New health secretary Sajid Javid is to form a powerful alliance with chancellor Rishi Sunak to insist that major reform of England’s creaking social care system must be funded through higher taxes.
Javid is sympathetic to a Japanese-style levy on the over-40s to fund social care, according to colleagues, while the Treasury is looking at whether a dedicated tax could be introduced.
Boris Johnson has promised to fix the social care funding crisis — with annual costs estimated at up to £10bn — but his reluctance to raise taxes has caused tensions with Sunak, who wants to tackle the £300bn deficit accumulated during the coronavirus pandemic.
“Rishi has made it clear that if the public purse is to pay for social care reform, it has to be funded,” said one ally of the chancellor.
Sunak has ruled out paying for social care reform through more borrowing, his allies said he is mindful of increased funding costs if interest rates rise, and big spending cuts have been excluded.
Although Sunak does not want to add to the country’s tax burden, which is the highest since the late 1960s, Treasury officials said higher taxes will be needed if social care reform is carried through.
The arrival at the health department of Javid, a former chancellor and fellow fiscal conservative, will strengthen Sunak’s hand.
Although the two will haggle over the eventual bill of any social care scheme, they agree the costs must be funded through higher taxes, said people briefed on their views.
On Monday Javid told MPs that he wanted to see “a long-lasting, sustainable solution to the social care challenge that this country faces”.
Johnson has so far insisted the Conservatives should honour their 2019 election manifesto commitment to freeze the rates of the “big three” taxes: income tax, national insurance and value added tax.
Government officials said Sunak was looking at the option of a tax rise clearly linked to the funding of social care, even though Treasury orthodoxy opposes the earmarking of revenues for specific purposes.
“It would be easier to explain,” said one official, although critics are likely to accuse the government of breaching its manifesto commitment by effectively raising income tax by another name.
Nick Macpherson, Treasury permanent secretary from 2005 to 2016, told the Financial Times that now was a good time to introduce a new tax.
“The public want greater NHS capacity and a better social care and this can’t be financed by fiddling around the edges of the tax system,” he said.
“A social solidarity charge payable by all adults at a rate of 2 to 3 per cent of their income could put the health and social care sector on a sustainable footing.”
Javid’s allies said it was “too early to say” precisely how social care reforms should be funded, but the model favoured by Johnson, based on work by the economist Sir Andrew Dilnot, would come with a big price tag.
Dilnot, who led a government review into social care a decade ago, said last month that it would cost about £10bn each year to put a cap on social care costs for those that need it, perhaps of £50,000, and to beef up the existing system.
Javid’s stance received the backing of Dilnot, who said on Thursday: “It’s perfectly reasonable to impose some tax increase to pay for [social care] reforms.”