Kwasi Kwarteng admits Mini-Budget caused 'a little turbulence'
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The cancellation of the 1.25 percentage point rise in National Insurance has come into effect today. The rise was introduced by former Prime Minister Boris Johnson’s Government, when Rishi Sunak was Chancellor, in April. It was reversed by former Chancellor Kwasi Kwarteng in his controversial mini-budget last month.
Its scrapping is one of few economic policies introduced by former PM Liz Truss and Mr Kwarteng which was not axed by Jeremy Hunt and has stayed in place with Mr Sunak as Prime Minister.
The levy was devised by Mr Sunak when he was chancellor to pay for social care and deal with a backlog in the NHS.
Mr Johnson and Mr Sunak insisted in January that it is right to follow through on the “progressive” policy.
They said: “We must clear the Covid backlogs, with our plan for health and social care – and now is the time to stick to that plan. We must go ahead with the health and care levy. It is the right plan.
“It is progressive, in the sense that the burden falls most on those who can most afford it.
“Every single penny of that £39billion will go on these crucial objectives – including nine million more checks, scans and operations, and 50,000 more nurses, as well as boosting social care.”
When announcing the reversal, the Treasury said most employees would receive a cut to their National Insurance contribution directly via their employer’s payroll in their November pay, although some may be delayed to December or January.
The levy was expected to raise around £13billion a year to fund social care and deal with the NHS backlog which built up due to the Covid pandemic.
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For employees under pension age earning less than £12,570 a year, the move will not make a difference because they do not pay National Insurance.
Above that income level, the amount an employee saves increases as earnings do.
Higher earners stand to benefit more than people who are on lower incomes although those earning more will contribute more tax overall.
Funding for health and social care services is to be held at the same level as when the levy operated, but it will now come from general taxation
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Mr Sunak told Cabinet members this week that the NHS would be “prioritised” amid “difficult decisions” on spending over the coming weeks, according to Downing Street.
The Prime Minister and his Chancellor are currently considering tax rises for millions of households and a squeeze on spending to address a black hole of up to £50bn in the public finances.
A Downing Street read-out of Tuesday’s Cabinet meeting notes Mr Sunak said the Government “would always support the NHS and that they would continue to be prioritised as difficult decisions are taken on spending”.
The Cabinet meeting saw the Prime Minister and his top team discuss the NHS ahead of impending fresh pressures this winter
The Downing Street read-out adds: “He said that in return it was right to look at further ways to improve the service the public receive and that he was confident this could be achieved.”
Health spending is one of several major areas which could face further spending constraints, as the Government seeks ways to restore fiscal credibility in the wake of Ms Truss’s ill-fated mini-budget.
Mr Sunak and Mr Hunt are expected to extend a freeze on the thresholds at which people start to pay the different rates of income tax and National Insurance, which could result in more people being dragged into higher tax bands as wages increase.
Mr Hunt will set out his plans in the Autumn Statement on November 17 and is considering splitting the burden equally between tax rises and spending cuts
Public sector workers could face deep real-terms cuts to wages, with The Times reporting the Treasury is looking at an increase of two percent across the board for 2023-24, at a time when inflation is expected to be well above that threshold.
A Treasury source said “no decisions have been taken” and the “independent pay review body process takes place next year”.
Meanwhile, NHS England has written to local health bodies detailing preparations for potential industrial action in the health service. On Saturday it emerged that nurses across the UK have voted to strike in the first ever national action over a pay dispute.
The strike ballot among more than 300,000 members of the Royal College of Nursing (RCN) was the biggest ever in the union’s 106-year history. Its General Secretary Pat Cullen said: “Our strike action will be as much for patients as it is for nurses – we have their support in doing this.”
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