Industrial strategy
Innovation Strategy. BEIS secretary Kwasi Kwarteng announced the government’s Innovation Strategy, a £22bn public investment in R&D, alongside various changes to government procurement, regulatory reform and more.
~~‘Innovation Missions’. The strategy involves ‘Innovation Missions’ identified by scientific advisers, to “set clear direction, urgency and pace on the issues confronting the UK that we want to tackle with the private sector in the coming years”. The FT’s Helen Thomas explained the strategy is a “welcome acknowledgment that the government has a role in encouraging and directing business innovation, and harnessing it for other goals such as levelling up...a break from Conservative orthodoxy”.
~~Civilian Climate Corps. Evergreen released a fact sheet on the Civilian Climate Corps (CCC), a public job creation program modeled on FDR’s New Deal to “put millions of people to work building a just and sustainable clean energy economy”. Senate Democrats have since included the creation of the CCC in their $3.5tn budget resolution. (Watch US Congresswoman Alexandra Ocasio Cortez explain the need for a Civilian Climate Corps in this video)
Business and competition policy
Bidenomics and competition policy. Columbia Law Professor Katharina Pistor explains the rationale behind the new interventionist competition policy emerging in Bidenomics and explains the negative impacts on workers, consumers and small businesses.
