Health and Social Care Levy to exist from 2023

National Insurance (NI) rates rose by 1.25 percentage points in April 2022, described by the Resolution Foundation as "a precursor to the proper Health and Social Care Levy which will exist from 2023"¹. The levy itself is therefore a 2023 change, following the earlier NI increase.

The same April 2022 package included other measures. The Resolution Foundation noted that "April also marks the start of a four-year Income Tax threshold freeze", which it described as a further tax rise that does not result in a month-to-month loss of cash¹. Council Tax and dividend tax also rose that April¹.

The think tank put figures on the combined effect. Across all households, it estimated the average combined impact of the NI and Income Tax changes on household incomes at £600, or 1.4 per cent of disposable income¹. The NI rate rise alone, excluding the effect of the threshold rise, was estimated to lower the average income of households in the bottom half of the distribution by around £140 (0.6 per cent), while those in the top half would lose £730 (1.2 per cent)¹.

The tax changes landed alongside energy costs. The Resolution Foundation estimated the April 2022 energy price cap rise at around £500 or more for a typical household bill, on top of October's £139 increase, plus an additional charge of around £100 as the costs of supplier failures were recouped¹. It said the poorest households would see their energy spend rise from 8.5 to 12 per cent of their total household budget, three times the proportion for the richest¹. Combining taxes and energy bills, it estimated costs would rise overnight by an average of £1,200 a year per household in April 2022¹.

On pay, the Resolution Foundation said earnings growth fell to 3.8 per cent in October 2021, just as CPIH inflation rose to the same level, meaning real wages were flat over the previous year¹. It projected growth of just 0.1 per cent in the year to Q4 2022, and said that by the end of 2024 average earnings were set to be £740 a year lower than they would have been if even the sluggish wage growth prior to the pandemic had continued¹. It described April's 6.6 per cent uprating of the National Living Wage, which it said would now apply to those aged 23 and over, as welcome¹.

Why it matters for households

The levy is a charge on earnings that takes effect in 2023, after the 1.25 percentage point NI rise already applied from April 2022¹. For employees and the self-employed, the amount deducted depends on earnings and, for the NI rise, on whether pay falls above the relevant threshold; the Resolution Foundation's distributional estimates put the loss at around £140 a year for the average household in the bottom half and £730 in the top half, before the threshold freeze is counted¹. The four-year Income Tax threshold freeze means more of a pay rise is drawn into tax over time, even though it does not reduce take-home pay from one month to the next¹. These changes come on top of energy bill increases, which the Resolution Foundation said would hit lower-income households hardest as a share of budget¹.

What happens next

The Resolution Foundation's commentary, published on 31 December 2021, set out the April 2022 changes and stated that the Health and Social Care Levy would exist from 2023¹. It also noted that the Government's stated intention at that point was for taxes and energy bills combined to rise by an average of £1,200 a year per household in April 2022, and that it expected mitigation to follow¹. No further detail on the operation of the levy from 2023 is given in the source.