Tax payers will have to pay more to fund the "biggest social care reforms in the NHS' history".
Abandoning a manifesto pledge Boris Johnson raised the main rates of tax, as he set out plans to overhaul adult social care and deal with the Covid backlog in the NHS.
In a Commons statement, the Prime Minister announced a new UK-wide 1.25% health and social care levy based on National Insurance contributions.
The current National Insurance rate on earnings under £50,000 is 12%, with a further 2% applied to all earning over £50,000, meaning any increase has a proportionately lower impact on higher earners.
The hike means this would increase to 13.5% and 3.5% respectively.
He said the additional revenue would pay for the biggest catch-up programme in the history of the NHS in England, with £12 billion a year to help deal with the backlog of cases built up during the pandemic.
It will also cover the reform of the social care system in England, ending what Downing Street described as “unpredictable and catastrophic” care costs faced by many families.
From October 2023, anyone with assets under £20,000 will have their care costs fully covered by the state, while those with between £20,000 and £100,000 will be expected to contribute to their costs but will also receive state support.
No-one will have to pay more than £86,000 for care costs in their lifetime.
Scotland, Wales and Northern Ireland will receive an additional £2.2 billion in additional health and social care spending from the levy.
In addition to the health and social care levy, there will also be a 1.25% increase in the dividend tax – to ensure those who receive their income from shares also contribute.
Initially, National Insurance contributions will increase by 1.25% from April 2022 as systems are updated.
From 2023, the health and social care levy element will then be separated out and the exact amount employees pay will be visible on their pay slips.
It will be paid by all working adults, including those over the state pension age – unlike other National Insurance contributions.
Downing Street said that a typical basic rate taxpayer earning £24,100 would contribute £3.46 a week, while a higher rate taxpayer on £67,100 would pay £7.15 a week.
The Prime Minister’s official spokesman said that only a broad-based tax like National Insurance or income tax could raise the kind of sums needed to deal with the problem.
He argued that National Insurance represented a fairer solution as employers – who also benefited from a healthy workforce – would contribute.
“This is a progressive and fair way to raise money,” the spokesman said.
Ashford Tory MP Damian Green said: “There has been much debate about how the money will be raised; but I think there is more concern about how the money is going to be spent.
"My fear is that once you start spending on perfectly proper things like the NHS back log, there will never come a point when there is enough money in this fund to be transferred to the social care sector.
"You cannot spend the first pound twice; can the Prime Minister assure me that the care sector will see a significant uplift in its support in the immediate future?”
Analysis from political editor Paul Francis
Reform of the social care system has been an issue that successive governments have been reluctant to grapple with because whatever changes are agreed, they will inevitably cost taxpayers’ money.
When he took office, however, Boris Johnson vowed to fix the problem ‘once and for all’. Notwithstanding the coronavirus pandemic, the fact that it has taken until now to come up with that plan is a sign of just how tricky the challenge is. And the fact the government is now prepared to countenance breaking a key manifesto commitment not to increase taxes underlines that.
There are two key issues that are driving a shake-up. The first is the invidious position many families are in when elderly parents can no longer cope at home and need residential care. Too often, that has forced the family to sell their home to meet the costs of round-the-clock care.
The second is that demand for services is and will continue to increase: the social demographics graph is going in one direction only, and that is up. We live in an ageing society, with life expectation rising through better treatments and care.
That is a particular issue for Kent.
A so-called Age Map drawn up by the Department for Work and Pensions reveals an increase in the over-65s in Kent from 17.6% now to nearly 24% by 2031 - or almost one in every four people.That compares with the UK figure, which rises from 17.6% to just over 22%.
The challenge for the government is whether it can convince MPs and voters that the only way to properly fund the care services at a level people want is through an increase in national insurance.
If it cannot, the ramifications are potentially serious. On a political level, it exposes the Conservatives to the charge that they cannot be trusted not to break their manifesto commitments.
On a practical level, it might mean no changes to funding to councils and care providers in the short term.
That would go down like a lead balloon with social services chiefs facing an ever-increasing demand for care for the elderly and vulnerable that is not being matched by government grants.
The authority is having to increase its adult social care budget by £40.1m to £437.5m this year despite adding a 3% ring-fenced levy on council tax bills to raise more money.
The county council says it has had to increase spending by £10m to account for an anticipated £5million rise in prices for adult social care and another £5m for increased social care demand.
And the coronavirus has led to a £2m pressure on the council’s budget to find places for those who have been discharged from hospital but are not well enough to return home.
In KCC’s case, social care spending accounts for about 35% of its overall budget. Around 7,000 people receive care and support at home; additionally, the authority supports 5,300 adults with physical disability and sensory needs; and 2,400 people use day care services in their community.
It is no surprise that for every £100 spent by the council, £35 goes on social services.
So, will the government’s gamble pay off? The Prime Minister will have factored in to his calculations that public support and sympathy for the care sector and those who work in them has risen throughout the Covid pandemic.
It has certainly exposed just how hard care workers and social services staff toil.
The danger lies not in the opposition benches but on the Prime Minister’s own benches, particularly among those who have already voiced concerns about another tax burden on businesses.
Politics based on sentiment can be a risky business. The Prime Minister will find out soon enough whether his programme of social care reform will fix it.