Boris Johnson Makes the Conservative Case for Tax Hikes

(Bloomberg Opinion) -- Britain’s Conservative prime minister Boris Johnson has now done something U.S. Republicans have regarded as unthinkable for more than three decades: break a solemn tax pledge. Speaking in Parliament Tuesday, Johnson announced he was reneging on his campaign vow not to raise headline tax rates in order to fulfill another, arguably more important, promise — to reform Britain’s dysfunctional social care system, something Johnson swore to fix “once and for all” during his first speech as prime minister.

The risk he runs isn’t so much in raising taxes, though that is never to be taken lightly, but in failing to provide real value in exchange for what he’s demanding of taxpayers.

As the plans leaked last week, some Conservatives immediately likened the situation to George H. W. Bush breaking his famous 1988 campaign pledge, “read my lips; no new taxes.” That promise was widely credited with getting him elected and many attribute its breach to his downfall.

Tory MP Jacob Rees-Mogg, leader of the House of Commons, issued a thinly veiled warning to Johnson in his Sunday Express column: “Voters remembered those words after President Bush had forgotten them,” he wrote. Other Tories and Conservative media have piled on too.

Of course, the time, the place and the man are all different. There are several reasons for thinking this isn’t a “read my lips” moment for Johnson.

First, and most obviously, his campaign tax pledge not to raise national insurance contributions (Britain’s social security levy), headline income tax rates or VAT, like the promise to preserve the basic state pension, was written before Covid. Pandemic lockdowns forced the U.K. economy to contract by nearly 10% in 2020, and public-sector borrowing is the highest it’s been since the early 1960s. A lot of people have had to change their plans and their assumptions over the past 18 months; many will understand why Johnson has to as well.

Second, the reason for the pledge-breaking has cross-party support and public backing. There is no question that social care (or long-term care, as it’s called in the U.S.) is underfunded, fragmented and dysfunctional, with care provisions left to local authorities whose budgets were gutted by previous Tory governments.

Among advanced countries, Britain is a laggard here. While you can have cancer treatments or a brain tumor operated on in the National Health Service, families have to pony up the funds to provide care for relatives with dementia, stroke recovery or other long-term illnesses, often selling their homes or giving up jobs to provide the care themselves. The result is at least 1.5 million people have unmet care needs, though the real number is probably much higher. That also poses a huge burden on the NHS since hospital beds are often taken by patients who lack a safe place in which to be discharged. A 2016 National Audit Office report put the cost to the NHS of such bed-blocking at up to 1 billion pounds ($1.4 billion) a year.

The large death toll that rippled through care homes during the early months of the pandemic shocked the country and underscored, yet again, the need for a better system.

Previous governments made similar promises to fix social care, but politics always intervened. Any system that relied on taxing Tory voters’ properties or inheritance to raise funds was immediately shot down (as Theresa May found when her 2017 proposal was branded a “dementia tax”).

Now, however, Johnson has a large parliamentary majority, no immediate election to fight and a weak opposition. There was no excuse not to carry through on his social care promise.

Third, Britons aren’t as tax-averse as Americans. A 2020 poll showed that more than half of Conservative supporters backed higher taxes and public spending. Indeed, it was Rees-Mogg who wrote an introduction endorsing a 2019 paper from the think tank Policy Exchange that proposes taxpayer funding for a universal social care provision, requiring an additional 0.5% of GDP of spending. “This is something we can afford as a nation,” he wrote. “It is time for Conservative leaders to think differently, and radically.”

That doesn’t mean Johnson isn’t taking a major gamble here. Britain already has relatively high taxes; raising that burden further with a 1.25% tax increase on national insurance contributions (paid by employees and employers) comes at a time when the economy is recovering from Covid and also Brexit costs.

There are charges of intergenerational injustice, as the burden of a rise in NI contributions will be heavier on younger workers, though the prime minister has sought to deflect those critics by adding a tax on dividends and requiring pension-age workers, who do not currently pay national insurance, to pay the new social care levy from 2023.  The government will also scrap a manifesto pledge for increasing state pensions that has guaranteed big hikes for pensioners during the pandemic.

Going back on tax pledges will certainly test voter trust, and Tories will struggle to credibly make new tax pledges for the next election. For that price, Johnson will have to deliver something special. Indeed, the real question is what voters will get in return. The details of the new social care will be set out in a so-called “white paper,” which paves the way for legislation. So far, we know very little about the plan other than the 86,000 pound cap on individual contributions to their social care. 

But it’s the level of care that will be provided and where it will be organized and how easy it is to access that determine the experience families have and ultimately whether the reforms will be judged successful. If voters are to forget about the broken tax promises, Johnson will have to give them a real social care reform to cheer about.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Therese Raphael is a columnist for Bloomberg Opinion. She was editorial page editor of the Wall Street Journal Europe.

©2021 Bloomberg L.P.