Ring-fencing taxes and the Health and Social Care Levy 

HMRC is facing backlash from some business owners following a request by HMRC to employers that they include a statement on employees’ payslips from April 2022 relating to the Health and Social Care Levy.

HMRC want employers to include the statement on payslips to help employees understand how the temporary increase in National Insurance contributions (NICs) will be used, and comes at a time when calls are being made to the government to scrap the NIC increase.

The request has caused resentment amongst employers, with some feeling that it represents a thinly-veiled attempt by HMRC to get them to pacify the working population, while the cost of living is increasing and purse strings are being forever tightened to make ends meet. Some with a more cynical view might speculate that this request, in line with the Government’s requirements for the replacement Health and Social Care Levy applying from April 2023, is a political statement.

When the Health and Social Care Levy was first announced it was described by the Prime Minister as ‘hypothecated in law to health and social care’. This raises a couple of issues. Firstly, is hypothecation or ring-fencing a desirable solution to funding of the NHS and social care? It is difficult, if not impossible, to set a levy that will reliably cover the expenditure it is intended to meet. The levy collected is highly unlikely to consistently match the increased expenditure needed on health and social care, due to changing demographics in the population. Secondly, in many cases hypothecation is meaningless, as it is not possible to verify how the money has been spent.

In the case of the Health and Social Care Levy, although the funds raised on earned income will be paid directly to the relevant bodies, HM Treasury will still decide which of them receives what. One might ask – is this really hypothecation or simply a tax increase?